VOLUME GROWTH AT 5%; MARGIN IMPROVES SEQUENTIALLY - HUL'S LATEST QUARTERLY RESULT

Hindustan Unilever – Q3FY23 First Cut

(CMP - Rs 2650 MCap - Rs 6,22,700 crore)

Q3FY23 Earnings Summary

Net sales grew by 16.2% to Rs14986 crore (I-direct estimate: Rs14504.8 crore) largely led by pricing growth. Volumes have grown at 5% (I-direct estimate: 5%) during the quarter. Home care and Beauty & Personal care (BPC) segment saw sales growth of 31.6% & 10.5% respectively. Foods & Refreshment segment saw 6.8% growth during the quarter. Though, the company has taken price cuts in soaps after sharp fall in palm oil prices, the growth is still largely driven by pricing growth.

Gross margins contracted by 463 bps however improved by 170 bps sequentially. Employee, marketing & overhead spends were down by 58 bps, 120 bps & 84 bps respectively. Operating profit grew by 7.9% to Rs 3537 crore (I-direct estimate: Rs 3567.6 crore). Operating margins contracted by 182 bps to 23.6% however improved sequentially by 30 bps. The company incurred Rs102 crore of exceptional income related to restructuring and acquisition & disposable related costs. Net profit grew by 11.7% to Rs2505 crore (I-direct estimate: Rs 2519.2 crore) 

Home care & BPC segment margins contracted by 138 & 271 bps respectively. Foods segment margin contracted by 77 bps

HUL Board approves new royalty agreement with Unilever, which would lead to the increase in royalty and central services fees from 2.65% (FY22) to 3.45% of turnover effected in a staggered manner over a period of three years

View: With the current correction in crude & related commodity costs along with benign palm oil prices, we believe the company would further take price cuts & grammage increase to pass on the benefits. This would help the company recouping volume growth in coming quarters. We also believe the company would have leeway to spends higher in Advertisement & Promotions, which would also help it growing volumes.  Gross & operating margins have already started improving sequentially & further improvement in coming quarters is imminent. Some of the categories related to mobility like detergent, Jams & Ketch-up are witnessing strong growth given base was still favourable. The volume growth & margin expansion would lead to strong profit growth for the company. We remain positive on HUL

Impact: Positive