Various products made by Hindustan Unilever Ltd., including Lux soap, Surf Excel detergent and Dove Shampoo, sit for sale on a store shelf in Mumbai. (Photographer: Prashanth Vishwanathan/Bloomberg News)

Q2 Results: HUL’s Profit Meets Estimates Amid Growing Challenges

Hindustan Unilever Ltd.’s profit grew as expected in the July-September quarter even as the company braces for rising input costs.

Net profit of the country’s largest consumer goods maker rose 19 percent year-on-year to Rs 1,525 crore in the quarter ended September, according to its exchange filing. That’s higher than the Bloomberg consensus estimate of Rs 1,418 crore.

  • Revenue rose nearly 11 percent on a yearly basis to Rs 9,234 crore.
  • Operating profit increased 20 percent to Rs 2,012 crore.
  • Margin expanded 170 basis points to 21.8 percent.
  • Volume growth stood at 10 percent.

The consumer staples sector faced pressure due to a rise in input costs on account of higher crude and a weakening rupee, which increased import costs for certain raw materials. “There are very clear headwinds like currency depreciation and oil prices,” Sanjiv Mehta, chairman and managing director, said in the media conference. “But we have demonstrated our agility and responsiveness. We are well prepared to navigate the turbulence that will come our way.”

From our perspective we are clearly seeing that the demand is stable. We are pleased with it.
Sanjiv Mehta, Chairman and MD, HUL

The rise in input costs has two parts to it, said Chief Financial Officer Srinivas Pathak. While prices of crude and currency depreciation are starting to have a larger impact on its portfolio, the “benign prices of vegetable oils and food items” are partially offsetting that, Pathak said.

The company hike prices in the range of 2-3 percent in some its segments. The price hikes were expected to be partially visible in the quarter ended September and fully visible in the third quarter of the financial year ending March 2019, CLSA had earlier said in a note.

Where required, if required, we will take price hikes.
Srinivas Pathak, Chief Financial Officer, HUL

All its three product divisions—home care, beauty and personal care, and food—delivered double-digit volume growth. And that’s driven by the demand from rural India.

“Rural is now growing ahead of urban,” Mehta said. “Not at the level of what it used to grow earlier or what its potential is, but it’s still growing at 120-150 basis points higher than urban.”

The company will continue to implement cost-saving measures to improve operating margin, Mehta said, adding they are now using data analytics to identify patterns and spot opportunities where cost-saving measures can be used.

Key Highlights (Year-On-Year)

  • Home care revenue increased 7.6 percent to Rs 3,146 crore.
  • Beauty and personal care revenue grew 5 percent to Rs 8,723 crore.
  • Food revenue up 8.9 percent to Rs 3,489 crore.
  • HUL acquired ice-cream and frozen dessert business Adityaa Milk from Vijaykant Dairy in September 2018.
  • Board declared an interim dividend of Rs 9 apiece.
  • Leo Puri appointed independent director on board.

Shares of HUL closed 2.9 percent higher compared to a 2.3 percent rise in the benchmark Nifty 50 Index ahead of the earnings release.