Consumer goods firms report poor Q2 results, but expect better times

HUL reports 1% decline in sales volume growth; ITC revenue growth slumps 7.8%; Dabur’s revenue growth rises 1%; all three firms register profits

Graphic: Paras Jain/Mint
Graphic: Paras Jain/Mint

Mumbai/Kolkata: Hindustan Unilever Ltd (HUL) and other packaged consumer goods firms reported subdued consumer demand in the fiscal second quarter even as they said they expect a revival in demand in the second half of the year after a normal monsoon brought relief to drought-hit farmers after two years.

Companies are confident the worst is over where demand is concerned, even though rising raw material prices present a challenge and are likely to hit profitability.

“The rural sector is very important to consumer companies and so far there has been no pickup in demand,” said Ruchita Maheshwari, an analyst with brokerage India Infoline Ltd’s wealth division. “Now, given the good monsoon and the money from the seventh pay commission and OROP (one rank, one pension for army pensioners) coming in we are hoping that the worst is over and the second half is better than the first half.”

Even though things are likely to get better, the September quarter has been dismal in terms of volume growth.

India’s biggest maker of household goods, HUL, reported a 1% decline in sales volume growth, the first in 30 quarters, as price hikes, prompted by an increase in raw material costs, depressed demand further.

Net profit grew 11.54% to Rs1,095.60 crore in the quarter ended 30 September from Rs982.17 crore a year ago, the company said on Wednesday. Revenue rose 1.6% to Rs8,480.3 crore.

The Indian unit of Unilever Plc. lagged overall growth in the consumer packaged goods market in the September quarter. “The overall market volume growth was at 1-1.5% for the quarter,” said P.B. Balaji, chief financial officer. HUL reported a 3% increase in sales value growth because of price increases it effected.

HUL is hopeful that demand, particularly in the rural areas, will pick up soon.

ALSO READ | Hindustan Unilever: tepid growth, frothy valuations

Dabur India Ltd and ITC Ltd also announced their second-quarter earnings on Wednesday. ITC, India’s biggest cigarette maker, said quarterly profit rose 10.5% from a year earlier to Rs2,500 crore, largely on account of an increase in operating profit from its cigarette business.

However, revenue growth was muted and slightly behind analyst expectations at 7.8%. The company said it continued to battle “persistently sluggish demand environment”. ITC posted Rs13,491.37 crore in revenue from operations as against Rs12,511.76 crore in the same period last year. Revenue from non-cigarette consumer goods segment grew 13.3% over last year to Rs2,671.66 crore.

ALSO READ | ITC’s cigarette business holds up; GST rate key

Dabur India’s September quarter profit rose 5% to Rs357.3 crore from Rs340.2 crore a year earlier. Revenue grew at a poor 1% to Rs1,975.7 crore from Rs1,955.3 crore in the year earlier.

Not everyone is buying the theory about a better second half.

“For consumer companies, gross margins will not sustain as raw material costs are going up and volume growth will not pick up substantially in the coming quarters,” said Sachin Bobade, an analyst with brokerage Dolat Capital. “As such there will be a pain of 3-4 quarters for most consumer companies and earning estimates will be revised downwards. It will be the first quarter of financial year 2018 when we see volume growth return.”

ALSO READ | Dabur’s Q2 results miss estimates on weak sales growth

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