HUL manages to maintain overall growth momentum in latest quarter

Amidst a weak demand environment, consumer goods bellwether has just about managed to maintain its overall growth momentum in its latest quarter to March show. At an adjusted volume growth of 4% and a value growth of 5%, HUL’s performance in the quarter was not very different from the one posted in the preceding three quarters.

Though the consumption (volume) growth has slowed down, the company retained its focus on profitable growth. It has maintained its operating and net margins by taking judicious price increases. By lowering its spend on advertising and promotion, the company has managed to get a 30 bps lead from a year ago margin level of 15.2%. Even on the segmental front, the company has managed to maintain margins across all its product categories.

Its largest segment of soaps and detergents registered a double digit growth of 10% each in revenues as well as profit with a segmental margin of 12%. The growth of its most profitable segment of personal products was rather subdued with 8% increase in revenues and 5% jump in profit.

The margins for this segment were however maintained at 25%. The company’s clear focus on maintaining its growth rates and protection of its margins arrested the decline in the company’s stock post the announcement of its results. The stock closed flat for the day.

However, the weakest volume growth in recent years for the largest consumer goods company is a clear indication of the nature of slowdown in consumption in the economy right now. It is difficult to estimate whether the worst is over for the consumer goods major given the uncertainty around the new government getting formed at the Centre and the normalcy of monsoon this year. However, given the stock’s high valuation of 33 times its trailing four quarters, any worse performance for HUL from hereon will prompt a steep price correction.