HUL Q3 net up 16%; volumes, new royalty pact disappoint

Moneycontrol Bureau

Hindustan Unilever on Tuesday reported a lower-than-expected 16 percent year-on-year rise in third quarter net profit at Rs 871 crore. That coupled with a sluggish volume growth of just 5 percent, compared with 9 percent a year ago and analysts expectation of at least 7 percent, disappointed the street, sending the FMCG major's shares down over 6 percent in late trading. HUL shares finally closed down 3.3 percent at Rs 480.90 on NSE. Net sales of the largest FMCG company in India rose 12 percent year-on-year to Rs 6,655 crore in Oct-Dec. Analysts on average were expecting HUL to report a net profit of Rs 900 crore on revenue of Rs 6,828 crore, according to a CNBC-TV18 poll. R Sridhar, HUL's CFO, told reporters that there were some near-term challenges. For instance, there continued to be some slowdown by consumers in discretionary categories like face care, he said. "There is some pressure on consumer vallets."  In comparison, ITC had last week reported better-than-expected 21 percent rise in third quarter net profit. New Royalty Pact The company also announced a new royalty agreement with Anglo-Dutch parent Unilever Plc. As per the new agreement, HUL's royalty that it pays to Unilever will increase to 3.15 percent of turnover by March 2018, compared with 1.4 percent now. The company said that the royalty will increase in a phased manner, and for Feb 1, 2013-March 31, 2014 it will only be 0.5 percent higher. Sridhar said that the new royalty agreement will help HUL gain access to technology, global innovations and use of Unilever's trademarks, things which have become even more important considering the heightened competition. "In the context of the huge growth opportunity in India, as well as increasing intensity of competition,  particularly from global players, Unilever is committed to ensuring that the support in terms of new products, innovations, technologies and services is commensurate with the needs of HUL to win in the market place and continue to generate significant value for all shareholders of HUL," the company said. But analysts, including Sanjay Manyal of ICICI Direct.com, are worried that the higher royalty payment will hurt margins. Last quarter, HUL's EBITDA (earnings before interest, taxes, depreciation and amortization) margins remained unchanged at 16.3 percent. HUL had an exceptional loss of Rs 7.3 crore in Oct-Dec, which included a profit of Rs 24.65 crore on sale of properties and restructuring costs of Rs 31.93 crore. It should also be noted that the earnings in the year-ago quarter included its exports business, which has since been transferred to a wholly owned subsidiary Unilever India Exports. Segment Results HUL said its soaps & detergent sales grew 20 percent to Rs 3,171 crore, with double-digit volume growth led by its Surf and Rin brands. Its personal products business saw 13 percent growth at Rs 2,049 crore, with double digit growth in skin care, hair care and oral care. Oral care, in particular, saw a volume-led double digit growth driven by a further step up in its Close Up and Pepsodent brands, the company said. A strong growth in tea helped the beverages business grow 18 percent to Rs 793 crore. However, packaged foods grew just 7.5 percent at Rs 330 crore in the last quarter. Other businesses, which include water, chemicals etc, saw revenue slump 43 percent to Rs 290 crore. Nachiket Kelkar
nachiket.kelkar@network18online.com