Mumbai: India’s largest home and personal care products maker, Hindustan Unilever Ltd (HUL), on Tuesday reported a 2.7% drop in net profit to Rs543.19 crore for the June quarter, as the company spent more on advertising and promotions to spur sales during the economic downturn.
Net sales grew by 7.77% to Rs4,475.68 crore from the corresponding period of last year.
The company’s spending on advertising and promotions increased by 26% to Rs561 crore for the June quarter, from Rs446.20 crore in the corresponding period of the previous year. Profits were also hit by a mark-to-market charge of Rs32 crore from a restatement of foreign exchange exposure, the company said.
“We have been proactive in the market and have taken appropriate action. You will see us play the full portfolio of brands,” R. Sridhar, HUL’s chief financial officer, said. Sridhar stressed an improvement of 60 basis points in operating margins. One basis point is one-hundredth of a percentage point.
Volume growth was led by the personal products and food categories, Sridhar said. However, the high-margin detergents and soap segments, which are the biggest contributors to the company’s revenue and profits, and tea suffered as customers opted for cheaper products amid the economic downturn, he said.
Investors were not impressed by the result. HUL’s stock lost 7.28% of its value from the nine-year high it touched during the day to end at Rs277 on the Bombay Stock Exchange on Tuesday. The benchmark Sensex fell 0.28% to 15,331.94. HUL’s stock has risen 10.7% so far this year, lagging a 59% rise in the Sensex.
The firm tweaked prices and product weights to boost sales. Breeze soap’s three-pack offering saw its price declining by Re1 to Rs29. It raised the weight of a pack of Wheel detergent powder from 300g to 325g. In the haircare segment, the weight of Re1 Clinic Plus shampoo sachets was increased from 7.5ml to 9ml.
“Against the backdrop of a challenging economic environment, we have taken decisive actions to strengthen our competitiveness and execution capabilities in the marketplace,” said HUL chairman Harish Manwani. “These have started to show positive results, with good volume recovery in personal products and foods.”
HUL officials said lower input costs, combined with tight cost management and operating leverage, led to higher operating margins in the quarter. Raw material costs were lower 110 basis points as a percentage of sales.
Analysts were not buying the positive spin. Nikhil Vora, who tracks the home and personal care products sector at IDFC-SSKI Securities Ltd, termed HUL’s results a “fairly mediocre set of numbers”.
“Being the market leader, the market was expecting more from the company. It has taken a hit in market share in its high-margin segments,” said Vanmala Nagwekar, research analyst with India Infoline Ltd.
Reuters contributed to this story.