HUL bullish on volume growth revival

Mumbai: Hindustan Unilever (HUL) on Thursday said the rural slowdown is bottoming out and the worst of inflation is likely over, setting the stage for a revival in volume growth after India's biggest consumer goods company posted a 16% jump in sales in the December quarter."Across the country, people are spending, but because inflation has been so high, they have had to cut back on volumes, which is completely understandable," said Sanjiv Mehta, managing director of HUL, adding that the overall market value growth is at 6-8%. "So, if inflation comes down, then we certainly believe volume growth will come back."Mehta said demand has recovered both sequentially and year-on-year, especially in rural areas. HUL's volumes, or the number of products it sells, rose 5% in the third quarter, indicating the bulk of its revenue expansion was due to price hikes and not increased demand.The company's sales rose to ₹14,986 crore, from ₹12,900 crore a year earlier, while net profit grew 12% to ₹2,505 crore from ₹2,243 crore a year ago. 97156085Over the past decade, sales of branded daily needs goods have increasingly relied on rural India, where purchase behaviour is largely linked to farm output. Rural Green Shoots: Mehta Citing Nielsen data, Hindustan Unilever said the fast-moving consumer goods (FMCG) market in rural areas expanded 4.8% in value during the December quarter, but volumes fell 6.6%. This is an improvement from June and July, when the market declined 2% and 1%, respectively, in value, it said."Still, it is much lower, but we are looking at green shoots and instead of deteriorating, it has started improving; albeit, it is too early to declare victory," Mehta said. "Clearly, we are looking at things which are improving. But there is a long way to go before volume and rural markets become positive."HUL's performance is considered a proxy for the broader consumer sentiment in India. Margin PressureThe maker of Rin detergent and Dove beauty bar expects inflation to moderate somewhat but remain higher than a year ago, so growth will continue to be price-led.HUL's net material inflation was 18% in the December quarter, lower by 400 basis points compared to the September quarter."The unprecedented inflation the FMCG industry witnessed is gradually moderating from its peak," said Ritesh Tiwari, chief financial officer at HUL. "We believe the worst of inflation is likely behind us and should aid in gradual recovery in consumer demand."The company's gross margins contracted by 463 basis points (bps) in the third quarter, while earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin fell 180 basis points to 23.6%. One basis point is a hundredth of a percentage point.In the past few months, amid easing inflationary pressures, companies have been reversing grammage cuts effected earlier to pass on part of the price rise to consumers while retaining certain price points. This is to bolster volume growth and drive demand."With the current correction in crude and related commodity costs, along with benign palm oil prices, we believe the company (HUL) would take further price cuts and grammage increase to pass on the benefits," ICICI Securities said in a report. "This would help it recoup volume growth in the coming quarters."Sales rose about 32% in the homecare segment, which includes brands such as Sunlight and Domex. Hindustan Unilever's largest business, the beauty and personal care segment, saw 10% growth, driven by premium skincare products and soaps, while the food and refreshments business grew 7%.Royalty IncreaseThe company said the royalty fee it pays to parent Unilever Plc has been hiked by 80 basis points after a decade, and the increase will be implemented in a staggered manner over three years. Under the new agreement, the royalty and central services fees will increase to 3.45% of the total turnover, from 2.65% at present.The rate is still lower than most of Unilever's multinational rivals in the country, including Nestle, Colgate, Procter & Gamble and Mondelez, all of whom pay a royalty fee of 5-8%.HUL's royalty increase will be in three tranches - 45 bps increase for February to December 2023, an additional 25 bps for 2024 and another 10 bps for 2025.

HUL bullish on volume growth revival
Mumbai: Hindustan Unilever (HUL) on Thursday said the rural slowdown is bottoming out and the worst of inflation is likely over, setting the stage for a revival in volume growth after India's biggest consumer goods company posted a 16% jump in sales in the December quarter."Across the country, people are spending, but because inflation has been so high, they have had to cut back on volumes, which is completely understandable," said Sanjiv Mehta, managing director of HUL, adding that the overall market value growth is at 6-8%. "So, if inflation comes down, then we certainly believe volume growth will come back."Mehta said demand has recovered both sequentially and year-on-year, especially in rural areas. HUL's volumes, or the number of products it sells, rose 5% in the third quarter, indicating the bulk of its revenue expansion was due to price hikes and not increased demand.The company's sales rose to ₹14,986 crore, from ₹12,900 crore a year earlier, while net profit grew 12% to ₹2,505 crore from ₹2,243 crore a year ago. 97156085Over the past decade, sales of branded daily needs goods have increasingly relied on rural India, where purchase behaviour is largely linked to farm output. Rural Green Shoots: Mehta Citing Nielsen data, Hindustan Unilever said the fast-moving consumer goods (FMCG) market in rural areas expanded 4.8% in value during the December quarter, but volumes fell 6.6%. This is an improvement from June and July, when the market declined 2% and 1%, respectively, in value, it said."Still, it is much lower, but we are looking at green shoots and instead of deteriorating, it has started improving; albeit, it is too early to declare victory," Mehta said. "Clearly, we are looking at things which are improving. But there is a long way to go before volume and rural markets become positive."HUL's performance is considered a proxy for the broader consumer sentiment in India. Margin PressureThe maker of Rin detergent and Dove beauty bar expects inflation to moderate somewhat but remain higher than a year ago, so growth will continue to be price-led.HUL's net material inflation was 18% in the December quarter, lower by 400 basis points compared to the September quarter."The unprecedented inflation the FMCG industry witnessed is gradually moderating from its peak," said Ritesh Tiwari, chief financial officer at HUL. "We believe the worst of inflation is likely behind us and should aid in gradual recovery in consumer demand."The company's gross margins contracted by 463 basis points (bps) in the third quarter, while earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin fell 180 basis points to 23.6%. One basis point is a hundredth of a percentage point.In the past few months, amid easing inflationary pressures, companies have been reversing grammage cuts effected earlier to pass on part of the price rise to consumers while retaining certain price points. This is to bolster volume growth and drive demand."With the current correction in crude and related commodity costs, along with benign palm oil prices, we believe the company (HUL) would take further price cuts and grammage increase to pass on the benefits," ICICI Securities said in a report. "This would help it recoup volume growth in the coming quarters."Sales rose about 32% in the homecare segment, which includes brands such as Sunlight and Domex. Hindustan Unilever's largest business, the beauty and personal care segment, saw 10% growth, driven by premium skincare products and soaps, while the food and refreshments business grew 7%.Royalty IncreaseThe company said the royalty fee it pays to parent Unilever Plc has been hiked by 80 basis points after a decade, and the increase will be implemented in a staggered manner over three years. Under the new agreement, the royalty and central services fees will increase to 3.45% of the total turnover, from 2.65% at present.The rate is still lower than most of Unilever's multinational rivals in the country, including Nestle, Colgate, Procter & Gamble and Mondelez, all of whom pay a royalty fee of 5-8%.HUL's royalty increase will be in three tranches - 45 bps increase for February to December 2023, an additional 25 bps for 2024 and another 10 bps for 2025.