HUL says markets recovering from GST impact

Hindustan Unilever Ltd (HUL), the barometer of consumer demand in India, on Wednesday said the market is stabilising and recovering well after being impacted by the goods and service tax (GST) in the early part of the last quarter. The company has reported 16% rise in net profit for the September quarter.

P B Balaji, chief financial officer, HUL, said, "The two primary channels – wholesale and Canteen Stores Department (CSD) – that were impacted significantly in the earlier part of the quarter are stabilising gradually. In the midst of all this, consumer off-take has continued to remain stable. And our observation is that input costs of late have also started to inflate."

The company reported domestic consumer sales growth of 10% and a volume growth of 4% for the September quarter. Earnings before interest, tax, depreciation and amortisation (Ebitda) at Rs 1,682 crore increased 20% year on year. Profit after tax before exceptional item PAT (bei) at Rs 1,236 crore was up 14%, net profit at Rs 1,276 crore increased 16% as compared to the second quarter of last year.

The exceptional item included a profit of Rs 46 crore from sale of equity shares in Kimberly Clark Lever Pvt Ltd and restructuring expenses Rs 10 crore. Advertising and promotional spends for the second quarter increased significantly 20% yoy.

Harish Manwani, chairman, HUL, said the company delivered a strong overall performance even in a challenging business environment. "We were able to swiftly implement GST and pass on the net benefit through price reductions to consumers across the country. Despite short-term challenges, we are confident of the medium-term outlook for the FMCG industry and remain focused on driving consumer value and profitable volume-driven growth," he said.

The company also undertook 3-4% reduction in pricing as a result of the net impact of GST. Product categories that witnessed price reduction included personal care (Lux, Dove, Lifebuoy, Pears, Close-Up and Pepsodent), home care (Rin and Surf) and food and refreshments (Brook Bond Taaza, Red Label, Kissan).

On whether the consumer off-take was impacted as well in the first half of current fiscal, Sanjiv Mehta, CEO and managing director, HUL, said, "We don't think there was any impact in that area. What you saw was the vibrations within the channel (trade pipeline), there was turbulence and there was no question about that. This turbulence got near normal as we moved towards the end of the second quarter. CSD is still a bit lower than what their normal buying pattern was but it has picked up significantly."

The HUL management said that reported net sales are lower by 2% owing to accounting adjustments wherein revenue for the September quarter of fiscal 2018 is reported net of GST and that the comparable domestic consumer sales growth and comparable Ebitda margin improvement has been arrived at by adjusting Excise Duty and other net input taxes from revenue in September quarter of fiscal 2017.

The company sees gradual improvement in rural demand in the near term. Trade conditions are expected to see gradual improvement as well. With crude prices increasing to $55 a barrel and vegetable oil heading north, the company expects input costs to start rise. However, it still remains to be seen if the company will pass on the costs by increasing product prices over the coming six to 12 months.