Hindustan Unilever (HUL) on Thursday reported a double digit rise in year-on-year (YoY) top and bottom-line growths for the December quarter and announced an increase in royalty payments to parent firm Unilever. HUL logged a 12 per cent year-on-year (YoY) rise in net profit at Rs 2,505 crore for the December quarter compared with Rs 2243 crore in the same quarter last year.
HUL said its total sales for the quarter jumped 16 per cent YoY to Rs 14,986 crore. Volume growth for the quarter came in at 5 per cent. The FMCG major said more than 75 per cent of the business saw expansion in market share. Ebitda margin for the quarter came in at 23.6 per cent, improving 30 basis points (bps) sequentially, but down 180 bps on YoY basis.
What management says
CEO and Managing Director Sanjiv Mehta said sustaining strong momentum, HUL had yet another quarter of solid all-round performance delivering double-digit revenue and earnings growth.
Mehta said his company is cautiously optimistic in the near term and believes that the worst of inflation is behind us.
“This should aid in a gradual recovery of consumer demand. We remain focused on managing our business with agility, continue growing our consumer franchise whilst maintaining margins in a healthy range. We stay confident of the medium to long term potential of Indian FMCG sector and HUL’s ability to deliver a consistent, competitive, profitable and responsible growth,” Mehta said.
Royalty payment raised
The company board approved the proposal to enter a new arrangement with Unilever group entities for the provision of technology, trademark licenses and services to HUL. In the new agreement, the royalty and central services fees will increase from 2.65 per cent in FY22) to 3.45 per cent of turnover.
“This increase will be effected in a staggered manner over a period of 3 years. This arrangement is subject to appropriate regulatory approvals. The current Technology, Trademark license and Central Services Agreement with Unilever group was entered into in January 2013 for a period of 10 years,” the company said.
Current royalty arrangement
HUL said the current technology, trademark license and central services agreement with Unilever group was entered into in January 2013 for a period of 10 years. This granted HUL the right to use Unilever owned trademarks, technology, corporate logo and gave access to central services provided by Unilever group. Unilever’s global brands, innovations, technical know-how, centralised services, and functional expertise enables HUL to win in the marketplace. During the tenure of the contract, HUL doubled its turnover and improved EBitda margin by 1000 bps.
“On the imminent expiry of the current agreement, Unilever had requested for a review of the same. HUL has been receiving a steady stream of benefits from Unilever in terms of faster innovations, superior products and technology, greater expertise, and enhanced services. This helps HUL to continue to meet emerging consumer needs with agility and create value for all stakeholders,” HUL said.
New arrangement
The new royalty and central services arrangements are proposed to be effective February 1 for a period of 5 years. The new arrangement envisages a staggered increase of 80 bps over a period of 3 years from 2.65 per cent to 3.45 per cent of turnover.
The arrangement would be such that 45 bps increase in effective cost will apply for February to December 2023; a 25 bps further increase in effective cost will come into effect for January to December 2024 and 10 bps further increase in effective cost will be seen from January 2025.
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