The company reported a 9 per cent year-on-year growth in net profit to Rs 2,187 crore for the quarter whereas, its top line grew 11.2 per cent to Rs 12,724 crore thanks to 7 per cent price hike taken across the product portfolio.
“Calibrated price increases and laser-sharp focus on savings has helped us protect our business model while ensuring the right price-value equation for our consumers,” Sanjiv Mehta, chairman and managing director said.
Shares of the company reacted positively to the initial numbers of the company but later gave up all gains and traded close to 3 per cent lower.
Here are the major takeaways from Q2 earnings of India’s largest FMCG company:
Volume growth disappoints
HUL said that domestic volume growth in the reported quarter grew 4 per cent on-year, which was far lower than the 5-7 per cent growth that analysts had expected. The moderation in volume growth could be a function of moderation in hygiene products demand as well as the impact of the price hikes taken by the company to counter inflationary headwinds.
Margins to remain under pressure
The soap-to-shampoo maker said that it expects gross margins to remain under pressure going ahead because of the high increase in the cost of raw materials. Inflation in input costs saw the company’s operating margin in the quarter slump 50 basis points year-on-year to 24.6 per cent despite 7 per cent price hikes.
More price hikes ahead
HUL said that it will continue to take “calibrated” and “judicious” price hikes going ahead to counter the surge in raw material prices as well as ocean freight rates. Global soft commodity prices have surged again in the past months after cooling down in June and July, creating challenges for FMCG companies like HUL.
Rural demand could be a concern
HUL benefits highly from a strong rural economy as reflected in the resilience of the company’s volume performance in the past few quarters despite the pandemic. The rural economy remained resilient throughout the pandemic as urban demand suffered. While urban discretionary demand is coming back-on-track due to higher mobility, HUL said that it has seen industry-wide moderation in rural demand in the last two months. Whether this moderation is a result of a high base in the year-ago period or a more worrying trend remains to be seen, the company indicated.
