Why HUL Share Price is Falling

As a kid, I remember wondering what the big 'U' was at the end of also many famous ads. From detergents to soaps to ice creams to toothpaste, it was everywhere.

It's the logo of the FMCG giant HUL.

HUL products were doing well. However, what about the HUL share price? Not so much. The stock was basically in a coma for eight years as it did not move up.

But after the coma, it started giving mouth-watering returns. From 2010 to 2020, it has given a return of delivered a whopping return of 30% CAGR.

Recently however, HUL's share price has plunged. In the past month, the company's share price has fallen around 7%.

Now why did the share price of a good FMCG company fall on the bourses?

Let's find out.

Rising Inflation Impacts Profit Margins

On 21 October 2022, HUL posted its results for the September 2022 quarter.

It reported a standalone net profit of Rs 26.7 bn for the quarter, an increase of 22% from Rs 21.8 bn reported in the year-ago period. On a sequential basis, the net profit grew 12% from Rs 23.9 bn in the June quarter.

This was on the back of an increase in revenue.

The FMCG major's revenue rose 15.9% YoY to Rs 153.5 bn against Rs 131 bn in the same quarter last year.

As a result, its earnings before interest, tax, depreciation and amortisation (EBITDA) for the quarter also came in higher at Rs 34.8 bn, up 8% YoY.

A superficial view of the quarterly financials might make it appear that the company has been doing very well.

However, if you take a closer look at the financials, you will see that its profit margins have been a big worry.

HUL's profit margins have been under pressure for a while now because of increasing raw material costs. The gross profit margins this quarter too have been impacted.

Sequentially, the company's margin fell 0.4%. However, on a YoY basis, the margin fell around 2%.

The margins are expected to be under pressure for a while due to rising inflation.

Also, HUL announced a price drop in October in some of its products to pass on the benefit of the drop in palm oil prices. Hence, the existing inventory which is manufactured at a high cost will be sold at low prices.

This also hurt investor sentiment.

HUL's profit margins are low currently, but the increase in the previous year's margins was on account of higher realisations.

As raw material cost increased in the year gone by, the company was able to sell its inventory manufactured at low costs at a higher selling price.

As a result, margins had seen a sharp increase.

Hence, the current fall in margins is not an actual fall. It is just a reversal of previous gain.

About HUL

HUL is a subsidiary of Unilever, a British company. Its products include foods, beverages, cleaning agents, personal care products, water purifiers, and other fast-moving consumer goods.

HUL has 50-plus brands under its roof. Their products are spanned across 15 categories. HUL is a subsidiary of Unilever, one of the world's leading suppliers of food, home care, personal care and refreshment products.

The company is present in 9 out of 10 Indian households. Forbes rated HUL as the most innovative company in India and #8 globally.

To know more about HUL, check out its factsheet and quarterly results.

You can also compare HUL with its peers:

HUL vs Godrej Consumer

HUL vs Dabur

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