HUL’s net profit up 12%; The company says that the worst phase of inflation has passed

On Thursday – the company’s board of directors also approved a new royalty arrangement with Unilever group entities for provision of technology, trademark license and services to HUL, as the old agreement expired in January 2023. As per the new royalty and central services regime, effective 1 February 2023, the royalty and central services fee will increase from 2.65% (in FY22) to 3.45% of the company’s turnover for a period of five years.

Meanwhile, standalone profit grew 2,505 crore for the three months ending December 31, 2022, from 2,243 crore reported in the year-ago period. A Bloomberg survey of analysts had expected the company to report a standalone profit of Rs 2,488 crore.

HUL’s performance is viewed as a proxy for the broader consumer sentiment in India.

The company said on Thursday that the effect of lack of demand in the rural market may wear off and the worst effect of inflation may be on the consumer goods industry.

“Looking ahead, we are cautiously optimistic in the near term and believe that the worst of inflation is behind us. This should help in a gradual recovery in consumer demand,” Sanjiv Mehta, CEO and MD, said on Thursday.

The company said that there have been signs of improvement in the rural markets in the last quarter. While rural volumes remained negative, they reported a gradual improvement. “Talking about urban rural mobility, the market growth was led by urban. Rural markets are showing some signs of improvement in December quarter with higher growth as compared to September quarter and last 12 months. Ritesh Tiwari, CFO, HUL That said, with low inflation, a strong winter crop sowing and signs of uptick in farm incomes, it is likely that the rural slowdown is coming to an end.

The maker of Lux soap and Surf Excel detergent said revenue rose 16.3% compared to a year ago 15,228 crores; In the year-ago period, the company reported revenue of 13,092 crores.

Quarterly sales volume rose 5% from a year ago, but slowed sequentially. Gross margin decreased 463 basis points, although it improved sequentially. Earnings before interest, taxes, depreciation and amortization was up 7.9% 3,540 crores.

Mehta said the company remains “cautiously optimistic” on 2023 and cautioned that a turnaround in rural volumes could take some time. “The price increase in rural areas was negative in the month of June and July and the volume growth was -13% and -12%, (respectively). The good thing is that it is now a positive 2.5% price growth in the December quarter and volume growth which used to be in minus double digits has come down to -9%. So clearly, we are seeing things improving but there is a long way to go before volumes turn positive in rural areas.”

Meanwhile, the company said the new royalty and central services arrangement envisages a staggering 80 bps growth over a three-year period from 2.65% to 3.45% of turnover.

In FY22 – HUL spent Rs 1,336 crore out of this Rs 839 crore paid as royalty payment for technology and brand As per the company’s FY22 annual report, Rs 497 crore was paid for the use of central services from the parent company. Company’s total revenue from operations for the full year 51,193 crores.

To ensure this, the current technology, trademark license and central services agreement with Unilever Group was signed in January 2013 for a period of 10 years. This gave HUL the right to use trademarks, technology, corporate logos owned by Unilever and access to central services provided by the Unilever group, the company said while announcing the change. “Unilever’s global brands, innovation, know-how, centralized services and functional expertise enable HUL to win in the market. During the contract period, HUL doubled its turnover and improved EBITDA margin by c.1000 bps,” it said in a filing on Thursday.

Tiwari said HUL is one of Unilever’s top three businesses and a priority market for Unilever. He called out India, China and the US as priority markets, which also means that HUL will continue to receive faster innovation, greater efficiencies and support from Unilever’s businesses globally, to ensure that We do what we are good at, which is continuing to serve our consumers and winning in the marketplace.”

Meanwhile, during the quarter, the company’s home care division reported a 32% increase in quarterly revenue, driving double-digit volume growth. Beauty and personal care grew by 10%. The company said with softening palm oil prices have been cut in the soap portfolio.

Analysts tracking the company said the increase in sales during the quarter was largely driven by pricing. However, there was a sequential improvement in gross and operating margin with some moderation in raw material prices. “With the current correction in crude and related commodity prices as well as benign palm oil prices, we are confident that the company will further cut prices and increase grammes to drive profits. This should help the company regain volume growth in the coming quarters, analysts at ICICI Securities said in a note on Thursday.

Meanwhile, commenting on future price hike, Mehta said that the company will assess how the commodity prices will behave in future. He added that if commodity prices rise again, we will again have to go back to the books and see how we protect the business model.

“But we believe that the worst of inflation is probably behind us,” he said.