Hindustan Unilever Ltd's June quarter results have dashed hopes of any recovery in volume growth.
HUL's volume growth in the June quarter was 4 per cent, the same as in the March quarter. In value terms, sales grew by 2.9 per cent, compared with 3.4 per cent in the previous quarter. This is based on a like-to-like comparison. As per the new IND-AS accounting standard, the June quarter's value sales growth was reported as 3.6 per cent.
HUL's fight to retain market share in soaps is taking a toll on both revenue and profit growth. From this quarter, the company has included soaps in the personal care segment, which has dulled the edge of the otherwise well-performing segment. The segment's revenue grew by 2.1 per cent while profit grew by just 0.3 per cent. Soaps accounted for 19% of total revenues in fiscal year 2016.
The home care segment (detergents and household products) did far better, with sales rising by 6.8 per cent from a year ago and profit by 22.7 per cent. In the detergents segment, both premium and mass products did well. But evidently, the good show of this segment wasn’t enough to revive overall growth.
Helpfully for the company, material costs declined by 1 per cent over a year ago, despite the increase in volumes. As a result, its Ebitda (earnings before interest, taxes, depreciation and amortization) rose by 8.2 per cent from a year ago. Again, this isn’t much to get excited about, although it’s heartening that core profit grew at twice the rate at which volumes increased.
But thanks to a sharp jump in depreciation, profit before tax grew by just 5.7 per cent, while exceptional items were responsible for the higher 9.8 per cent increase in net profit. Coming on the back of the 7 per cent increase in pre-tax profit in FY16, the new fiscal year is also off to a poor start.
One factor holds promise, although it hurts consumers’ purses. HUL has flagged a bottoming-out of commodity prices. Even in the June quarter, the sequential decline in commodity costs as a percentage of sales was a mere 17 basis points. A basis point is 0.01 per cent.
Although this means costs can increase, its superior purchasing power gives it an edge. Therefore, a return of some pricing power can still deliver better sales and earnings growth than currently visible.
