Hindustan Unilever recorded a year-on-year volume growth of 7 per cent in the quarter ended March 2019. Yet, the company posted a higher 8.9 per cent year-on-year growth in sales to ₹9,809 crore and a 13.8 per cent year-on-year growth in profit to ₹1,538 crore aided by better realisations and product mix as well as lower costs.

Also read:Hindustan Unilever posts 13.8 per cent growth in Q4 profit

Rural impact

After zero volume growth in the June 2017 quarter due to GST transition, HUL’s volumes grew at 10-12 per cent in each of the quarters beginning December 2017. But the high base of last year when volumes grew 11 per cent in the March 2018 quarter, along with the slowdown in rural demand due to crash in farm prices, has hurt the company in the latest quarter.

According to HUL, rural sales, which were growing up to 1.3 times faster than urban in the last many quarters, grew only at par with urban this quarter. Rural sales bring 40-45 per cent of revenues for HUL. Besides, even as the homecare and food and refreshments segments saw brisk growth, beauty and personal care segment — which brings at least half the revenues and profits — grew in single digits.

Operational performance

Lower raw material costs aided by benign prices of inputs such as palm oil helped margins. Raw material cost as a percentage of sales came in at 46.9 per cent, compared with 48.5 per cent a year ago. Advertising expenses, as a percentage of sales, were at 11.3 per cent (11.9 per cent) in the quarter. Thanks to these savings, the operating margin expanded by 80 basis points over the three months ended March 2018 to 23.3 per cent now.

A good operating performance along with an 18 per cent growth in other income and only a 3.7 per cent growth in tax expenses helped push up profits.

In the quarters to come, though, the moderation in rural demand as well the base effect may impact offtake, increasing preference of the urban consumer for premium and natural products may help volume growth to an extent. Volatility in crude and prices of other inputs are a concern though.