HUL net profit beats Street expectations

NEW DELHI: Hindustan Unilever Ltd (HUL) on Thursday beat Street expectations with a 12% rise in quarterly net profit, with the maker of household goods gaining from higher demand for products and easing inflationary pressures.

The company’s board also approved increased payout to its European parent Unilever Plc for providing technology, trademark licences and services. This entails paying royalty and central services fees at 3.45% of HUL’s revenue, up from 2.65% in FY22. The new arrangement, which is effective from February, will be in force for a period of five years.

Meanwhile, HUL’s standalone net profit climbed to ₹2,505 crore for the three months ended 31 December, from ₹2,243 crore a year earlier. A Bloomberg survey of analysts forecast the company to report a profit of ₹2,488 crore. HUL’s performance is seen as a proxy for the broader consumer sentiment in India.

The company said demand slowdown in the rural market could be bottoming out and that the worst of inflation may be behind the consumer goods industry.

“Looking forward, we are cautiously optimistic in the near term and believe that the worst of inflation is behind us. This should aid in a gradual recovery of consumer demand,” Sanjiv Mehta, chief executive and managing director, HUL, said.

Rural markets reported signs of an improvement in the December quarter, the company said. While rural volumes remained in the negative, they improved sequentially.

“Speaking of urban rural dynamics, market growth was led by urban. Rural markets are showing some signs of improvement with December quarter growth higher than September quarter and the last 12 months. With lower inflation, strong winter crop sowing and the signs of a pickup in farm incomes, it is likely that rural slowdown is bottoming out,” said Ritesh Tiwari, chief financial officer, HUL.

The maker of Lux soaps and Surf Excel detergent said revenue rose 16% to ₹15,228 crore in the December quarter from ₹13,092 crore a year earlier.

Quarterly sales volumes rose 5% from a year earlier, but slowed sequentially. Gross margins contracted by 4.63 percentage points, but improved sequentially. Earnings before interest, taxes, depreciation and amortization (Ebitda) was up 7.9% to ₹3,540 crore.

Mehta said the company is cautiously optimistic getting into 2023 and warned that it might take some time before rural volumes turn around. “Value growth in June and July in rural was negative and volume growth were at -13% and -12%, (respectively). The good bit is that the December quarter saw 2.5% positive value growth, and volume growth which used to be in minus double digit is down to -9%. Clearly, we are looking at things which are improving, but there is a long way to go before volumes in rural India become positive,” he added.

The company said increased royalty and central services payout to Unilever will be staggered over three years.

MINT The company’s board also approved increased payout to parent Unilever Plc.