Mumbai: India’s largest packaged consumer products firm by sales, Hindustan Unilever Ltd (HUL), which is engaged in a price war with rival Procter and Gamble Home Products Ltd (P&G), posted a 47% increase in net profit in the fourth quarter, thanks to gains from sale of investments and property.
Profit rose to Rs581.2 crore in the January-March period from Rs394.99 crore in the year-ago period, boosted by Rs91.10 crore from the sale of long-term trade investments, Rs5.47 crore from disposal of real estate, and a reduction in the provision for retirement benefits and other items, amounting to a total gain of Rs196 crore. Excluding these, profit shows a decline.
Taking on competition: HUL chief Manwani says the firm is investing in new brands even as it fights a battle in the laundry segment. Bloomberg
The Indian subsidiary of Unilever and maker of the Dove, Ponds, Surf, Lux and Wheel brands registered an 8% increase in sales to Rs4,408.65 crore from Rs4,077.57 crore a year ago.
Chairman Harish Manwani said his company was following an effective strategy.
“Let’s not try to be subtle about this. The fact of the matter is we are fighting a competitive battle in laundry,” he said. “The good news is we have taken the right steps decisively and in time. We are pleased with the results we are getting.”
Chief executive officer Nitin Paranjpe said market share was key to the company’s long-term approach,
“Much of our actions with product pricing is to defend our leadership position,” he said. “In the short term, there might be an impact on our bottom line. But we are convinced in the long term defending our market share and holding onto leadership position and consumer franchise is better than struggling to bring them back.”
Results were in line with analyst expectations.
“The company is doing well in most categories,” said Anand Shah, sector analyst with Angel Broking Ltd. “However, its margins have contracted from 17% to 13% due to increased advertising expenses with increasing competitive pressures and also the laundry war.” Shah has maintained his outlook on the firm at neutral.
HUL, India’s largest advertiser, raised its ad spending by 39% to Rs626.52 crore in the quarter from a year ago.
Underlying volume growth was about 11% and there was a drop of 2.5% in value on account of price cuts largely in the laundry category. Soaps and detergents, the largest segment, now account for 46% of overall revenue compared with 50.6% a year ago.
During the quarter, the firm also invested in building new categories. It launched the Vaseline men’s range, Knorr Soupy noodles and Brooke Bond Sehatmand tea.
“Even while we are fighting a real big battle in laundry, we are investing and launching new products,” Manwani said.
In March, HUL rolled out one of its biggest general trade initiatives, giving its sales force of 12,000 handheld devices for reaching out to one million shops across the country. The firm is now looking at increasing its rural focus significantly.
“We will treble our rural reach in the next two years to be equivalent to what we have achieved in the last 25 years,” Manwani said.
For fiscal 2009-10, the firm has reported consolidated net sales of Rs17,764.3 crore and a net profit of Rs2,156.6 crore.
The board declared a final dividend of Rs3.50 per share for the fiscal, subject to shareholder approval at the annual general meeting. Together with an interim dividend of Rs3 per share, the total for the year 2010 amounts to Rs6.50 per share, compared with Rs6 a year ago.
HUL fell 0.6% to Rs230.10 on the Bombay Stock Exchange, while the Sensex index dropped 2.71% to Rs16,022.48.