Hindustan Unilever’s (HUL’s) performance for the quarter ended March 2023 (Q4FY24) was in line with modest consensus expectations.
Net revenue was up 1 per cent year-on-year (Y-o-Y) with 2 per cent volume growth.
Home care maintained single-digit volume growth Y-o-Y.
Beauty & Personal Care (BPC) and Food & Refreshment (F&R) were flat in volume.
The premium portfolio growth across categories was healthy, but the mass portfolio was weak. Home care growth and margins (up 130 basis points Q-o-Q) beat expectations.
BPC saw volume contraction in soaps (mass segment). Horlicks and Boost saw high single-digit growth, with volume and price rise, along with market share gains.
Gross margin expanded 320 basis points Y-o-Y to 52.3 per cent in Q4 and 200 basis points of that was put back into advertising and promotion (spending up 23 per cent Y-o-Y in Q4; up 32 per cent in FY24).
The termination of GlaxoSmithKline (GSK) consignment sales impacted the operating profit margin by 60 basis points starting Q4FY24.
The operating profit margin dropped 25 basis points Y-o-Y to 23 per cent.
Volume growth was weak in FY24 and there were price cuts.
FY25 may see some volume growth, given corporate initiatives and improvement in demand.
The impact of price cuts will persist. Full revenue recovery may be possible in H2FY25.
In Q4FY24, net sales rose 1 per cent Y-o-Y at Rs 15,040 crore.
Operating profit was down 1 per cent Y-o-Y at Rs 3,540 crore. Profit before tax was down 2 per cent Y-o-Y at Rs 3,340 crore, and net profit declined 2 per cent Y-o-Y to Rs 2,500 crore.
Underlying volumes grew 2 per cent Y-o-Y maintaining the full year trend.
In home care (38 per cent of total sales), revenues grew 1.3 per cent Y-o-Y to Rs 5,710 crore while in BPC (35 per cent of sales) revenue was down 2.5 per cent Y-o-Y at Rs 5,130 crore.
F&R sales (25 per cent) rose 3.1 per cent Y-o-Y to Rs 3,910 crore.
In BPC, personal care sales declined 10 per cent (led by price cuts). Oral care had double-digit growth, led by pricing hikes and market share gains.
In home care, segment margins expanded 40 basis points Y-o-Y to 19.5 per cent, while personal care margin contracted 80 basis points Y-o-Y to 25.2 per cent.
F&R margin expanded 100 basis points Y-o-Y to 18.9 per cent.
The gross margin expanded 320 basis points Y-o-Y but declined 30 basis points Q-o-Q to 52.3 per cent.
As a percentage of sales, ad-spend was up 200 basis points Y-o-Y to 10.6 per cent, contributing to a 30 basis points contraction in operating profit margin to 23.2 per cent.
In FY24, HUL’s net sales, operating profit margin and adjusted net profit grew 2.2 per cent, 3.6 per cent and 0.7 per cent Y-o-Y, respectively.
The forecast of above-normal monsoon and positive macro-trends are good signals for demand.
The raw material basket is witnessing deflation. HUL expects price growth to level off in the medium term with low single-digit growth by the end of FY25.
The operating profit margin is expected to remain at 23-24 per cent.
One focus area for advertising and promotions is soap which saw a decline in volume in the mass segment, though an improvement is expected in the next quarter.
In terms of distribution, around 7 per cent is through e-commerce with another 3 per cent via quick commerce.
There was a 50 per cent growth in e-commerce in FY24.
With volume growth expected to bottom out, the company could see a recovery in FY25.
This could be enabled by a large product basket and presence across multiple price points.
There is scope for turnaround in BPC and F&R. While the stock fell by 1.25 per cent on Thursday, valuation is below historic levels and could support the prices. Just over half the brokerages tracking the stock have a buy rating on it.
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