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HUL Q1FY23 Review: Volumes, margins to recover in H2FY23
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What’s Buzzing
Hindustan Unilever (HUL's) results were better than estimates with 6% volume growth. Net sales grew 19.5% to Rs 14016 crore led by aggressive price hikes in home care and beauty & personal care (BPC) segment. The company reported 6% volume growth on a low base impacted by second Covid wave but demand conditions still remain below par owing to aggressive price hikes specifically in BPC segment. Home care segment witnessed growth of 29.9% with high-single digit volume growth. Premiumisation trend continues in fabric wash with most brands gaining market share. The company took a price hike to pass on steep inflation in crude and caustic soda. BPC segment saw 17.3% growth during the quarter almost entirely led by prices.
Context
The FMCG market witnessed 5-7% de-growth in volumes in the March and June quarter on a three-year CAGR basis but HUL has seen flat volumes in a similar period. Volume decline in rural regions is more prominent. The company has gained market share in 75% of its business.
Our Perspective
High commodity inflation in most of the quarter resulted in a contraction of both gross margins as well as operating margins. Though palm oil prices dipped significantly from the highs in mid-June, most other commodities have still remained at an elevated level. The management has guided at a sequential improvement in margins from the December quarter onwards. Home care segment has witnessed strong growth of 12.5% on a three-year CAGR basis led by strong growth in premium detergent category with market share gains. However, growth in soaps & other personal care categories has remained lacklustre. We believe volume growth will recover in H2FY22 (without any base effect) with price cuts & restoration of grammage in smaller packs. We believe the company would witness healthy volume growth and recovery in operating margins in the second half of FY23.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
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