hindustan unilever: HUL Q2 takeaways: Horlicks, Boost prove to be the energy behind FMCG giant’s growth


NEW DELHI: How beneficial the acquisition of GSK and Glenmark portfolio, including brands like Horlicks, Boost and VWash, proved for Hindustan Unilever (HUL) is evident from the September quarter earnings of the largest FMCG company in India.

Much like the previous quarter, a large chunk of its revenue growth in the June-September period was due to the sales growth in a portfolio that HUL acquired in April.

The company said the quarter was “competitive” and domestic consumer growth, excluding the impact of acquisitions, was just 3 per cent. Including the acquisitions, the same was 16 per cent.

Here are key takeaways from the earnings presentation:


How much did the company earn?

HUL said its consolidated net profit rose 8.6 per cent to Rs 1,974 crore. Its revenue from sales of products came in at Rs 11,510 crore, up 15.19 per cent.

How is the pandemic positively affecting its sales?

  • Health, hygiene and nutrition that forms 80 per cent of its portfolio grew in double digits, the company said, which is a direct impact of the pandemic as people are worried about their health.
  • Hand sanitizers and handwash segments continued to gain penetration and have delivered robust growths.
  • Foods, tea and coffee sustained the high growth momentum and grew in double digits, thanks to growth in ‘in-home consumption’.

What are the adverse impacts of the pandemic on the firm?

  • In the laundry segment, people are buying less detergent because of confined living.
  • Ice creams, foods solutions and vending businesses continue to be impacted due to out-of-home consumption loss, despite showing uptick sequentially.

Did the company announce any dividend?

HUL declared an interim dividend of Rs 14 per share. The record date has been fixed as Thursday, October 29, and the dividend will be paid to the shareholders on or after November 12, 2020.

What is the business outlook?

The company in a statement said rural markets have been resilient but the demand in urban India especially in metropolitan cities has been muted. We believe that the worst is behind us and we are cautiously optimistic on demand recovery, HUL added.

Management take

The company management said their strong savings funnel, judicious and calibrated pricing in tea, synergies in nutrition have enabled them to successfully manage headwinds of commodity inflation and adverse mix.

“In the context of a challenging economic environment, our growth has been competitive and profitable. We continue to demonstrate execution prowess, agility, adaptability, resilience, and passion of our people. We have expanded our portfolio with consumer-relevant innovations and have invested strongly behind our brands. Our operations and service levels are now back to pre-Covid levels,” said Sanjiv Mehta, Chairman and Managing Director, HUL.

Analyst’s take

“We expect the stock to react positively post this performance and would expect a gradual re-rating towards 50 times FY23 earnings from 44 times currently driving a 12-13 per cent upside from current levels. HUL remains our top pick in the staples space in addition to Dabur, Nestle and Tata Consumer,” said Himanshu Nayyar, Lead Analyst – Institutional Equities, Yes Securities.

Valuation

Much like others in FMCG business, the company enjoys rich valuations. At Rs 2,172.10 per share, the scrip is valued at 73.62 times its earnings. The price to book value multiple stands at 62.92. The return of equity (RoE) stands at 85.47.





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