FMCG Major Hindustan Unilever reports strong YoY growth in Q1FY23 performance

Hindustan Unilever is a division of the multinational Unilever, one of the top producers of food, personal care, home care, and Refreshment products with sales in more than 190 nations. Hindustan Unilever Limited, the country’s leading manufacturer of fast-moving consumer goods, has a nearly 90-year history in India. Nine out of ten Indian households utilize one or more of Hindustan Unilever’s products on any given day.

FMCG major Hindustan Unilever on 19th July 2022 announced quarterly results for Q1FY23, where they posted a double digit increase in both top & bottom line. While on Wednesday shares of Hindustan Unilever gained 2% after company delivered robust top and bottom-line performance in the Q1FY23.

While experts believe that the Company earnings were a beat on the revenue and profit front. The EBITDA Margins were slightly lower than expectations at 23.2%. According to many research estimates, the fast-moving consumer goods (FMCG) market in India increased by 6% in the January-March quarter compared to the prior year, driven primarily by double-digit price growth. This is because the extraordinary inflationary headwinds present substantial hurdles in the short term. Due to rising commodity costs and supply-demand mismatches brought on by the pandemic, inflation began to skyrocket in many economies even before the continuing conflict between Russia and Ukraine.

Let’s now look at Hindustan Unilever’s Q1FY23 performance, the inflationary challenges that FMCG companies are facing, and their future course.

Key Highlights of Hindustan Unilever in Q1FY23

• Sales were up 19.5% YoY to Rs 14,624 driven largely by pricing growth, & up 6.2% QoQ
• 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
• Home care segment witnessed growth of 9% with high-single digit volume growth.
• BPC segment saw 3% growth during the quarter.
• EBITDA was at Rs 3,247 crore, up 14.0% YoY, with margins at 23.2%
• Consolidated PAT was at Rs 2,391 crore, up 1% YoY, & up 3.6% QoQ

HUL results Q1FY23: Revenue grew 19.46% YoY above analysts’ expectations

The company’s revenue from operations rose 19.46 % YoY to Rs 14,624 crore for Q1FY23, which was also above analysts’ expectations of Rs 13,438.5 crore. Hindustan Unilever had reported Rs 12,194 crores revenue in Q1FY22. While sequentially revenue increased 6.2% QoQ from Rs 13,767 crores in Q4FY22 to Rs 14,624 crores in Q1FY23.

The company also announced underlying volume increase of 6%. The FMCG market witnessed 5-7% de-growth in volumes in the March and June quarter 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.

Home care segment witnessed growth of 29.9% with high-single digit volume growth. On a three-year CAGR basis, the segment witnessed growth of robust 12.5%. Premiumisation trend continues in fabric wash with most of the brands gaining market share. The company took a price hike to pass on steep inflation in crude & caustic soda.

BPC segment saw 17.3% growth during the quarter. The segment also saw aggressive price hikes given palm fatty acids and packaging costs remain high throughout the quarter. On a three-year CAGR basis, the segment saw growth of 5.3%. Food & refreshment category saw 9.3% growth led by strong growth tea, coffee and ice creams. The company had taken a price cut in tea previously due to benign tea procurement prices.

The company’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin was at 23.2 % during the quarter, declining 1.1% YoY. The entire FMCG segment felt intense cost pressure this quarter due to inflation, which has also hit their margins.

“In an environment which remains challenging, marked by unprecedented inflation and consequential impact on consumption, we have delivered yet another quarter of robust top line and bottom-line performance,” said Sanjiv Mehta, CEO and Managing Director at Hindustan Unilever.

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HUL results Q1FY23: PAT increased 13% YoY despite rising margin pressures

Hindustan Unilever reported a 13.85 % YoY rise in consolidated net profit at Rs 2,391 crore for the Q1FY23, which was above analysts’ estimate of Rs 2,191.3 crore. Sequentially, the profit increased marginally from Rs 2,307 crore in the Q4FY22 to Rs 2,391 crores in Q1FY23, up 3.6%.

“We have grown competitively whilst protecting our business model by maintaining margins in a healthy range. While there are near-term concerns around inflation, the recent softening of commodities, forecast of a normal monsoon, and monetary/ fiscal measures taken by the government augur well for the industry,” said Sanjiv Mehta.

HUL results Q1FY23: Robust growth across all Segments

The company’s Home Care segment delivered 30 % growth driven by strong performance in fabric wash and household care. Both categories grew in high double-digits with all parts of the portfolio performing well, the company said.

Hindustan Unilever also said that the Beauty & Personal Care segment growth of 17 % was broad-based. Hair Care grew in high double-digits led by strong performance in the premium portfolio. Soaps delivered price-led double-digit growth driven by strong performance in Lux, Dove, and Pears. The foods & Refreshment segment grew 9 % driven by solid performance in ice cream, coffee, and food solutions, the company said.

“We are confident of the medium to long term prospects of the Indian FMCG sector and remain focused on delivering a consistent, competitive, profitable, and responsible growth,” said Mehta.

The company added that it continues to manage its business dynamically driving savings harder across all lines of P&L and taking calibrated pricing actions using the principles of net revenue management. Apart from that the company has a distribution reach of 8.5 million (Mn) outlets with a direct network of more than 3.5 Mn.

On the outlook, Mehta said, “While there are near-term concerns around inflation, the recent softening of commodities, forecast of a normal monsoon, and monetary/ fiscal measures taken by the government augur well for the industry”.

Meanwhile, Hindustan Unilever also announced the appointment of Yogesh Mishra as Executive Director, Supply Chain and Head Supply Chain, Unilever South Asia with effect from September 1, 2022. Mishra takes over from Willem Uijen, who has been elevated as the Chief Procurement Officer for Hindustan Unilever globally.

Technical Analysis of HUL share price

Shares of Hindustan Unilever have corrected significantly since the beginning of 2022 and reached their 52 weeks low in March-April before resuming their upward journey. In the month of July, Hindustan Unilever shares have delivered a robust return of 17% before announcement of Q1FY23 results, indicating positive investors sentiment for FMCG major. Therefore, long term investors can maintain bullish view on the stock and can expect Hindustan Unilever to deliver 10-17% return in medium to long term.

“Signs of incipient earnings growth recovery are getting better – but only gradually – fuelled by possible good monsoon, fertilizer subsidy, gradual reduction in commodity costs from the decadal high levels and recovery in premium personal care portfolio,” said Motilal Oswal, thereby, maintaining their ‘BUY’ with a TP of INR3,000.

While analysts at ICICI Direct said “We expect volume growth & margin to recover in H2FY23 given commodity inflation has started cooling off from the peak.” They thus maintained their ‘HOLD’ rating on the stock with target Price of Rs 2700.

Our View

Despite the recent correction in palm oil price, inflation across many other commodities is at their decadal peaks. Even INR depreciating against USD is also impacting input prices..

However with the softening of palm oil prices, most FMCG companies will benefit in the coming quarters. Hindustan Unilever is the market leader in the FMCG sector and has outperformed its peers in the last three months as well as over the last one year. The expectation of a good monsoon would aid the FMCG companies sales in coming quarters. With the sector showing signs of recovery and the raw material inflation showing signs of cooling down, Hindustan Unilever remains amongst the most preferred choices for investment in the FMCG sector.

 

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

Research done by: Ketan Sonalkar, SEBI Rgn No INA000011255

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