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Business News/ Companies / Company-results/  HUL sales remain sluggish even as profit rises
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HUL sales remain sluggish even as profit rises

Net profit rises 22% aided by one-time gains; HUL sees growth remaining slow in next few quarters

A ‘Bloomberg’ poll of 32 analysts had estimated net profit at `939.9 crore and sales at `7,127.1 crore. Photo: Pradeep Gaur/MintPremium
A ‘Bloomberg’ poll of 32 analysts had estimated net profit at `939.9 crore and sales at `7,127.1 crore. Photo: Pradeep Gaur/Mint

Mumbai: Sales at Hindustan Unilever Ltd (HUL) remained sluggish in the December quarter despite the consumer goods company spending substantially more on advertising, although net profit jumped 22% on one-time gains.

The maker of Knorr soups, Surf and Wheel detergents, and Lux soaps on Monday reported net profit rose to 1,062 crore in the three months ended 31 December from 871.36 crore in the year-ago quarter.

The profit, however, included gains from sale of a property and a net write-back of tax provisions from earlier years amounting to 92.8 crore. Without these one-time gains, net profit was 955 crore, an increase of 9.6% from a year ago. Domestic consumer product sales, which include home and personal care, water and food, grew 10% to 7,774.5 crore, driven by price increases of close to 6% and volume growth of 4%, said HUL, the Indian unit of Anglo-Dutch consumer goods maker Unilever Plc.

December volume growth at 4% was marginally below the 5% expansion seen in the September quarter.

Volume growth in the June quarter was 4%.

HUL’s advertising spend rose to 929 crore in the December quarter, an increase of 107 crore, or 13%, over the same quarter last year.

“The growth in 2012 was in double digits and in 2013 it is in single digits. Clearly there is a very significant slowdown in volume and value. From our perspective, at least in the short term, the market growth for the next few quarters will remain slow—it might be two or it might be three," said R. Sridhar, chief finance officer of HUL, adding that the slowdown has impacted both urban and rural markets.

Rural markets account for around 40-45% of the company’s sales.

Consumers are being far more cautious about family budgets and tightening spend in discretionary areas, Sridhar said. “They are more conscious of their frequency of usage," he said.

The volume growth was below market expectations.

“Domestic volume growth of 4% is at the lower end of the Street estimates," said Nitin Mathur, analyst at Espirito Santo Investment Bank, who also doubted whether the high advertising and sales spending can be sustained in the face of tepid growth.

Brokerage firm Motilal Oswal Securities Ltd said that the key headline parameters, including volume, sales, operating profit and net profit, were broadly in line with its estimates. The 4% subdued volume growth is still competitive given the market context, said Rikesh Parikh, vice-president (institution corporate broking).

HUL’s operating profit margin expanded 60 basis points from the year-ago period to 17% and cost of goods sold fell by 110 basis points. A basis point is one-hundredth of a percentage point.

“The margin expansion reflects the company’s change in portfolio with price-led growth and the high margin personal products business growing at a higher rate as compared to the overall business of the company," said Dhananjay Sinha, head of research at Emkay Global Financial Services Ltd.

Margins expanded due to the company raising prices, withdrawing some promotions and pushing down costs, said HUL’s Sridhar.

Dabur India Ltd, maker of Hajmola candies, Real juices and Vatika hair oil, reported on 22 January that operating profit margin fell from 16.89% a year ago to 16.21% in the December quarter.

Colgate-Palmolive India Ltd’s margin fell from 15.74% to 15.33% in the December quarter, due to higher spending on advertising.

However, unlike HUL and Dabur, which saw their volume growth slow, Colgate reported healthy volume growth of 10% in the December quarter, led by 11% volume growth in toothpastes. It also increased its market share amid increasing competition, Colgate said in a statement on 21 January.

A break-up of different segments in HUL’s product portfolio showed that the soaps and detergents segment, which accounts for close to 40% of its overall sales, grew in the single digits, largely led by price hikes. Personal products grew at 14%. Beverages grew at 9% and packaged foods, 14%. “The high growth in packaged foods and personal products came as there is more headroom for growth due to low per capita consumption," said Sridhar.

Shares of HUL rose 1.71% to 575.55 each on Monday on BSE, while the benchmark Sensex fell 2.02% to 20,707.45 points. The BSE FMCG index fell 0.18% to 6,510.99 points.

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Published: 27 Jan 2014, 03:54 PM IST
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