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HUL reports muted volume growth in Q3FY22

ICICIdirect Research 20 Jan 2022 DISCLAIMER


HUL reported revenue growth of 10.4% to Rs 12900 crore on the back strong growth in home care segment given sales is base quarter was sub-par due to lower detergent sales (impacted by lack of out of home activity). Further, aggressive price hikes were taken in the last six months to pass on the high commodity inflation.


Volume growth was muted 2% (but on expected line). Home care, beauty & personal care (BPC) & foods business saw growth of 23%, 6.9% & 3.3%, respectively. The slower growth in BPC is mainly due to muted volumes in some discretionary categories. Foods business growth slowed down with pricing decline as tea procurement prices comes down considerably. The strong growth in home care led by low base quarter & higher pricing growth in the segment. Gross margins contracted 186 bps due to elevated palm oil & crude prices. The company reduced its marketing spends by 262 bps (as percentage to sales) along with 56 bps savings in overhead spends. This resulted in operating profit growth of 14.9% to Rs 3279 crore. Operating margins expanded 100 bps to 25% considering the base quarter margins was low due to high inflation in tea. Net profit grew 16.8% to Rs 2243 crore after Rs 66 crore exceptional expense related to restructuring & disposals.

Our Perspective

The volume growth for the company has slowed down to 2% while larger part of the growth is contributed by prices. With the sharp increase in raw material prices, the company had to resort to aggressive price hikes to protect the margins. We believe higher prices have impacted the growth of some of the discretionary categories. Moreover, we believe crude based raw material prices & palm oil prices specifically have remained at elevated levels, which would keep gross margins under pressure in the medium term. The long term growth levels are intact with many categories witnessing consumption shift from unbranded to braded & expansion of direct distribution network in smaller towns & rural India. However, near term challenges related to raw material prices is likely to impact margins as well as growth in discretionary categories.

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