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Hindustan Unilever’s gains may rise on higher detergent prices

Hindustan Unilever’s gains may rise on higher detergent prices
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First Published: Thu, Apr 26 2007. 10 27 PM IST
Updated: Thu, Apr 26 2007. 10 27 PM IST
By Subramaniam Sharma
New Delhi: Hindustan Unilever Ltd, India’s biggest household-products maker, is likely to report that first-quarter profit gained on higher prices for detergents and skin-creams and increased sales through chain stores. The Mumbai-based company will announce earnings on 30 April.
Profit excluding one-time gains or charges rose 19% to Rs350 crore in the three months ended 31 March from Rs294 crore a year earlier, according to the median estimate of five analysts surveyed by Bloomberg. Sales probably rose 10% to Rs3,087 crore.
The per capita consumption of detergents in India is a 10th of South Africa, according to Hindustan Unilever. Makers of household and consumer products will benefit as India’s economic growth spurs consumer demand, and urban chain stores such as Big Bazaar open outlets in smaller towns across the country.
“Penetration in India is still low in many products and many areas,” said Jayesh Gandhi, who manages the equivalent of $219 million at Birla Sun Life Asset Management Co. in Mumbai. “The needs and aspirations of people are rising along with income levels and consumption will also rise.”
Shares of Hindustan Unilever rose 1.6% or Rs3.50 and closed at Rs214.70 on the Bombay Stock Exchange.
During the quarter, Hindustan Unilever increased the price of its Surf Excel Blue detergent 1.5kg pack to Rs120 from Rs117. The price of a 45g pack of Lux soap was raised to Rs6 from Rs5. A 9g pack of Fair & Lovely cream was increased to Rs6 from Rs5.
The number of chain stores in India is growing at an average 15% each year, faster than mom-and-pop shops, according to a 14 March presentation by Hindustan Unilever’s vice-president of treasury S.P. Mustafa. Hindustan Unilever estimated there were 2,872 stores in 2005, compared with 726 in 1995.
Mumbai-based Pantaloon Retail (India) Ltd, the country’s biggest publicly traded retailer, has almost doubled the number of its Big Bazaar stores to 50 from a year earlier. New Delhi-based DCM Shriram Consolidated Ltd runs 50 supermarkets called Hariyali Kisaan Bazaar in the country’s villages. Demand is “coming from the modern retail trade,” said Dharmil Adhyaru, an analyst at Angel Broking Ltd in Mumbai, who has a “hold” rating on the stock. “It saves Hindustan Unilever the hassle of distribution. In the retail format, a lot depends on visibility and you can push products with higher margins.”
Hindustan Unilever has increased spending on advertisements to prompt customers to upgrade from brands such as Breeze soap to Lux and from Wheel detergent to Surf. Advertisement expenditure rose 27% to Rs12.73 billion in 2006 from a year earlier, compared with a 20.3% rise last year.
The spread of retail-chain stores hold both advantages and disadvantages for companies such as Hindustan Unilever, investors such as Pauli Laursen said.
“Competition will increase as opportunities open up for other companies as well,” said Laursen, who manages $700 million of emerging-market equities at Sydinvest Asset Management in Aabenraa, Denmark, including Indian stocks.
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First Published: Thu, Apr 26 2007. 10 27 PM IST