5 takeaways from Hindustan Unilever’s Q3 results

It was an all-round story of misses for Hindustan Unilever Ltd during the third quarter ended December 31, 2012. The firm, which faces competition from global peers such as P&G besides a host of local players, saw its share price skid 2.8 per cent to Rs 481.55 a unit on the Bombay Stock Exchange in a weak Mumbai market on Tuesday, after announcing its results for Q3.

Harish Manwani, chairman of HUL commented: “In an environment that continued to be challenging, we have delivered another quarter of broad-based growth and margin expansion. The business is consistently winning in the marketplace by remaining sharply focused on the needs of our large consumer base and successfully leveraging Unilever’s strong global innovation pipeline and best practices.”

Here’s a snapshot from its numbers:

• Broad Financials: Net sales was at Rs 6,433.69 crore with growth pegged at 10 per cent over the year ago period and 4.5 per cent sequentially over the second quarter. This was led by growth of its home & personal care (HPC) unit which grew 15.3 per cent while its food business saw revenues rise 12.8 per cent. But, underlying volume growth was just 5 per cent which means much of sales increase came from higher prices, which doesn’t bode well in terms of demand.

Net profit rose 15.5 per cent Y-o-Y and 8 per cent Q-o-Q to Rs 871.3 crore. This was partly boosted by 66 per cent rise in other income over last year.

• Soaps & Detergents, which is the single largest revenue contributor for HUL, recorded 20 per cent revenue growth to Rs 3,171.23 crore. Surf and Rin continue to drive category upgradation, clocking in another quarter of double digit volume growth.

• Personal Products unit, which churns out bulk of its profits, reported 13 per cent revenue growth with double digit growth in skin, hair and oral care products.

• Beverages & Packaged Foods: Beverages business grew 18 per cent with tea delivering one of its strongest quarters with double digit growth across all brands at the premium and popular end. The packaged foods business grew 8 per cent with Kissan Ketchups maintaining double digit growth trajectory while growth accelerated on the Knorr soups portfolio.

• Royalty: The firm has also said it is entering into a new agreement with its parent Unilever effective February 1, wherein it would slowly hike the royalty payment to the parent for the provision of technology, trade mark license and other services. The new agreement envisages that the existing royalty cost of 1.4 per cent of turnover will increase, in a phased manner, to 3.15 per cent of turnover by March 31, 2018. In the first year, this would increase to 1.9 per cent and thereafter in a range of 0.3 per cent to 0.7 per cent of turnover in each financial year. While the stock reacted negatively due to the firm missing street expectations in both topline and bottomline growth, higher royalty is also seen as a negative for earnings.

(Edited by Prem Udayabhanu)

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