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  5. HUL’s Q2 PAT up 4% as rural weakness & competition continue to bite

HUL’s Q2 PAT up 4% as rural weakness & competition continue to bite

HUL’s Q2 PAT up 4% as rural weakness & competition continue to bite
  • HUL’s volumes grew by a modest 2% in the second quarter, and its rural volumes fell 1%.
  • Operating environment is challenging with subdued rural demand and high competition.
  • Small players are growing their market value at a much faster rate than large players in segments like tea and detergent bars.
  • Soap segment saw revenue decline due to price cuts.
FMCG major Hindustan Unilever reported a 4% growth in Q2 net profit to ₹2,717 crore against the comparable quarter last year. Its sales also grew at 4% year on year to ₹15,027 crore. The company also declared an interim dividend of ₹18 per share for the year ending March 2024.

HUL’s underlying volumes grew by 2% in the second quarter. Its volumes grew 3% in urban areas for the quarter, and fell by 1% in rural areas. Rural recovery is likely to remain gradual, the company said in its investor presentation.

Rohit Jawa, CEO and MD of HUL said that the operating environment is challenging, marked by subdued rural demand and heightened competitive intensity.

“Looking forward, we remain cautiously optimistic. FMCG demand is likely to continue a gradual recovery with tailwinds from the upcoming festive season, sustained buoyancy of services and government’s thrust on capex,” he added.

The company’s margins expanded 130 basis points year-on-year to 24.6%.

Price growth could be marginally negative: HUL

The company also said that it’s watchful of volatile commodity prices. “Price growth to be marginally negative if commodity prices remain where they are,” the company said in its outlook.

In the second quarter, excluding a one-off benefit in the beauty and personal care segment, its pricing growth was flat. Without the benefit, its pricing growth was at 1%.

Smaller players have re-emerged in the last few months and HUL said they’re growing fast in a few segments. In detergent bars, small players’ market value grew six times that of large players.

The market value of small players grew 1.4 times more than large players in the tea segment YoY, for the three months ending August. That’s had an effect on its segment for the quarter.

“Tea delivered a modest growth as the category continued to witness consumers downgrading. Coffee grew in double-digits,” the company said. It also took a revenue hit on the soap segments.

“Skin cleansing had a low-single digit volume growth with Lux and Hamam continuing to outperform. Revenue declined as further price reductions were taken in soaps. Skin care and colour cosmetics grew double-digit driven by focused interventions in new demand spaces and channels of the future,” HUL said.

While HUL’s home care and BPC segment volumes registered a mid-single digit volume growth for the quarter, food and refreshments saw a mid-single digit decline. Rising competitive intensity has also made the FMCG giant expand its advertising and promotional expenses for the quarter by 420 basis points.

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