HUL Q4 profits up by 10% and sales up by 11%

If there is one stock that is a kind of bellwether for rural demand and for the FMCG sector as a whole it is Hindustan Unilever Ltd, undoubtedly India’s most influential FMCG company. Hindustan Unilever is not only critical for India, but also extremely important for the parent Unilever PLC of UK. This is the only age old MNC in India which derives as much as 12% of its total global revenues from India alone. That is what makes Hindustan Unilever special for the Unilever group. For the fourth quarter ended March 2023, Hindustan Unilever reported profit after tax (PAT) growth of 12.9% to Rs. 2,600 crore on a consolidated basis. The profit surge was driven by higher operating profits from the beauty and home care

Let us also quickly look at the top line story of Hindustan Unilever. For instance, Hindustan Unilever reported 10.5% higher net sales for the March 2023 quarter at Rs. 15,215 crore. However, the sales revenues were down -2.45% on a sequential basis. This sequential pressure came from a slowdown in rural demand in the latest quarter and we shall talk about it later towards the end. The slowdown in sales on a sequential basis was visible in the March 2023 quarter was visible in the beauty and skin care vertical. Here is a gist of the financials of Hindustan Unilever for the March 2023 quarter with comparisons.

Clearly, the growth has been impressive on such a high base. The million dollar question is what is driving this growth at this frenetic pace? Let us look at the growth in the components of total sales for Hindustan Unilever. For the March 2023 quarter, Hindustan Unilever saw growth of 18.8% in the home care vertical to Rs5,637 crore, 10.8% growth in the beauty & personal care to Rs5,257 crore as well as a more modest 2.6% growth in refreshments and foods vertical at Rs3,794 crore. Not surprisingly, the company did see some pressure on exports, amid slowdown concerns globally, but that is OK since the domestic demand (especially urban demand) more than made up for it.

Let us look at the bottom line now. Net profits for Q4FY23 were up 12.9% at Rs2,600 crore in the fourth quarter helped by some robust, yet steady, operating margins of 21.6%. In terms of verticals, the company saw the most impressive double digit growth in operating profits in the home care business to Rs1072 crore. Meanwhile, the operating profits of the beauty and personal care vertical expanded only in single digits to Rs1,365 crore. Ironically, the food and refreshments business saw operating profits lower on a yoy basis.

But the real story of Hindustan Unilever was summed up by Sanjiv Mehta himself. In fact, Mehta admitted that the problems faced in the rural areas are a lot more acute due to high inflation. Rural demand is either gravitating towards cheaper unorganized products or smaller packaging unit sizes. In short, most of the growth in volumes for Hindustan Unilever has been driven by urban India with rural India showing a lot of pressure.