In a turbulent quarter marked initially by destocking in trade pipelines following the transition to the new goods and services tax (GST) regime, fast-moving consumer goods (FMCG) major Hindustan Unilever (HUL) witnessed a revival in its volume growth to 4% in the second quarter ended September 30, 2017. Exceeding expectations, HUL’s net profit at Rs 1,276 crore was up 16% compared to Rs 1,096 crore in the previous corresponding quarter.
For a company whose brands are purchased by 9 out of 10 households in the country every month, gradual restocking of trade pipelines assisted in the recovery of volumes. However, HUL’s net sales were lower by 2% during the quarter to Rs 8,199 crore as compared to Rs 8,733 crore in the previous corresponding quarter, reflecting the accounting impact of GST, with excise and other tax costs under the earlier regime now subsumed under GST and netted from turnover in base.Comparable domestic consumer sales grew by 10% during the quarter, while earnings before interest, tax, depreciation and amortisation (ebitda) at Rs 1,682 crore was up 20% compared to Rs 1,405 crore in the previous corresponding quarter. Comparable ebitda margin improvement is 180 basis points (100bps = 1 percentage point). The comparable growth numbers were arrived at by adjusting excise duty and other net input taxes from the revenue of September quarter in 2016.
The company said while transition to GST impacted trade purchases in the early part of the quarter, consumer offtake remained stable, trade conditions continue to improve, and the wholesale channel is steadily normalising. HUL MD & CEO Sanjiv Mehta said, “There was turbulence in the trade pipelines. By end of December, we should see near normalcy. There would be some reset in trade channels as well. However, we don’t have enough data points at this stage. Trends will emerge in a couple of quarters.”
HUL chairman Harish Manwani said, “In a challenging business environment, we delivered a particularly strong overall performance. This reflects the strength of our brands and our relentless focus on execution in the market place. I am pleased that we were able to swiftly implement GST and quickly pass on the net benefit through price reductions to consumers across the country. Despite short-term challenges, we are confident of the medium-term outlook for the FMCG industry and remain focused on driving consumer value and profitable volume-driven growth.”During the quarter, the company had taken product price cuts in the 3-4% range to pass on GST benefits to consumers. HUL CFO P B Balaji said, “There is no change in our market strategy. We had some trade situation in early part of the quarter, subsequently things have started to stablise. Consumer offtake has remained stable, while input costs have begun to inflate. In the near term, we expect a gradual improvement in rural demand. The overall focus will continue to be on volume growth.”
Home care grew at 13%, personal care 8%, refreshments 10% and foods at 11%. “Driving sustained volume growth is the company’s focus as a starting point. While laundry saw robust double-digit growth across category, household care growth was led by a strong performance in Vim bar. Personal wash witnessed broad-based growth across key brands, while growth in hair care was led by Dove. Foods, on the other hand, was driven by Kissan, while refreshments saw a strong broad-based growth in tea and a robust volume led growth in ice cream and frozen desserts.While advertising and promotion spends were stepped up to support innovations, margins improved as sequential margins were sustained due to HUL’s strong savings programme.