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Hindustan Unilever’s volume growth signals positive demand in FMCG sector

By TEAM VCC

  • 29 Apr 2013
Hindustan Unilever’s volume growth signals positive demand in FMCG sector

The country’s largest fast moving consumer goods (FMCG) company Hindustan Unilever Ltd (HUL) beat analyst estimates by clocking net profit of Rs 787 crore for the fourth quarter ended March 31, 2013, up 15 per cent over the year ago period aided by higher sequential volume growth and reduction in input costs.

Net Sales at Rs 6,367 crore grew 12.5 per cent on the back of 6 per cent volume growth. Although volume growth dipped compared to growth clocked during Q4 FY12 over Q4 FY11, it rose on a sequential basis as the firm had generated volume growth of mere 5 per cent in Q3 FY13 over the corresponding period the previous year.

Harish Manwani, chairman of HUL, said, “In a challenging environment, we have delivered broad based competitive growth and margin improvement. We have continued to invest in strengthening our brands, stepped up innovation and driven in market execution and operational efficiencies even harder.”

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He further added that while there are near term concerns around slowing market growth and inflationary pressures on consumers, the company is confident of the medium to long term growth prospects of the FMCG sector.

V Srinivasan, research analyst – FMCG, Angel Broking, said: “The most positive aspect of the result is the 6 per cent y-o-y volume growth posted by the company for the quarter. HUL managed to revive the volume growth, by passing on some benefits of reduction in raw material costs to customers by way of price cuts and increased A&P expenditure. This will increase competitiveness in the market and it will be interesting to watch out the pricing.”

During the quarter, the domestic consumer business grew 13 per cent with both home & personal care (HPC) and foods & beverages (F&B) segments registering double digit growth.

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The firm saw double digit volume growth in Dove, Lux and Lifebuoy brands. The firm passed on the benefit of lower commodity prices to the consumer with price cuts during the quarter.

Ritwik Rai, FMCG analyst, Kotak Securities, explained that growth in the quarter has been driven largely by the soaps and detergents segment, which has registered 13 per cent growth in revenues and 20 per cent growth in profits.

Laundry maintained its double digit growth across formats. Surf and Rin continue to drive category upgradation, clocking in another quarter of double digit volume growth. Vim led the growth in household care segment.

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Personal products grew 12 per cent and growth accelerated in hair and oral care segments.

Beverages grew 18 per cent with tea delivering double digit growth across all key brands. Packaged foods grew 7 per cent with Kissan Ketchups maintaining its double digit growth while growth accelerated on the Knorr soups portfolio. Ice creams, however, grew modestly impacted by a slowdown in the market, the company said.

Analysts opine that the coming quarters will see a highly competitive environment in the HPC space.

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Gautam Sinha Roy, vice president, Equities, Motilal Oswal Securities Ltd, noted, “HUL’s net profit surprised positively at Rs787 crore vs our expectation of Rs 727 crore. EBITDA Margin was in line with expectation at 15 per cent vs 14.9 per cent, aided by gross margin. High other income and lower tax rate helped drive the net profit surprise for HUL.”

Sinha said there are three key issues to watch out for in the sector: volume growth and consumer demand environment, competitive environment in HPC space and pricing environment, given the correction in input costs.

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