Hindustan Unilever sinks 2% as Q2 revenue fails to impress

Shares of HUL fell 2 percent as India’s largest FMCG player recorded in-line earnings for the quarter ended September, as the impact of weak rural demand, a delayed festive season, and increased competition affected the its results. Hindustan Unilever on October 19 reported a standalone net profit of Rs 2,717 crore for the September quarter, up 3.86 percent year-on-year, while the company’s revenue rose 3.53 percent to Rs 15,027 crore from a year ago.

As of 9.22 am, HUL shares were trading at Rs 2,501.55, lower by 1.83 percent on the NSE.

Factors impacting earnings

Brokerages maintained their cautious calls on Hindustan Unilever as weak rural demand, increased competitive intensity in its core segment, slowdown in the high-margin BPC segment, and front-ended rise in royalty rates were factored in.

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The rural market delivered a volume decline in two years’ basis. “However, we expect rural sentiment to improve during the upcoming festive season as a moderation in inflation should lead to an increase in disposable income,” said Motilal Oswal.

Competition hits volume growth

Despite the industry seeing an uptick in volume growth, HUL’s volume growth slowed to 2 percent. The management discussed increased challenges with rising competitive intensity, especially on the mass-end, as local players re-enter the markets in tea, laundry, and other segments on moderating RM costs.

“The full benefit of product price cuts has yet to be reflected given high-priced inventory. The volume growth in categories such as health food drinks and coffee remains weak due to continued high price inflation,” said Jefferies, in a report.

Outlook
Most analysts maintained their ‘Hold’ call on the counter. “HUL is likely to see a muted near-term show, given rural slowdown hurting its volume growth and pricing turning flat-to-negative,” noted Emkay Global.

“FMCG demand is likely to continue a gradual recovery with tailwinds from the upcoming festive season, sustained buoyancy of services and Government’s thrust on capex. At the same time, we need to be watchful of volatile global commodity prices as well as the impact of monsoon on crop output and reservoir levels,” said Rohit Jawa, CEO and Managing Director of HUL.

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