The affect of the powerful macro was evident as HUL reported flat volumes and a pointy decline in GM (7Y low), however general outcomes are nonetheless higher than JEF/consensus forecasts. Home care momentum remained robust whereas BPC was once more tepid. The outlook on margins is hard as mgmt expects a yoy drop in margins within the subsequent 2-3 quarters, after which there ought to be restoration. Mgmt can be hopeful of a rural restoration, although timing is unsure. Retain Buy on a 12M view.
Slight EPS beat: HUL’s This autumn EBITDA grew 10% yoy to Rs 32.5 bn, 2% above est. This was led by a slight income beat (+10%), decrease advert spending, and higher value management, which offset a sharper-than-expected decline in gross margin. Revenue development was totally price-led as volumes have been flat yoy, though higher than the JEF and consensus estimate of a decline (1-3% yoy). Grammage discount in value level packs (~30% of portfolio) had a 2-3ppt opposed affect on quantity development.
Portfolio: Home care continued to outperform (+24% yoy). BPC grew 4% yoy. F&R development was muted (+5% yoy).
Sharp GM cuts: After a slight qoq restoration in Q3, enter value inflation accelerated once more, resulting in ~3ppt qoq/yoy GM decline to 48.5%, the bottom in 7Y. This was regardless of ~10% development in realisations, which suggests >15% inflation within the RM basket. Mgmt highlighted 20-60% yoy inflation in inputs (crude, palm, plastics & soda ash).
EBITDA margin: Despite a pointy GM miss, EBITDA margin contraction was contained at 30bps yoy, to 24.1% (in line). This was on the again of a 9% decline in advert spending. Furthermore, HUL demonstrated robust value management, mirrored in worker prices (+4%) and different bills (+7%).
Hopeful on rural: Mgmt famous that resulting from excessive inflation, households have turn out to be extra value-seeking, and are prioritising necessities and titrating volumes. This is mirrored in c.8% decline in FMCG market volumes in This autumn, with rural extra impacted than city. While the demand atmosphere stays difficult, HUL is hopeful of a rural restoration led by good rabi harvest/monsoon, larger agricultural costs, and authorities help. However, the timing of a restoration continues to be unsure.
ST margins: RM inflation is accelerating additional and the latest palm export ban by Indonesia additional provides to the volatility. Mgmt is, nevertheless, assured of recouping margins over time. Apart from product value hikes, HUL is specializing in higher effectivity, lightweighting packaging, and introducing bridge packs for LUP portfolios.
Retain EPS est.: We largely retain our FY23/24e EPS estimates. We retain our 12M Buy, noting that the inventory could also be delicate to near-term traits on enter costs in addition to demand-side components, particularly in rural India.