HUL REPORTS Q1FY23 NUMBERS

News: HUL’s Q1FY23 results were above our estimates on revenue front & in line with our estimate on operating profit & earnings front. Net sales grew 19.5% to Rs 14016 crore (I-direct estimate : Rs 13382.7 crore) led by aggressive price hikes in home care & Beauty & Personal care (BPC) segment. The company reported 6% volume growth on a low base impacted by second Covid wave but demand conditions remain muted owing to aggressive price hikes & grammage reduction in smaller SKUs. Home care segment witnessed a growth of 29.9% whereas BPC segment saw 17.3% growth during the quarter. Both these segments saw aggressive price hikes given crude & palm oil have seen steep inflation in last one year (till June). Foods & refreshment segment saw relatively slower 9.3% growth given decline in tea procurement prices led to price cuts by the company. Gross margins continue to remain under pressure with 309 bps contraction given both crude & palm oil prices were sharply up in most of the quarter. HUL continued to save costs, which reflected in 100 bps (as % of sales) lower employee spends & 145 bps lower (as % of sales) overhead spends. Advertisement spend were up 145 bps (as % of sales). This resulted in operating profit growth of 14% to Rs3247 crore (I-direct estimate : Rs3214 crore). Operating margins contracted by 110 bps to 23.2%. Net profit grew by 11.1% to Rs2289 crore (Idirect estimate : Rs2256.7 crore) led by growth in operating profit which was partially impacted by increase in income tax provisioning.

Views: High commodity inflation in most of the quarter resulted in contraction of both gross margins as well as operating margins. However, we believe palm oil prices dipped significantly from the highs in mid-June. This would ease off the pressure given the company has taken 10-15% price hikes in last one year to pass on this inflation. Further, volume growth in H2FY22 would be aided by price cuts in terms of restoration of grammage in smaller packs. We believe the company would witness strong volume growth & recovery in operating margins in second half of FY23. Moreover, the company is expected to be aggressive in term of innovation (new product launches) during the festive season.

Impact: Positive