The Hindu Business Line : HUL sales regain traction in December quarter

A strong resurgence in sales growth, a better show from the personal products portfolio and improved profit margins have helped Hindustan Unilever (HUL) make up in the December quarter, for its disappointing earnings numbers in the preceding quarter.

HUL has managed a 14.4 per cent growth in net profit (excluding exceptional items) on the back of a 16.8 per cent sales growth for this quarter.

Personal care revives

The high double digit growth in net sales for the quarter, the highest so far this year, has been driven by acceleration in offtake for two of HUL’s bread-and-butter categories — personal products (19 per cent growth) and soaps & detergents (18.3 per cent growth).

Foods, a key revenue driver for other FMCG makers in this quarter, showed a mixed trend for HUL; with its processed food brands gaining traction while beverages and ice creams decelerated, when compared with the first nine months.

The recovery in personal product sales — a key driver of profitability for HUL — is heartening, after its poor show last quarter when the closure of a key factory impacted sales.

But given that December numbers could have been magnified by seasonal factors such as the late onset of winter and the bunching up of earlier months’ sales, sustained trends in personal care offtake over the next few months would be need to be watched before concluding that this segment is back on track.

Margins maintained

HUL has also managed to hold its operating profit margins at 19.6 per cent; a challenging task during this period given the escalating prices of inputs such as vegetable oils and petrochemical products.

HUL’s peers, who were focused on the ‘discount’ segment of the soap and hair care markets, have seen their profitability erode in recent months on the back of an inflationary environment, combined with limited pricing power.

A tilt in HUL’s sales mix for this quarter towards high-margin personal products and recent rollouts of premium offerings in skin (Pond’s) and hair care (Dove) have probably stood the company in good stead on its margins.

Profitability has been maintained even as an aggressive ramp up in the company’s ad spend continued — ad spend rose 32 per cent in December, much ahead of the expansion in sales.

Sustainability

While December has brought positive trends in HUL’s numbers, the company will have to sustain and improve upon the recent growth momentum to justify the current valuations enjoyed by the stock.

The December quarter has brought visible signs of divergence within the FMCG space. FMCG players focused on segments such as health, beauty and wellness and those with premium offerings have clearly managed superior growth and margins when compared with players who focus on the conventional ‘staples’ with price as their key differentiator.

The coming quarters will bring evidence of whether HUL has been able to differentiate itself amidst the clutter; through its aggressive increases in ad spend and the stream of new launches in core categories.