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HUL Q1FY23 Review: Volumes, margins to recover in H2FY23

ICICIdirect Research 20 Jul 2022 DISCLAIMER

What’s Buzzing

Hindustan Unilever (HUL's) results were better than estimates with 6% volume growth. Net sales grew 19.5% to Rs 14016 crore led by aggressive price hikes in home care and beauty & personal care (BPC) segment. The company reported 6% volume growth on a low base impacted by second Covid wave but demand conditions still remain below par owing to aggressive price hikes specifically in BPC segment. Home care segment witnessed growth of 29.9% with high-single digit volume growth. Premiumisation trend continues in fabric wash with most brands gaining market share. The company took a price hike to pass on steep inflation in crude and caustic soda. BPC segment saw 17.3% growth during the quarter almost entirely led by prices.

Context

The FMCG market witnessed 5-7% de-growth in volumes in the March and June quarter on a three-year CAGR basis but HUL has seen flat volumes in a similar period. Volume decline in rural regions is more prominent. The company has gained market share in 75% of its business.

Our Perspective

High commodity inflation in most of the quarter resulted in a contraction of both gross margins as well as operating margins. Though palm oil prices dipped significantly from the highs in mid-June, most other commodities have still remained at an elevated level. The management has guided at a sequential improvement in margins from the December quarter onwards. Home care segment has witnessed strong growth of 12.5% on a three-year CAGR basis led by strong growth in premium detergent category with market share gains. However, growth in soaps & other personal care categories has remained lacklustre. We believe volume growth will recover in H2FY22 (without any base effect) with price cuts & restoration of grammage in smaller packs. We believe the company would witness healthy volume growth and recovery in operating margins in the second half of FY23.

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