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The October-December quarter (Q3FY25) results of fast moving consumer goods (FMCG) major Hindustan Unilever (HUL) indicated weak demand, with urban growth muted and rural showing recovery.
Consolidated revenue grew by 1.6 per cent (volume was flat) to Rs 15,818 crore, due to price hikes.
Prices of key raw materials such as palm oil and tea remained elevated, leading to compression of gross margin.
Gross margin was impacted by raw material prices.
Crude oil and soda ash prices declined 11 per cent and 3 per cent, but palm oil and tea prices increased 40 per cent and 24 per cent year-on-year (Y-o-Y).
Management mentioned a low single-digit price hike may be considered if commodity prices stabilise at the current level.
Ebitda margin will continue to remain between a range of 23-24 per cent.
Premium products outperformed. Near-term growth pressure is expected to sustain despite healthy rural demand.
Among business segments, home care remains the best performer with beauty & wellbeing (B&W) segment the weakest.
The home care segment delivered 6 per cent Y-o-Y growth with some EBIT margin expansion. B&W posted 1 per cent Y-o-Y growth.
Personal care declined 4 per cent Y-o-Y. The foods & refreshments segment, led by packaged foods and beverages, showed sequential improvement.
The company is also exploring new growth levers through inorganic opportunities.
The Ebitda was flat Y-o-Y at Rs 3,700 crore, profit before tax (PBT) and exceptional items was also flat Y-o-Y at Rs 3,475 crore and adjusted PAT grew 1 per cent Y-o-Y to Rs 2,560 crore.
Reported PAT (attributable to owners of the company) was up 19 per cent Y-o-Y at Rs 2,984 crore.
There were exceptional items of Rs 507 crore, which included a gain of Rs 574 crore from the divestment of Pureit water purifier business, restructuring expenses of Rs 72 crore, and profit of Rs 5 crore from the sale of property.
Gross margin contracted 60 basis point Y-o-Y to 51.3 per cent.
Employee expenses were up 5 per cent Y-o-Y. Other expenses were up 4 per cent Y-o-Y, while ad spends declined 7 per cent Y-o-Y.
All this led to a contraction in Ebitda margin by 20bp to 23.4 per cent.
Management said wage growth, food inflation, and employment need to improve to drive overall consumption.
Rural demand was driven by the consumption of LUPs (low priced units), while urban markets faced demand compression, with consumers trading down to smaller packs, particularly in home care.
HUL will try to increase volumes and it will raise prices by low-single digits if commodity prices remain at the current level.
Organised trade outpaced growth in other channels and grew at double digits.
HUL is shifting the B&W portfolio toward further premiumisation and has made recent acquisitions for this purpose.
HUL has acquired 90.5 per cent stake in Minimalist at an enterprise value of Rs 2,955 crore, paying Rs 2,670 crore.
The remaining 9.5 per cent will be acquired within two years.
The deal is expected to close in the first quarter of FY26.
Minimalist has an annual revenue run-rate of Rs 500 crore and the business has been profitable since inception. Revenue grew from Rs 103 crore in FY22 to Rs 347 crore to FY24.
This acquisition supports the B&W transformation. HUL has also approved acquisition of the palm business from Vishwatej Oil Industries in Telangana.
This supports a localisation strategy to reduce dependence on imports and strengthen the supply chain.
HUL continues to strengthen its brand, distribution network, and has strong internal analytics and R&D initiatives.
It is trying to address white spaces in B&W and foods, while retaining leadership in home care.
Management guided that Ebitda margins for the food business will be maintained at 19-20 per cent and personal care at 17-18 per cent.
According to Bloomberg, four out of 35 analysts polled post Q3 results are bearing on the stock, while another seven are neutral and the remaining 24 are bullish.
Their average one-year target price is Rs 2,605 for the stock which lost about a per cent to close at Rs 2,323 on the BSE on Thursday.
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