If you had read the quarter three report of HUL then you might have noticed the first line in bold letters say, “sustained volume-led profitable growth: 6% underlying volume growth, operating profit (PBIT) up 7%”

Here we look at the quarterly and 9 months performance of HUL.

HUL Q3 – 2016 Q3 – 2015 % change 9mths – 2016 9mths – 2015 % change
Total Income 7,822.86 7,579.18 3% 24,041.51 23,129.98 4%
Cost of material 2,689.39 2,860.63 -6% 8,430 8,938.13 -6%
Total Expenses 6,632.34 6,515.90 2% 20,011.64 19,456.10 3%
Operating profits 1,348.65 1,258.42 7% 4,029.87 3,673.88 10%
Net Profits 971.40 1,252.17 -22% 2,992.78 3,297.17 -9%


There is a lot of pressure on the managers of HUL as market was not expecting profits to fall no more than 1% this year and grow by 14% next year. If you read the commentary of the managers they are saying that even though cost of material had fallen down, volumes had grown but because they could not increase or maintain the price the net profits had fallen down. They are calling this as deflation and our alarm bell rings.

We don’t know how they will grow their profits by 14% in the next financial year. We also don’t think they are adding any value to the business. Last year they made profits of Rs 20 per share and paid Rs 15 as dividends to shareholders and reinvested Rs 5 back in the business. If you read our blogs regularly, you will understand what we mean by this behaviour and how shareholders are losing money.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we advise to take professional advice before going ahead with our views.