GSK merger helps HUL's top line, but profit before tax down 6% in Q1

HUL Chairman and MD Sanjiv Mehta said he’d wait for the September quarter to give an assessment of demand
Hindustan Unilever (HUL), the country’s largest consumer goods company, on Tuesday reported a mixed set of numbers for the quarter ended June 30, 2020 (Q1), aided in part by its merger with GSK Consumer on April 1.

While profit before tax (PBT) for the period fell 6 per cent year-on-year to Rs 2,411 crore, revenue-wise HUL reported a 4.4 per cent year-on-year increase to Rs 10,560 crore, thanks to the merger of GSK Consumer nutrition brands with the companies. Revenue was ahead of a Bloomberg consensus estimate of Rs 9,880 crore for the period. GSK Consumer’s nutrition portfolio includes Horlicks, Boost, Maltova, and Viva.

Excluding the GSK business, overall revenue declined 7 per cent in the quarter, Srinivas Phatak, chief financial officer, HUL, said in a virtual press meet, indicating the extent of the damage to business due to the pandemic and nationwide lockdown. The company declared a special dividend of Rs 9.50 per share for the 2020-21 financial year. Analysts estimate volume decline for the quarter at 8 per cent in Q1, which, they say, is better than street estimates of a 11-13 per cent volume decline for the period.  
In the March quarter, HUL had reported a 7 per cent volume decline, more than the 4 per cent fall during the demonetisation quarter (October-December 2016). 
Net profit rose 7.2 per cent YoY to Rs 1,881 crore, which compares favourably with the Rs 1,722-crore consensus estimate of analysts tracked by Bloomberg.

Operating profit, however, fell 0.1 per cent to Rs 2,644 crore in Q1, while operating margins narrowed to 25 per cent from 26.2 per cent a year ago. “The negative impact of adverse mix and higher Covid-19-related costs were deftly managed by dialling up savings and unlocking synergies of the GSK Consumer merger, enabling us to sustain healthy margins,” Phatak said.

While rural areas have shown an uptick in sales , Sanjiv Mehta, chairman and managing director, HUL, declined to give an outlook for the future, saying he’d rather wait for the September quarter to give an assessment of demand. HUL gets 40 per cent of its sales in rural areas.

“We are pleased with what the government is doing to improve demand, especially, in rural areas. However, uncertainty remains, which will last till a vaccine is found. If supply-side disruptions ease, the September quarter should give us a good picture of underlying demand,” he said.

Analysts say HUL’s business remains resilient, given that 80 per cent of its portfolio is focused on health, hygiene, and nutrition, 15 per cent is discretionary in nature, and 5 per cent is focused on out-of-home consumption.

“80 per cent of HUL’s business registered a growth rate of 6 per cent in April-June,” said Kaustubh Pawaskar, associate vice-president (research), Sharekhan. “The nutrition business, including GSK Consumer’s products, registered 5 per cent growth, while the discretionary portfolio, including skincare, deos and colour cosmetics, and out-of-home consumption, which includes ice creams, declined 45 per cent and 70 per cent, respectively,” he said.

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