Hindustan Unilever beats estimates; profit up 28% at Rs 13.26 bn in Q3

HUL CFO Srinivas Phatak and HUL CEO & MD Sanjiv Mehta. Photo: Kamlesh Pednekar
The largest consumer goods company in the country, Hindustan Unilever (HUL), reported a nearly 28 per cent year-on-year rise in the October-December 2017-18 quarter (Q3FY18) on Wednesday, putting behind it the challenges of demonetisation and the goods and services tax (GST) roll-out.

In the quarter under review, HUL did gain from a lower base: In the same quarter last year (Q3FY17), its volume growth had declined 4 per cent.

The current performance was also way ahead of Street estimates. Net profit touched Rs 13.26 billion; a Bloomberg consensus estimate was Rs 11.67 billion.

Revenue rose 11.4 per cent to Rs 85.90 billion, higher than the Rs 84.20 billion estimated by a Bloomberg poll of analysts. Underlying volume growth came in at 11 per cent for the quarter, ahead of a 6-10 per cent range given by most analysts.

HUL Chief Financial Officer Srinivas Phatak said the firm’s domestic consumer business (after taking into account net excise duties, refunds, and net input taxes) grew 17 per cent for the quarter, with home care growing 20 per cent, personal care, 17 per cent, refreshment 13 per cent, and foods 18 per cent.

“We see a gradual improvement in demand; input costs are showing signs of inflation,” he said.

For the December quarter, earnings before interest, tax, depreciation and amortisation (EBITDA) rose 24 per cent to Rs 16.80 billion, while EBITDA margins expanded by 200 basis points to 19.6 per cent, as the company spent more on advertising and sales promotion.

Analysts were expecting HUL’s EBITBA margins to come at 20 per cent for the quarter.

Sanjiv Mehta, managing director, HUL, said the company had reacted to the changing dynamics quickly, prompting it to take advantage of the consumer uptick as well as initiate price changes following reduction in the GST rates in November last year.

On Tuesday, the government’s anti-profiteering body, the Directorate General of Safeguard, had slapped a notice on HUL for allegedly not passing on benefits of a lower GST to customers.

On November 10, 2017, the GST Council had reduced rates on a number of products to 18 per cent from 28 per cent, covering nearly 177 items. The lower rates came into effect from November 15, benefitting HUL and other firms, analysts said.

“HUL Q3FY18 performance was ahead of our expectation. The uptick in rural consumption and stable demand environment in the urban market would help HUL achieve decent earnings growth in the coming quarters,” said Kaustubh Pawaskar, senior research analyst at Mumbai-based brokerage Sharekhan.

Shares of HUL ended 0.68 per cent lower at the close of trade on Wednesday on the BSE to touch Rs 1,371.85. This came after hitting a record high of Rs 1,390 per unit at the start of trade, helping the firm cross Rs 3 trillion in market capitalisation.

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