HUL riding inorganic expansion wave

ET Intelligence Group: Hindustan Unilever’s September quarter performance held no surprises for the Street. The reported numbers were high, boosted by company’s inorganic growth, but the base business growth numbers were subdued, though an improvement on the preceding June quarter. The HUL stock closed flat with the Street likely to wait for further recovery in consumer demand before turning more bullish on the consumer goods major.Overall revenues grew 16%. However, excluding the newly acquired brands, the organic business grew 3% — comprising of 1% volume and 2% of pricing growth. The highlight of the results was the 25.4% operating margin — a very healthy level for HUL and enviable in the industry when only a handful command such profitability.In the past six months of the pandemic, the company extended its Lifebuoy brand to a range of hygiene products. It has taken its nutrition brand Boost as well as Domex range of cleaning products pan-India. The company increased investment in brands — spending over 10% of revenues on advertising. It also took price cuts on certain products to pass on the impact of weakening crude oil prices. A comparison of sequential growth among the segments hints of a recovery in performance over the June quarter. Food and refreshments segment posted an accelerated growth of 14%. HUL’s largest and most profitable segment of beauty and personal care posted 12% growth, while the home care segment growth shrunk by 2% over the preceding June quarter.Timely inorganic expansion has continued to provide resilience to HUL for the second consecutive quarter. Thanks to the recent acquisition of nutrition portfolio of GSK, the health, hygiene and nutrition portfolio now earns 80% of the company’s revenues — growing 10% for the quarter to September.

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