HUL shares spike despite a profit warning⁠ as investors get swayed by the broader market mood

• HUL warned that its profits would be largely impacted in the near term as coronavirus has increased operating costs of business.
• This came after Unilever withdrew its full-year forecast in April and had said that it could not assess the impact of coronavirus on its business.
• Although the coronavirus lockdown period was just for one week in the relevant period, HUL in its fourth-quarter earnings showed a 1% fall in profit after tax, a 9% fall in domestic sales.

Hindustan Unilever (HUL), India’s largest consumer staples company, has warned that its profit may take a hit in the near term as coronavirus has increased operating costs of business. But the share price spiked in the second half of trade today as investors got swayed by the buoyant market mood in general.

Sensex closed with gains for the sixth day in a row while HUL investors have a relatively less exciting week.

The fact that all plant, except one in Assam, were back in production was good enough for HUL shareholders. “We were able to gradually improve the operations to 70% in the month of April and have now been able to ramp-up our production to 80-90% of normative levels,” the company said.

The demand for health, hygiene, and nutritional products has sustained in the wake of the COVID-19 pandemic, but, closure of retail spaces due to the lockdown has resulted in the loss of income. “While we are seeing some demand revival in these categories, the exact time which these categories will take to recover fully remains to be seen. Our out of home businesses comprising ice creams and foods solutions and our consumer durables business of water have been most severely impacted by the lockdown.” HUL said.

HUL’s warning comes after Unilever withdrew its full-year forecast in April as it could not assess the impact of coronavirus on its business.

HUL’s fourth-quarter earnings, which included just one week of sales being hit due to coronavirus lockdown, saw a 1% fall in profit after tax, 9% fall in domestic sales, and 7% fall in volume growth.

With the supply chain impacted due to the coronavirus lockdown across the country, overall revenue has been affected on expected lines. “Demand patterns are changing, and we are likely to see an upswing in categories like health, hygiene and nutrition. In the near term, we are also likely to see some adverse impact on discretionary categories and out of home channels,” the company’s Q4 statement said.

Sanjiv Mehta, the chief executive officer (CEO) of Hindustan Unilever earlier this month revealed that the product inventory range has become smaller and simpler since the beginning of the lockdown.

According to analysts, this move will help HUL to reduce its manufacturing cost and increase productivity at the same time. Anil Talreja, partner and leader, Consumer Industry, Deloitte India said, “By reducing the SKUs(Stock keeping unit), the manufacturers can bring efficiency to their supply chain by removing the items with the lowest household penetration.”

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