High raw material costs limited the margin gains even as the company spent less on advertising during the quarter. The raw material cost grew 5% on year and constituted 49.6% of the revenues, driven by inflation in tea and crude palm oil prices. The company’s ad spends declined 15% on year with these spends standing at 9.5% of net sales.
The home care business segment-the largest of all-posted the best revenue growth of 8%. By contrast, the personal care segment witnessed the most decline of 5% on back of pricing actions taken during the year. All segments posted double-digit margins. Going ahead, the company plans to take calibrated price increases to pass on the input cost inflation.
AgenciesHUL’s board has decided to separate the ice-cream division in line with the decision of its parent to separate its ice-cream business. According to the company, the high growth, low margin ice-cream segment contributes 3% to the HUL’s turnover and requires significant investments and a different operating model including cold chain infrastructure and a distinct channel landscape that does not share synergies with rest of the HUL’s portfolio.
The volumes of ice-creams for the quarter remained flat on year. The growth in urban markets has moderated which does not augur well in the near term for the company which earns two-thirds of its revenues from the urban markets. The recovery in rural markets remains gradual.
With a modest gain of 7%, the HUL stock has significantly underperformed the benchmark index over the past one year. Subdued consumer demand amidst a cost inflationary environment does not imply a very encouraging prospect for the stock in the near term. While hiving off a non-core business is good news, losing 3% of the business (ice-cream segment) creates a further overhang on the stock. For now, HUL’s shareholders will have to contend with the dividend income with the company announcing a total dividend (interim + special) of ₹29 per share.