Quantity Miss: HUL’s Q2 income elevated 11%, in comparison with our estimate. Nevertheless, the composition was completely different with lower-than-expected quantity progress at c.4% whereas value progress was a lot greater than c.7%. On a 2Y foundation, the amount CAGR was at 2.5%, accelerating from a close to flatish pattern in Q1.
Discretionary restoration: Discretionary portfolio (c.12% of income) grew 31% year-on-year, whereas out-of-home (3% rev. Shares) grew 74% yoy from a low base. Development for the remainder of the enterprise, together with well being, hygiene and vitamin, was average at 7% per yr, indicating a weak quantity in lots of manufacturing segments. On a 2Y foundation, discretion has now nearly returned to pre-covid ranges whereas out-of-home progress has grown by greater than 15%.
Rural Recession: HMUL signaled a slowdown in rural progress for the FMCG business in August / September. Whereas its personal rural operations have remained robust, HUL is cautiously optimistic on demand because it displays the normalization of financial exercise, the onset of winter and the influence of inflation.
GM strain: After falling> 3.5ppt within the earlier two quarters, GMA noticed a gradual growth (+ 110bps qoq) to 50.8%, aided by value will increase, combine correction and tea value moderation. On a YoY foundation, GM declined> 150bps although. Enter costs stay secure with palm, crude and packaging supplies seeing fixed inflation. That is additional exacerbated by a rise in freight prices (sea freight> 5x). HUL expects GM to be underneath strain within the close to time period, which would require fixed pricing motion.
Ebitda Margin: GM strain was partially offset by a average enhance in worker prices and different prices. As well as, promoting prices elevated by solely 7% regardless of decrease help. Ebitda margin contraction c.50bps yoy (+ 70bps qoq), was arrested at 24.6%. Because of this the 9% Ebitda progress was barely above estimates.
Digital ramp-up: 15% of income in opposition to 10% within the final quarter is now captured on-line (eB2B + D2C + eCommerce).
Slight EPS cuts: Now we have made a slight discount in our FY22-24 EPS estimates and rolled over Rs. Maintains purchase score with PT of two,900 (previously Rs. 2,850).