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.

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