News Analysis

Hindustan Unilever: Volumes slow, but cost control aids margins

Parvatha Vardhini C BL Research Bureau | Updated on July 23, 2019 Published on July 23, 2019

The effect of a high base as well as a slowdown in demand is visible in the tepid 5 per cent volume growth (year-on-year) recorded by Hindustan Unilever in the quarter ended June 2019. This is a further deterioration from the 7 per cent volume growth (year-on-year) seen in the March 2019 quarter and the double digit volume growth in the five quarters prior to that, beginning December 2017.

What stands out?

Despite the deterioration in volumes, few things stand out for the company. One, revenues grew higher than volumes at 6.7 per cent to ₹9,985 crore, thanks to a better product mix. The launch of premium and ‘natural’ range of products such as Sunlight liquid detergent, Lux Botanicals and Pears Naturale range of soaps as well as natural variants of Sunsilk shampoo helped.

Secondly, though crude oil prices were volatile, benign prices of inputs such as palm oil aided margins a bit. Raw material costs as a percentage of sales stood at 45 per cent, a tad lower than the 45.8 per cent recorded a year ago. Thirdly, lower advertising expenses also improved profitability. Advertising expenses constituted just 11.6 per cent of sales, compared with 12.3 per cent earlier. Both these factors helped adjusted operating margins expand by 150 basis points over the June 2018 quarter to 26.2 per cent. Margin expansion was seen across home care (35 per cent of revenues), beauty and personal care (45 per cent ) as well as foods (20 per cent).

Though depreciation and finance costs up sharply — the former due to an accounting adjustment - the improvement at the operating level helped the company record adjusted profit (adjusted for exception items) growth of 10.1 per cent to ₹1,755 crore.


According to HUL, rural sales, which were growing faster than urban in the last many quarters, has been growing only at par with urban in the last two quarters.

Rural sales bring 40-45 per cent of revenues for the company. The moderation in rural demand as well the base effect may impact offtake in the near future. But increasing preference of the urban consumer for premium and natural products may aid volume growth and profitability to an extent.

Published on July 23, 2019
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