Reality Check: HUL hurt by low volumes

After a healthy volume growth of 10-12 per cent over the last five quarters, Hindustan Unilever recorded a slower volume growth of 7 per cent in the March 2019 quarter (over March 2018 quarter). The high base of last year, along with the slowdown in rural demand, hurt the company. Yet, it managed an 8.9 per cent growth in sales to ₹9,809 crore and a 13.8 per cent growth in profits to ₹1,538 crore, aided by better realisations and product mix, as well as lower input costs and advertising expenses. Thanks to these savings, operating margin expanded by 80 basis points over the three months-ended March 2018 to 23.3 per cent now. In the quarters to come, the moderation in rural demand and the base effect may continue to impact volumes. The stock now trades at 60 times its trailing 12-month earnings. Considering the weakening volumes and high valuation, the upside for the stock may be limited.


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