Hindustan Unilever Q1 profit rises 19.17% to Rs 15.29 billion as sales grow

June quarter volume growth at 12 per cent was in line with Street estimates
The country’s largest consumer goods company, Hindustan Unilever (HUL), reported a 19.17 per cent year-on-year increase in net profit on Monday for the April-June 2018 quarter (Q1 FY19), as double-digit sales volume growth continued for the third straight quarter, aided by a lower year-ago base. 

Net profit at Rs 15.29 billion was in line with Bloomberg consensus estimates, which came in at Rs 15.40 billion. Revenue, which is net sales plus other operational income, missed Street estimates, however, growing 11.2 per cent year over year to Rs 94.87 billion. Bloomberg consensus estimates had pegged revenue at Rs 96.69 billion for the June quarter. Net sales for the June quarter came in at Rs 93.56 billion, growing 11.37 per cent year over year. 

After adjusting for exceptional items, June quarter profit rose 22.5 per cent year over year to Rs 15.88 billion (from Rs 12.96 billion last year), with the stock touching a new high of Rs 1,770 on Monday on the BSE, before settling at Rs 1,753.85, up 0.73 per cent over Friday’s close.

June quarter volume growth at 12 per cent was in line with Street estimates, though it was marginally ahead of 11 per cent posted by the company in December 2017 and March 2018 quarters, respectively.

Kaustubh Pawaskar, senior research analyst at Mumbai-based brokerage Sharekhan, said, “The double-digit volume growth (for the June quarter) is certainly the big highlight and can be attributed to uptick in rural demand as well as strong traction for launches. With rural consumption improving, we expect volume growth momentum to sustain in the coming quarters.” 

According to HUL, there would be a gradual improvement in demand, especially in the rural areas. The company said it would continue to focus on innovations and market development. “Crude volatility and currency-led inflation are key factors to watch out for though we will continue to manage our business dynamically," Sanjiv Mehta, chairman and managing director, HUL, said during a post results press conference.

On the operational front, HUL's earnings before interest, tax, depreciation and amortisation (Ebitda) rose 21 per cent to Rs 22.51 billion (from Rs 18.66 billion last year), while operating margins expanded 183 basis points to 23.73 per cent from 21.9 per cent last year. HUL said the increase in cost of goods sold (up 6.9 per cent year-on-year to Rs 43.64 billion in the June quarter) was not significant (despite inflationary pressures) due to a good product mix, judicious pricing and a strong saving programme. 

This ensured gross margins expanded 197 basis points year-on-year in the June quarter, which analysts said was a good sign and could be likely used by the company (as a device to manage input costs) in the coming quarters.

Advertising and sales promotion (ASP) expenditure, however, was stepped up to Rs 11. 53 billion in the June quarter from Rs 9.05 billion a year ago (an increase of 27.4 per cent) to support innovations and brand launches.

Mehta said he saw ASP at competitive levels in the future in keeping with the market environment.

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