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Hindustan Unilever’s buoyant quarter signals demand recovery later this year – brokers bullish

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  • HUL’s strong performance in the June quarter bodes well for consumer demand trends.
  • The FMCG giant reported growth in volumes even as the industry reported a decline, demonstrating the company’s ability to navigate a challenging macro environment.
  • A rural revival is also key to HUL’s resurgence, and both the company and analysts believe good days may lie ahead.

Hindustan Unilever’s strong performance in the June quarter has made analysts optimistic about the company’s earnings outlook amid a rural slowdown and high input costs. While the company’s management remained cautious about its performance over the next three months, analysts see an improvement in the outlook in the second half of 2022-23.

“In an environment that remains challenging, characterized by unprecedented inflation and the consequent impact on consumption, we delivered another quarter of robust top-line and bottom-line performance,” said Sanjiv Mehta, chairman and chief executive officer of HUL.

Here’s a look at HUL’s quarter-hour that was:

Particularities Q1 FY23 Q4 FY22 Q1 FY22
Revenue ₹14,331 crore ₹13,468 crore ₹11,996 crore
Net profit ₹2,381 crore ₹2,304 crores ₹2,097 crore
Net margin 16.61% 17.10% 17.50%

Source: Company Reports

But numbers don’t always tell the full story, and that’s where context comes in. We’re trying to decipher what worked for HUL and what didn’t, and what the analysts have to say about the FMCG giant’s performance and future prospects.

This is what worked for HUL

Palm oil is one of the main inputs for companies like HUL, and the easing of prices for this commodity will be a relief for FMCG companies like HUL. However, it will be some time before HUL and others start to see the benefits to them.

HUL managed to exceed analyst expectations by better controlling its costs. According to a report from Jefferies, HUL’s personnel costs were down 3% year-over-year and other expenses were up just 4%, despite the sharp rise in inflation.

Furthermore, HUL also managed to reduce its ad spend by 8.7% sequentially, thus reducing pressure on margins.

HUL also reported a strong performance, gaining market share in 75% of its portfolio. This helped the company counter the 5% volume decline in the industry – instead, the company reported a 6% growth in its volumes, and this could be a sign of a resurgence in demand in both urban and rural India. .

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HUL’s strong performance in the June quarter bodes well for consumer demand trends. The FMCG giant reported growth in volumes even as the industry reported a decline, demonstrating the company’s ability to navigate a challenging macro environment. A rural revival is also key to HUL’s resurgence, and both the company and analysts believe good days may lie ahead.

More specifically, the company says it hopes for a rural recovery based on a good monsoon, the government’s fiscal policy and a good harvest of kharif.

Within its segments, home health care outperformed everything else, up 34% year-over-year — people bought home health care products despite price increases, Jefferies noted.

Segment Q1 FY23 QoQ performance YoY perfect
home care ₹885 crore -5% 34%
Beauty and personal care ₹1,427 crores 14% 11%
Food and drink ₹578 crore -19% -4%
others ₹251 crore 99% 124%

Source: Company Reports

Here’s what can improve for HUL



While palm oil prices are no longer boiling, the prices of other inputs such as soda ash, milk extracts, barley, coffee and crude oil remain solid. HUL says this could contribute to further pressure on margins, which also fell in the June quarter.

The current weakening in input prices needs to continue to improve margins, and given the uncertain geopolitical scenario, this situation could change quickly.

A rural revival is critical to HUL’s volumes and as a result, the company expects short-term growth to depend on price increases.

Analysts are optimistic about HUL .’s prospects

Jefferies maintained his “Buy” rating for HUL, which he credits to the company’s ability to weather tough times by controlling costs and delivering “leading EBITDA growth.” An easing in input prices is likely to lead to a better earnings outlook, according to the research firm.

Yes Securities maintained a neutral stance on HUL and said the company’s shares have risen recently. However, it says that HUL is well placed to navigate this difficult macro environment.

“The company is well positioned to address this temporary inflation-driven soft volume growth period with offsets such as cost/productivity levers coupled with continued innovation and premiumization,” the research firm noted in its report.

Analysts at ICICI Securities said HUL is better placed to capitalize on demand in the premium discretionary segment, and a potential increase in rural incomes due to a good kharif crop could also help the company.

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