HUL posts strong Q2 revenue growth but profit margins take a hit from rising raw material costs

Hindustan Unilever posted its highest revenue growth in 14 quarters for the July-September period, but rising commodity prices squeezed its profit margins to multi-quarter lows. Consolidated gross margin dropped 397 basis points year-on-year and 1,95 basis points sequentially to 47.6 percent. Raw material costs jumped 24 percent, outpacing the operating revenue growth of 14.8 percent.

Actions and Outlook

To protect profits, the company raised prices and cut advertising and promotion expenses by 9 percent. These steps helped limit the Ebitda margin drop to 134 basis points, bringing it to 22.4 percent, while Ebitda grew 8 percent to ₹ 4,090 crore. HUL expects raw material costs to stay high in the short term and guides for a medium-term Ebitda margin of 22 to 24 percent. Pricing growth was about 8 percent with underlying volume growth at 7 percent.

Segment Performance

Home care revenue rose 21 percent and made up nearly 38 percent of total revenue, driven by double-digit volume growth. Beauty and wellbeing revenue grew 16 percent, making up about 24 percent of the total. Personal care revenue grew 8 percent with flat volumes, while the remaining revenue came from the foods business, which grew 8.5 percent.

Context

Fast-moving consumer goods companies rely heavily on raw agricultural and industrial commodities to make daily household items. When global supply chains face disruptions, higher material costs directly squeeze company profits unless firms pass those increases on to consumers through higher retail prices.