The results, though, reflect the extent of weakness in both rural and urban markets. Despite continuously passing on input cost gains to end-users and investing in advertising and promotional activities, HUL’s volume growth has remained in the six-seven per cent range since the March quarter. The December 2015 quarter also had the advantage of a low base, given that volumes had grown by only three per cent in the December 2014 quarter. Benign input costs aided a 72 basis points expansion in HUL’s earnings before interest, taxes, depreciation and amortisation margin to 18.3 per cent. This led to a 7.2 per cent growth in net profit (before exceptional items) to Rs 1,024 crore, largely in line with expectations of Rs 1,026 crore.
Among key segments, while soaps and detergents (Dove, Pears, Lifebuoy, Surf, etc) witnessed subdued revenue growth, personal products (Fair & Lovely, Ponds, Lakme, Dove, TRESemmé, etc) revenues were impacted by delayed winter. Oral Care (Close Up, Pepsodent), too, posted weak performance as the overall category remains under pressure. Beverages (Red Label, Taj Mahal, etc) and packaged foods (Kissan, Knorr, etc) witnessed good revenue growth as well as margin expansion in the quarter.
HUL’s management commentary continues to be cautious. The management will continue to make investments in brands and promotional activities as it chases profitable growth. In this backdrop, the HUL scrip fell 2.7 per cent to Rs 804 on Friday. It now trades at 35 times the FY17 estimated earnings at a premium to its historical average one-year forward price-to-earnings ratio of 29 times.