HUL Q4 Results Review: Slow Demand, Competition From Local Peers Weigh Profit

Hindustan Unilever Ltd.'s profit missed estimates in the fourth quarter of fiscal 2024, as demand remained slow and competition from local peers continued to weigh down the fast-moving consumer goods major. Volume growth was also low at 2%. But analysts see potential reversal of negative pricing and gradual volume recovery in certain categories.

The standalone net profit of India's largest consumer goods maker declined 5.7% to Rs 2,406 crore in the January-March quarter, according to an exchange filing. That compares with the Rs 2,479-crore consensus estimate of analysts tracked by Bloomberg. However, more than 75% of the portfolio managed to either maintain or increase its value market share and penetration gains. HUL's corporate value market shares surged by 200 basis points compared to March 2021.

Ebitda margin fell approximately 30 basis points year-on-year due to factors like increased advertising and promotion expenditure, higher employee benefits and other expenses, including a 30-basis-point impact from increased royalty, and reduced other operating income due to the termination of GSK consignment selling.

Food and refreshments and home care margins improved YoY, while beauty and personal care margins declined.

Home Care: Home care revenue grew 1% YoY, with mid-single-digit volume growth. Pricing remained negative due to pricing actions taken during the year. Both fabric wash and household care volumes grew in mid-single digits. Premium fabric wash products outperformed.

Beauty and Personal Care: BPC revenue decreased by 2% YoY. Within BPC, beauty and wellness segment revenue grew by 4%, but personal care revenue declined by 10%. Skin cleansing revenues declined for the third consecutive quarter due to price cuts and volume decline in mass and popular segments. Premium skin care grew well. Management believes the beauty category will continue to see high growth and get more fragmented, as new use cases are developed. Margin profile of the beauty and wellness category contributes positively to HUL's overall margins, even with increased investments taken into account.

Foods and Refreshment: Revenue in the segment increased 4% YoY, driven by pricing with flat volumes. Health, food and drinks and coffee sales grew well, but tea performance was muted due to consumer downgrading. Foods and ice cream sales also increased.

Management reaffirmed its commitment to enhancing the core business through superior brand offerings, emphasising product and brand enhancements, category creation, and driving premiumisation.

There is a focus on reshaping the portfolio in burgeoning segments of foods and beauty and bolstering presence in rapidly growing retail channels. Management maintained optimism regarding medium-to-long term opportunities.

In the near future, subdued top-line growth is anticipated, attributed to negative pricing trends and sluggish volume expansion. While a gradual improvement is anticipated, these factors continue to pose challenges.

HUL's market share is anticipated to rebound from the second half of 2024 onwards, aiming to reach the 60% mark by December 2024.

Management anticipates favourable monsoon and improving macro-economic indicators that will bode well for demand recovery. It foresees low-single-digit negative price growth in the short term, with expectations of transitioning to positive growth in the low single digits by the end of FY25.

• Numbers were below their estimates for the fifth quarter in a row.

• Weaker top-line growth expected in the near term due to negative pricing growth and lower volume growth.

• Gradual demand improvement to continue.

• Expectation of better monsoons and improving macro-economic indicators augurs well for demand recovery.

• Q4 results in line with weak expectations.

• There were initial signs pointing to eventual performance acceleration, it said.

• Expects growth as negative pricing could reverse in H2 FY25.

• Company's self-help initiatives could drive turnaround, according to the brokerage.

• Expects near-term demand to improve gradually.

• Management is optimistic of monsoon reviving rural demand, it said.

• Trimmed FY24-26 earnings estimates by 2%.

• HUL’s struggle to revive growth and recoup margin reflected in the stock.

• Concerned about the demand sustainability to drive in time innovation, competitive stress, and weak business mix.

• Q4 results were in line, with a flat topline and 3% earnings dip.

• Struggle to revive growth, recoup margin reflected in valuation.

• Management commentary suggests actions in place, but with a lag.

• Concerns on demand slump, inability to drive in-time innovation.

• Expects HUL to build 7% sales and 10% earnings CAGR over FY24-26.

• FY25/26 earnings expectations are 5-6% below consensus.

• Re-rating in the stock requires better execution.

Shares of Hindustan Unilever fell as much as 1.9% during the day on the NSE to the lowest since April 19. It was trading 1.68% lower at 10:08 a.m., compared to a 0.02% advance in the benchmark Nifty 50.

The stock has declined 16.67% on a year-to-date basis and 9.64% in the last 12 months. The total traded volume so far in the day stood at 0.44 times its 30-day average. The relative strength index was at 38.25.

Of the 43 analysts tracking the company, 25 have a 'buy' rating on the stock, 13 recommend 'hold' and five suggest 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 15.8%.