HUL POSTS SLOWER VOLUME RECOVERY IN BPC, FOODS SEGMENT

News: HUL witnessed net sales growth of 11% to Rs 14638 crore led by 4% volume growth & 7% pricing growth. The company has cut prices in soaps earlier in the year, which is reflecting in prices from H2FY23 numbers . Home care, Beauty & Personal care (BPC) & Foods business witnessed a sales growth of 18.7%, 10.1% & 2.6% respectively. Home care segment growth of 18.7% was led by mid-single digit volume growth. With softening of crude & related commodity prices, the company has taken price cuts in detergent segment in April-2023. This would be reflected in FY24 numbers.  Gross margins contracted by 84 bps YoY basis however improved sequentially 120 bps. Employee & overhead spends were up by 48 bps & 29 bps respectively. Overhead spends were higher due to increase in royalty. Marketing spends were cut by 92 bps in Q4FY23. Operating profit witnessed a growth of 7% to |3471 crore with 89 bps operating margin contraction. Net profit witnessed a growth of 9.7% to Rs 2552 crore

View: Major crude & Palm oil related commodities have come down considerably in last six to eight months, which has resulted in sequential improvement in margins for the company. However, the extent of improvement on margin as well as volumes was below expectation. We believe the company is passing on the benefit on low commodity prices in terms of price cuts or grammage increase aggressively to perk up volumes. Volume growth of 5% in FY23 remain at lower end despite low base. We believe sales of discretionary categories in BPC & malt beverage brands in foods segment continuing to remain under pressure. We believe volume growth for HUL to remain in mid-single digit with low pricing growth in FY24. It is important to note that HUL has seen 800 bps operating margin expansion in last eight years, which result sustainable profit growth for the company. With price disruption in both detergent & personal care category by reliance, margin expansion possibility from already elevated margins of ~24% is limited. We remain cautious on growth outlook as well as possibility on margin expansion

Impact: Neutral