HUL confident of stable performance on strong rural show

A pedestrian walks past the logo of Hindustan Unilever Limited (HUL) at its headquarters in Mumbai (Photo: Reuters)
On the back of a strong double-digit volume growth, Hindustan Unilever (HUL) posted in-line financial performance for the December quarter. Higher rural demand and a strong show in each of its key segments helped the company post its fifth consecutive quarter of double-digit volume growth. 

While the company posted volume growth of 10 per cent, most brokerages had pegged the same in the 8-9 per cent band. The growth in the September quarter had the benefit of a lower base (GST rate cut for about half the company’s products), while the same was not the case this time around. 

As in the past few quarters, the rural segment — which accounts for 35-40 per cent of sales — saw better growth than urban markets with the outperformance pegged at 1.3 times. 

Within key segments, volume growth was led by the home care segment, which posted volume growth of nearly 15 per cent. This segment accounts for a third of sales. While sales were strong, led by fabric wash and household care brands, operating profit and margins were lower on a sequential basis as the firm is restructuring its water purifiers portfolio from gravity-led products to the more premium UV and RO models. The company took at a Rs 40-crore hit on this account and intends to phase out the gravity based water purifier models. 

Personal and beauty care, its largest and the most profitable segment, too, saw good growth of 11 per cent. The company re-launched the Lifebuoy brand in the personal wash segment, while the skin care segment saw the launch of Rs 10 variants. 

The company hopes to increase penetration in the segment and later upgrade the customers. 

Premiumisation in both the segments, improvement in the product mix, and operating leverage helped the company improve its operating profit margins by 170 basis points to 21.9 per cent. 

While being cautious about macro events in the days ahead (such as elections, rural growth), the company is confident about stable growth led by the rural market. While results have been in line with expectations, the stock continues to be expensive and thus upsides from these levels are unlikely. 

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