Amid slowing volume growth and weakening rural demand, FMCG major Hindustan Unilever on Thursday reported an 18.6 per cent growth in consolidated net profit to ₹2,297 crore for the quarter ended December 2021, compared to ₹1,937 crore during the same period last year.

Sequentially, net profit grew 5.3 per cent QoQ, up from ₹2,181 crore in Q2 FY22. HUL’s revenue from operations during the quarter grew 10.25 per cent to ₹13,196 crore.

Sanjiv Mehta, Chairman and Managing Director said, ‘We have delivered a strong and resilient performance in the quarter despite moderation in market growth and significant levels of commodity inflation. I am particularly pleased that the growth is extremely competitive with our market share gains being highest in more than a decade.”

“Our YoY corporate market share gains is the highest in more than a decade. Importantly, we have gained shares in all of our divisions and across price segments. We’ve also gained shares in both rural and urban in all our regions,” said Ritesh Tiwari, Chief Financial Officer, HUL during a post-earnings briefing call.

“The operating environment remains challenging and FMCG market growth is moderating. We had cautioned about rural market growth in the last quarter results. And we do see that softening in this quarter,” added Tiwari.

The company’s EBITA margins improved to 25.4 per cent up from 25 per cent in the last quarter.

“In the context of multi-year high inflation that we are witnessing in two-thirds of our portfolio, our material cost per tonne has inflated by more than 30 per cent vis a vis FY20. Despite this, we have managed EBITDA margins in a healthy range through dynamic financial management,” added Tiwari. 

Volumes take a hit

In terms of segment-wise growth, Home Care grew 23 per cent, Beauty & Personal Care grew 7 per cent, while Foods & Refreshment grew 3 per cent.

While domestic consumer growth remained steady at 11 per cent this quarter, the underlying volume growth stood at 2 per cent, compared to 4 per cent last quarter, as rising inflation and an increase in commodity prices, including crude and palm oil, continue to be major headwinds for the market. Volumes in the rural market have slipped into negative category. 

“There is high inflation. So consumption through the headline, value growth is still very much there in rural India. But the volume has become negative. So for us the strategy is to maintain our share of the rural market,” Mehta said

“And it is very clear that the only way for rural consumers to cope with this kind of inflation would be by getting more money in their hands. And this could be done through various interventions,” he added.

Mehta further talked about the rising inflation and its overall impact. 

“The economy is still in the process of recovering. And there are disruptions like the third wave (of the coronavirus).  Thankfully, it’s not been very lethal from that perspective. But still, the economy is recovering at the end of this fiscal year, the economy would be the same size, what it was two years back,” he further added.

“This (rising inflation) is not an Indian phenomenon. We have to be absolutely clear that this is a global phenomenon. So I would believe that, hopefully, in the second half of the (calendar) year, we should start to see some moderation of inflation happening,” said Mehta. 

Near-term outlook

“In the near-term, operating environment will continue to remain challenging. In this scenario, we will manage our business with agility, continue to grow our consumer franchise whilst maintaining our margins in a healthy range. We remain confident of the medium to long-term potential of the Indian FMCG sector and HUL’s ability to deliver consistent, competitive, profitable and responsible growth,” said Mehta.

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