Hindustan Unilever races past hurdles to GST transition

The country's largest consumer goods company raced past challenges springing from the shift to a nationwide Goods and Services Tax (GST). For the July-September period that saw the introduction of GST, Hindustan Unilever Ltd (HUL) reported a 16 per cent year-on-year increase in net profit to Rs 1,276 crore, beating Street estimates.


Bloomberg consensus estimate had pegged net profit at Rs 1,196 crore for the September quarter. Net sales were in line with Bloomberg consensus estimate at Rs 8,199 crore, an increase of 6.52 per cent over Rs 7,697 crore clocked in the corresponding period last year.

 It is important to note that the numbers for the September quarter are not strictly comparable to those of a year ago, majorly due to a change in accounting standards necessitated by GST era. In a presentation, the company mentioned the comparable domestic growth was 10 per cent for the quarter.


Sales volume growth, tracked by analysts, came in at four per cent for the quarter under review, in line with estimates, marking a return to the figure after a quarter. For the April-June period, HUL had reported flat volume growth.


"While transition to GST impacted trade purchases in the early part of the quarter, consumer offtake remained stable. Trade conditions will improve and the wholesale channel and canteen stores' department channels are slowly but steadily normalising," P B Balaji, chief financial officer, HUL, said.


Volume growth, in part, was aided by a three-four per cent cut in prices in the quarter in categories such as home care, undertaken to pass on the benefits of lower taxes under GST.


Operating performance came in as a positive surprise, according to Abneesh Roy, senior vice-president, research, institutional equities, Edelweiss.


Earnings before interest, tax, depreciation and amortisation (Ebitda) rose nearly 20 per cent to Rs 1,682 crore over the same period last year. The operating profit margin expanded about 200 basis points to 20.2 per cent in the quarter under review. Comparable operating profit margin (adjusted for GST impact) was up 180 basis points.


"The medium-term outlook looks good for the market and there will be a gradual recovery in demand, especially in rural areas," Sanjiv Mehta, managing director and chief executive, HUL, said.


Segment-wise, comparable revenue for the home-care business was up 13 per cent to Rs 2,739 crore, personal care up eight per cent to Rs 3,910 crore, foods up 11 per cent to Rs 282 crore and refreshments increased 10 per cent to Rs 1,222 crore.


In a note, Kaustubh Pawaskar, senior research analyst at Sharekhan, said he expected HUL's earnings to grow in mid-teens over the next two years.

Shares of HUL rose 0.18 per cent to Rs 1,273.55 on BSE ahead of the announcement of results on Wednesday outside market hours, the marginal rise coming on a day when the benchmark Sensex breached 33,000.

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