Hindustan Unilever: Decline in Volume Growth, but Healthy Cash Flows
Hindustan Unilever: Decline in Volume Growth, but Healthy Cash Flows

Hindustan Unilever Limited (HUL) manufactures branded and packaged consumer products including soap, detergent, personal care products, and processed food. The Company also manufactures ice creams, cooking oils, fertilizers, and hybrid seeds.

The share price of HUL fell by 1.20% to Rs 2,205 ahead of its results on 30th April 2020. The results were declared post market hours.

HUL's Q4FY20 profit was below the street's expectation as volume growth declined by 7% amid the spread of Coronavirus which has resulted in a nationwide lockdown. The Profit After Tax (PAT) for the company stood at Rs 1,512 crores which was down by 4% as compared to Rs 1,574 crores in the previous quarter ended in March 2019.

The board has recommended a final dividend of Rs 14 for FY20 on equity shares of Rs 1 each.

Key Highlights (YoY):

  • Revenues declined by 9% to Rs 9,221 crores as compared to Rs 10,201 crores

  • EBITDA declined by 6% to Rs 2,305 crores as compared to Rs 2,443 crores

  • Domestic Consumer Growth was 2% with Underlying Volume Growth of 2%

  • EBITDA margin and PAT margin expanded slightly with 25% and 16%

  • Earnings per Share (EPS) stood at Rs 6.98 as compared to Rs 7.26

Volume Growth Trend:

With 7% volume growth in Q4FY19 and then sustained at 5% in the last 3 quarters of FY20, the company has reported a decline in its underlying volume growth at 7% in Q4FY20.

The spread of COVID 19 impacted the business from mid-March, which culminated into scaling down of operations post the national lockdown. The company has been working closely with various authorities to commence quickly and scale up the supply of products. The company is currently operating at about 70% of normal levels and is hopeful that things will improve in the coming days.

Demand patterns are changing, and are likely to see an upswing in categories like health, hygiene, and nutrition. In the near term, the company is also likely to see some adverse impact on discretionary categories.

Segment-Wise Performance(YoY):

  • Home Care revenue declined by 4% to Rs 3,350 crores as compared to Rs 3,502 crores

  • Beauty and Personal Care revenue declined by 13% to Rs 3,834 crores against Rs 4,432 crores

  • Food and Refreshments revenue declined by 7% to Rs 1,788 crores as compared to 1,916 crores

  • Other segments which include Exports, Infant and Feminine revenues declined by 32% to Rs 239 crores as compared to Rs 351 crores

Sanjiv Mehta, Chairman, and Managing Director stated that “COVID-19 is perhaps the biggest challenge for us both from the lens of sustaining lives as well as livelihoods. The human impact of the pandemic is uncertain, and we are fully committed to working with the Government and our partners to ensure that we overcome this crisis together. Our portfolio of trusted brands, our financial stability, and quality of leadership teams positions us well to deal with the crisis and, for the changing world that will come afterward. With the GSK CH merger effective from 1st April, iconic brands such as Horlicks and Boost will now enable us to also address the nutrition needs of consumers. Our approach will be to protect our business model, grow competitively, and contribute to the nation.”

On the brighter side, a quick look at the company’s annual cash flow statement yields some ray of hope. Operating cash flow is up 31%, while free cash flow is up 33%, a rare feat indeed in such times of anaemic growth. The quality of the cash flow and the displayed pedigree of the company and management make us very hopeful about its prospects in the coming times.

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