HUL weathers pre-GST jitters, net up 9.3%

The largest consumer goods company in the country, Hindustan Unilever (HUL), had a flat volume growth rate in the three months ended June, as trade including wholesalers and retailers cleared stocks in the run-up to the goods and services tax (GST) roll-out on July 1.

Most fast-moving consumer goods (FMCG) companies had indicated that the June quarter would be challenging because of the trade’s lack of preparedness for the new indirect tax regime. According to analysts, investors were interested to know how bad the performance would be — more so for HUL, considered a bellwether for the FMCG sector.

Street estimates had pegged a decline in HUL’s volume growth by 1-2 per cent in the June quarter. While it was flat in the June quarter, when compared sequentially (Q4FY17) as well as a year ago (Q1FY17) it becomes clear why the volume growth for the quarter under review is weak: HUL reported 4 per cent volume growth for the three months ended June 2016 and March 2017 respectively.

Kaustubh Pawaskar, FMCG analyst at brokerage Sharekhan, said, “We expect volume growth to improve in H2FY2018 and would gradually improve in the subsequent years.”

Despite this, prudent cost management ensured the company reported a 9.3 per cent rise in June-quarter net profit to ~1,283 crore versus ~1,174 crore, a year ago.

This was more than Bloomberg consensus estimates, which had pegged net profit at ~1,187 crore. But, net sales bore the brunt of destocking during the quarter, coming in below Bloomberg consensus estimates of ~8,616 crore. It stood at ~8,401 crore for the June quarter against ~7,987 crore reported a year ago, a rise of 5.2 per cent only.

The company’s earnings before interest, tax, depreciation, and amortisation (Ebitda) was ~1,866 crore for the June quarter, higher than Bloomberg consensus estimates of ~1,711 crore. The Ebitda margin was 21.9 per cent for the quarter. HUL: Where is the pre-GST disturbance?