HUL Q1 Results: Horlicks Takeover Drives Growth Amid Covid-19 Disruptions
Hindustan Unilever Ltd.’s quarterly profit rose despite disruptions from the Covid-19 outbreak as the company benefited from higher sales of food items and the acquisition of GlaxoSmithKline Consumer Healthcare Ltd.
Net profit of India’s largest consumer goods maker rose 7.2% year-on-year to Rs 1,881 crore in the quarter ended June, according to an exchange filing. That compares with the Rs 1,722-crore consensus estimate of analysts tracked by Bloomberg.
Revenue rose 4.4% over last year to Rs 10,560 crore—higher than the estimated 9,880 crore.
Operating profit fell 0.1% to Rs 2,644 crore.
Margin narrowed to 25% from 26.2% earlier.
HUL, on April 1, announced that it has completed the takeover of GlaxoSmithKline Consumer Healthcare, bringing India’s largest selling malted milk drink Horlicks into its portfolio. Besides Horlicks, it gets Boost, Maltova and Viva brands.
That helped Hindustan Unilever tide over the pandemic impact. Excluding GSK Consumer Healthcare, volumes contracted 8% in the first quarter, the company said.
Without Horlicks, the revenue would’ve declined 7% during the quarter, Chief Financial Officer Srinivas Phatak said in the post-earnings press conference.
“The negative impact of adverse mix and higher Covid-19 related costs were deftly managed by dialing up savings and unlocking synergies of GSK-CH merger enabling us to sustain healthy Ebitda margins of 25%,” HUL’s media statement said.
India’s consumer goods makers were battling the worst consumption slowdown in more than a decade even before the pandemic struck. The lockdown, effective March 25, froze economic activity barring essential services, and capped consumption, before the government started easing restrictions from May. That pushed the economy toward its first full-year contraction in more than four decades.
Consumers, Phatak said, are being circumspect with their spending due to uncertainty from the pandemic. That said, HUL is “confident” about its medium- to long-term prospects, Phatak said.
The Covid-19 outbreak, according to him, has disrupted business in the short term, and the company will have to wait to get a sense of the market. “Currently, 80% of our business is growing at 6%,” Phatak said.
In comparison, HUL’s peer Britannia Industries Ltd., had reported a twofold jump in bottom line during the reported period, driven by sales of its “star-performing brands” such as Marie Gold, Milk Bikis, Nutri Choice and Good Day.
Rural Vs Urban
According to Sanjiv Mehta, chairman and managing director of HUL, rural is growing a bit faster than urban. “We’ve seen disruptions in the supply chain in the last 10 days due to localised lockdowns, but we should be able to cover up some of the hiccups.”
Mehta also said the lipstick effect—where consumers choose to buy less priced luxury goods during an economic downturn or when they have less cash in hand—will come into play sooner or later.
Shares of HUL fell 0.6% before the results were announced. That compares with a 1.3% gain in the benchmark Nifty 50 Index.