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HUL - Q1FY22 First Cut - ICICI Direct

Posted On: 2021-07-23 04:08:00 (Time Zone: UTC)

(CMP - Rs. 2397, MCap - Rs. 5,63,200 crore)

HUL Q1FY22 numbers were below our estimates on revenues front and in line with our estimates on earnings

Q1FY22 Earnings Summary

- Revenue grew by 12.8% to Rs. 11915 crore (I-direct estimate : Rs. 12807.6 crore) led by 13.2% sales growth in Beauty & Personal care (BPC), 11.9% growth in Home care & 12.2% growth in foods & refreshment segment. The company witnessed muted 9% volume growth on the low base impacted by nationwide lockdown in first wave of Covid-19. We believe current quarter has also witnessed adverse impact in BPC & foods category sales growth. We believe discretionary categories like cosmetics, skin care products, ice-creams (generate substantial sales in Q1) have been severely impacted by second wave of Covid-19 in April-May. Importantly, these categories are metropolitan / urban centric categories, where the second Covid-19 wave & state wise lockdown impact was maximum

- The incessant rise in palm oil, tea prices (2x on YoY basis) have adversely impacted the gross margins. Moreover, crude prices have also increased sharply after staying at a lower levels for most part of the FY21. Gross margins contracted by 140 bps during the quarter. Marketing spends also increased by 105 bps given the company significantly cut down the ad-spends in base quarter. Marketing spends actually have been down sequentially given the normal run-rate is 10-12% of the sales as against reported 8.6%. We believe the company has cut down the advertisement spends & overhead spends to protect any sharper dip in operating margins. Operating profit grew by muted 7.7% to Rs. 2847 crore (I-direct estimate : Rs. 2984.5 crore). Operating margins contracted by 114 bps to 23.9%

- Net profit grew by 9.6% to Rs. 2061 crore (I-direct estimate 2093.4 crore) aided by lower tax provisioning

The impact of Second wave of Covid-19 is clearly visible in Q1FY22 numbers with muted sales growth in BPC segment. Moreover considerable increase in key raw material cost aggravated the situation with contraction in operating margins despite the company has partially passed on the increase with price hikes in last six months. With normalisation of consumer demand after the Covid-19 recovery, we believe Q2FY22 should witness strong sales recovery. However, it would be difficult to significantly grow revenues on a high base of H2FY21. The continuous increase in raw material prices would keep the gross margins under pressure. We believe the synergic benefits of consolidation of Nutrition (Horlicks, Boost) business in terms of cost rationalisation would occur in FY23E. New product launches & progression of e-commerce channels development would be the key growth drivers for the company

We will be coming out with detailed update post the conference call with management.

Shares of HINDUSTAN UNILEVER LTD. was last trading in BSE at Rs. 2378.65 as compared to the previous close of Rs. 2433.9. The total number of shares traded during the day was 116564 in over 10184 trades.

The stock hit an intraday high of Rs. 2506.5 and intraday low of 2376.05. The net turnover during the day was Rs. 285117519.

Source: Equity Bulls

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