Q1 takeaways: HUL to focus on keeping margins high; rural markets key growth driver

NEW DELHI: (HUL), the largest fast moving consumer goods brand in the country, beat most bullish expectations in June quarter and delivered a volume growth of about 9 per cent despite challenges due to the second wave of the pandemic.

The company said the industry growth was largely led by rural markets, which have been one of the silver lining during the pandemic. The company’s all three divisions–home care, beauty and personal case, and food and refreshments–grew in double digits, some even on a higher base.

The company said its Ebitda margins stood at a “healthy” 24 per cent. The profit after tax came in at Rs 2,061 crore, rising 10 per cent year-on year.

MD of HUL Sanjiv Mehta said the company going ahead will be “cautiously optimistic about the demand recovery” and its focus will be to deliver “volume-led competitive growth and margins in a healthy range”.

“We continue to invest behind our brands and portfolio, and in future-fit capabilities. Our focused actions on net revenue management and savings have enabled us to manage inflationary pressures and deliver a healthy bottom-line performance,” said Mehta.

The stock ended 2.30 per cent lower at Rs 2,378 on BSE.

Here are key takeaways from the quarter:

High margins

The company’s Ebitda margins at 24 per cent, even though it shrank 110 bps, is impressive for its FMCG business, where there is cut-throat competition. In comparison, ITC’s FMCG business margins stood at around 9 per cent for the same period.

Growth despite high base

HUL said all of its tea brands continue to grow in high double-digits despite a very strong base in the prior year. Besides, soaps and other skin care items also delivered healthy growth on a high base.

Profits dip sequentially

It is not as if the second wave did not hit the company’s businesses. Sequentially, bottom line and topline, both came down. The EPS for the company stood at Rs 9.12 in March quarter, which slid to Rs 8.77 in June quarter.

Raw material cost

The company was not spared from rising commodity prices either. Its margins also took a hit due to input cost inflation. It said commodities remain volatile and elevated and the company is employing “judicious pricing actions coupled with cost agility and savings programmes”.

Analyst take

At a first glance, analysts gave thumbs up to the June quarter numbers. “Overall, Q1 results were in line with expectations. Considering HUL’s healthy performance, strong brand and wide distribution, we are positive on the stock,” said Amarjeet Maurya, AVP – Mid Caps, Angel Broking.

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