Even as experts from Reserve Bank of India and the World Bank continue to warn about inflation concerns, India’s largest consumer goods firm Hindustan Unilever (HUL), often regarded as a proxy for broader consumer sentiment, said that inflation is no longer a headache for the company. The spring in HUL’s footsteps followed reporting a 4% rise in both net profit and sales in the July-September quarter.
A significant point in the company’s experience was that the revival was fuelled substantially by sales in the cities.
A point in HUL’s experience that might be of concern for the broader economy was that demand in rural areas fell on a two-year basis. The only silver lining in the rural segment was that the pace of decline in the rural markets went down from a year earlier.
However, another FMCG major Nestle recorded a 37% rise in PAT buoyed by robust performance in its power brands such as Maggi and KitKat. Perhaps more important, sales sailed past Rs 5,000 crore, which is a quarterly record for the company.
ITC witnessed a 10.3% rise in Q2 PAT, triggered by sound performance in sales of cigarettes and FMCG. For the July-September quarter, PAT went up to Rs 4,927 crore, while revenue from operation grew by 3.1% (y-o-y) to Rs 17,705 crore.
A bright point in the HUL story was that its volume growth was recorded at 3% in the second quarter (July-September). The interpretation: 75% of HUL’s growth was caused by demand of more goods and not by higher prices of the same quantity of goods.
HUL recorded sales of Rs 15,027 crore in Q2 of FY24. The comparable number from Q2 in FY23 was Rs 14,514 crore. The quantum of net profit rose from Rs 2,616 crore in Q2 of FY23 to Rs 2,717 crore in Q2 of the current fiscal year.
Gross margins rose by 700 basis points (bps) in July-September quarter, while earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin went up by 130 basis points to reach 24.6%.
The quarterly show was helped by a one-off credit in favour of the company from a past indirect tax litigation. If the one-time tax assist is ignored, the sales revenue expansion was by 3% and volume growth was by 2%.
HUL’s share price closed unchanged at Rs 2,548 on the BSE. “The numbers are in transition right now, but the market is recovering, faster in urban and lesser in rural areas. On a two-year basis, it has sort of come back where it was. People have begun to come back to consumption,” said Rohit Jawa, MD of HUL on October 19.
HUL has made a forecast that growth will be fuelled substantially by volumes. Price growth will remain flat, or even negative, in Q3.
“We have been taking prices down for the last 8-9 months and as we transition from high to low prices in the market, that takes time, and the volume recovery will be gradual. It is good for us to be pressurised on volume because that’s really more structured, and much more fundamental,” added Jawa.
The company cited data from NielsenIQ and said that the FMCG market witnessed 7-8% volume growth during the quarter compared to 5% a year ago. However, value growth stood at 3% which was sharply down from 14% a year ago mainly on account of price cuts. Urban volume growth was significant at 10% while rural growth was 7%. A year ago, however, demand in both cities and villages fell 3% and 9%.
“Inflation moderating is helping upcoming festival season with lower inflation and good urban growth will support demand, and the overall economy we know is resilient,” said Ritesh Tiwari, chief financial officer at HUL.
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