Urban Blues and Rising Brews: Costs Crimp HUL, Nestle Profits Despite Sales Uptick

India's top fast-moving consumer goods (FMCG) players, Hindustan Unilever (HUL) and Nestle India, posted muted financial performance in the March quarter of FY25. Both behemoths experienced weak sales growth and declining profit margins, mainly because of sustained urban demand weakness and high input costs. While there was some resilience in rural markets and some product categories, the overall tone remains guarded as companies prepare for sustained commodity inflation and changing consumer behavior.

 

Financial Performance: Slow Growth and Margin Squeeze

HUL recorded mere 2% volume growth and 3% revenue growth in the March quarter, with consolidated net profit falling 3.35% year-on-year to ₹2,475 crore.

 

Consolidated net profit of Nestle India declined 6.5% to ₹873.46 crore, while revenues from sales of products increased moderately by 3.7% to ₹5,447.64 crore.

 

Both companies reported contraction in profit margins: HUL’s EBITDA margin dropped by 30 basis points year-on-year to 23.1%, and Nestle’s margin fell to 16% from 18% a year ago.

 

Urban Slowdown and Shifting Demand Patterns

Urban demand remained sluggish, dampening overall growth for both companies. HUL flagged persistent weakness in urban markets and pricing pressure across key categories like foods, personal care, and tea.

 

Conversely, rural markets remained more resilient, with the two firms witnessing robust demand for value and small packs.

 

HUL's CEO observed a deceleration in growth in the premium segment in recent quarters.

 

Commodity Inflation and Increasing Costs

Raw material costs of major commodities like tea, palm oil, coffee, and cocoa continued their upward trend, denting both companies' gross margins.

 

HUL's gross margin narrowed by 160 basis points year on year, largely on account of commodity inflation that was not entirely transferred to consumers.

 

Nestle's cost of sales as a percentage of sales rose, further compressing margins.

 

Category and Channel Highlights

Nestle's beverages business, led by cold coffee offerings that are favorite among Gen Z and millennials, posted double-digit growth, mitigating some weakness in other categories.

 

Both the companies reported increasing contributions from e-commerce and quick commerce channels, now contributing more than 8% of annual sales.

 

HUL is still emphasizing premiumisation and rural growth, while Nestle is using innovation in health, nutrition, and pet care to drive growth.

 

Strategic Outlook

Both HUL and Nestle are giving more importance to volume growth and market share rather than margin growth in the near term, considering the tough demand environment.

 

Managements are optimistically cautious, hoping that loosening inflation and possible tax relief will stimulate family spending on essentials and discretionary products.

 

The firms are investing in product innovation, rural reach, and digital media to prepare themselves for a wider recovery as macroeconomic conditions become favorable.

 

Sources: Reuters, The Telegraph, Moneycontrol, Upstox, Economic Times