HUL posts strong show
May prove a good defensive bet in the current volatile trend
After recording only a 5 per cent (year-on-year) growth in sales in the June 2017 quarter due to the GST transition, Hindustan Unilever has seen sales grow in double-digits in each of the quarters beginning July-September 2017. The September 2018 quarter is no different. In the three months ended September 2018, sales grew by about 12 per cent to ₹9,138 crore backed by an underlying volume growth of 10 per cent.
All segments of the company — be it home care, beauty & personal care or food & refreshments — have contributed equally to this strong show, with each of these segments seeing 10-12 per cent revenue growth. In the beauty and personal care segment, which bring almost half of the revenues for HUL, premium products such as Dove and Pears along with successful relaunches of Men’s Fair & Lovely and TRESemme lead the growth. Rural sales have grown ahead of urban for the company during the quarter.
The rise in prices of crude oilbased inputs saw raw material costs as a percentage of sales inch up to 49.5 per cent during the quarter. It stood at 48.1 per cent a year ago. However, benign prices of other inputs, such as vegetable oil as well as cost control efforts and select price hikes, helped operating margins expand.
Operating margins came in at 21.8 per cent, vis-à-vis 20.2 per cent in Q2FY18. Lower advertising spends as a percentage of revenue (12.1 per cent vs 12.4 per cent a year ago) and a tight leash on other expenses helped. The company also took a 2-3 per cent price increase in home care products. A 20 per cent increase in operating profit along with a jump in other income helped adjusted net profit grow by about 25 per cent to ₹1,560 crore.
The company expects demand to continue to remain strong. However, with volumes growing in double-digits beginning the December 2017 quarter, the effect of a high base may slightly dampen the numbers in the quarters to come. Although the HUL stock has corrected about 13 per cent from its one-year high of ₹1,807.75 touched in mid-August, it still sports a gain of 17 per cent this year. It now trades at a rich valuation of 65 times its trailing 12month earnings, much higher than its peers. Belonging to the consumer non-durables space, it may prove to be a good defensive bet in the current volatility. But the upside for the stock may be limited as the prospects seem to be factored in for the moment.