Mumbai: Hindustan Unilever Ltd., Asia’s biggest maker of personal care products by market value, reported a 16% gain in revenue, signaling that demand in India may be reviving after an unprecedented economic contraction in the June quarter.
Revenue at the local unit of Unilever Plc rose to 112.8 billion rupees ($1.5 billion), the biggest jump since December 2011. Net income increased 8.6% to 20.1 billion rupees in the quarter ended Sept. 30, according to an exchange filing. That beat the 19.1 billion rupees profit forecast by analysts surveyed by Bloomberg but volume growth was a mere 3%.
Many global economies are seeing a rapid revival in consumer demand. U.S. retail sales rose in September at the fastest pace in three months, with China also seeing a rebound. Good monsoon rains bolstered demand in India’s rural areas and helped Hindustan Unilever, which sells its products through 8 million outlets in the nation. The maker of Dove soap and Surf detergent also benefited from the integration of GlaxoSmithKline Plc’s local consumer business in April.
Rural resilience
“Our operations are absolutely humming and back to pre-Covid levels,” Chief Financial Officer Srinivas Phatak said on a conference call. While rural growth performed well thanks to “better monsoons,” the outlook for urban growth “looks a little uncertain given the migration of people, given the job losses that we have seen. This is an area we need to watch,” he said.
Earnings before interest, taxes, depreciation and amortization of 28.7 billion rupees, beat the analysts’ estimate of 27.7 billion. Total costs rose 15% to 88.5 billion rupees this quarter compared to the same period last year.
“Over the past few months, there has been a steady improvement in the overall economic activity,” Jefferies India Pvt. analysts led by Vivek Maheshwari wrote in a report on Thursday. “With further improvement in macro, we expect that there should be an improvement in HUL’s earnings.”
Tepid share gains
The optimism is yet to translate into gains for investors. Hindustan Unilever’s shares dropped 0.2% on Tuesday after the earning were announced. The stock has added about 7% since Prime Minister Narendra Modi first imposed the lockdown in March, underperforming the S&P BSE Sensex’s almost 52% advance in the period.
Meanwhile, India’s economic growth forecast was slashed further by the International Monetary Fund this month. Gross domestic product will shrink 10.3% in the fiscal year to March 2021, the Washington-based lender said.
“The underlying weakness in the labor market is worrying,” Sonal Varma, chief economist for India and Asia, ex-Japan at Nomura Holding Inc. in Singapore said in a report. “It reflects continued pressure on household incomes, which can be a medium-term headwind for consumer demand.” – Bloomberg
Also read: Unilever’s Facebook ad boycott only applies to US, won’t affect Indian subsidiary HUL