India’s largest consumer staples company Hindustan Lever Ltd (HLL), owner of brands such as Close Up toothpaste, Lifebuoy soap and Taj Mahal tea, saw its net profit, after exceptional items, fall by 11.2% to Rs392.8 crore in the first quarter ended 31 March 2007, despite sales rising 13.8% to Rs3,184 crore.
But excluding the impact of the exceptional items—such as the sale of the Nihar brand—profits rose by 13.6% during the latest quarter.
HLL shares closed at Rs199.40, down 4.8%, on the Bombay Stock Exchange, on a day when the benchmark Sensex index fell 0.26%.
The company blamed rising input costs, such as for crude and vegetables oil, and competitive pressure, which impacted sales of soaps and detergents, for the dip in performance. Soaps and detegents sales, which account for over 44% of the company’s sales in the March quarter, grew by 9.5% to Rs1,444.5 crore. “We took a price hike in detergents last quarter, but the profitability is still the same, mainly due to competitive pricing pressure,” said D. Sundaram, director, finance.
During the quarter, Hindustan Lever increased the price of its detergent Surf Excel Blue 1.5kg pack to Rs120 from Rs117. The price of a 45g pack of Lux was raised to Rs6 from Rs5 and the price of a 9g pack of Fair & Lovely cream was increased to Rs6 from Rs5.
According to a recent report by IL&FS Investmart Securities Ltd, HLL’s entire margin in the soaps and detergents business comes primarily from the soap segment.
While the beverages business posted a 16.6% rise in sales for the quarter, profits fell by 10.3% due to higher advertising and promotional spending. Processed food business grew at 48.6%, while personal care products had a lower growth of 7.3%.
“The personal products should have grown by more than 16% but it grew only by 10.5%, even after after adjusting the Nihar sale,” said Abhijeet Kundu, an analyst at Mumbai brokerage firm Prabhudas Lilladher.
Last year, in the same quarter, the Nihar brand was sold to Marico Ltd for over Rs100 crore. As IL&FS analyst Sameer Deshmukh pointed out, the “personal care segment’s non-performance is very critical since it draws the highest margin at 24%.”
HLL, one of India’s largest advertisers, has upped its ad spend by Rs356.3 crore, up 17.4% over they year-ago quarter, to protect its market share.