Lower Corporate Tax Rate Boosts HUL’s Q2 Profit
The tax expense of the company was down to Rs 472 crore in the quarter ended September 2019.
Hindustan Unilever Ltd. posted a consolidated profit of Rs 1,818 crore for the quarter ended September 2019, 23.4 percent higher than Rs 1,473 crore reported in the same quarter previous year. During the same period, its tax expense reduced by 26 percent.
The tax expense of the company was down to Rs 472 crore in the quarter ended September 2019 compared to Rs 637 crore reported in the same quarter last financial year.
In a major move last month, the finance minister slashed the tax rate for corporates from a headline rate of 30 percent to 22 percent. This new rate could be availed only if a company gave up any tax exemptions or incentives it was benefiting from. With cess and surcharge, the new effective tax rate stands at 25.17 percent versus 34.9 percent. The new rate is applicable since the beginning of financial year 2019-20.
Consequent to that announcement, HUL has opted for the lower tax rate, the company said in its quarterly earnings statement today.
In a conference call with analysts, Srinivas Phatak, chief financial officer of HUL, noted that the company’s effective tax rate was 30.5 percent in FY19, which would reduce to 27 percent on account of the lower tax rate in FY20. In FY21, the effective tax rate will be around 26 percent, he said.
In the first quarter of FY20, HUL incurred a tax expense of Rs 825 crore, on account of the higher rate. In the second quarter, it paid Rs 472 crore as per the new tax rate. This amount also corrects for the higher tax it paid in the first quarter. As per the company’s investor presentation, the effective tax rate for the company in the second quarter was 22 percent.
“In the first quarter, the company would have paid tax at a higher rate, and now from the second quarter for the remainder of the year, the effective tax rate will be lower on account of the tax rate cut,” Naveen Kulkarni, head of research at Reliance Securities, told BloombergQuint.
Among the two components of tax expense, the current tax of the company was down from Rs 686 crore in the second quarter of FY19 to Rs 379 crore in the same quarter of FY20.
On account of tax cut, HUL charged Rs 93 crore of deferred tax asset in the second quarter of FY20 compared to a Rs 49 crore credit in the same quarter previous year. A deferred tax asset is the company’s expectation regarding the value of future tax relief as per the provisions of the Income Tax Act, 1961.
