Mumbai: Hindustan Unilever Ltd (HUL), India’s largest consumer goods company by revenue, posted a 1.7% drop in December quarter net profit as rising inflation drove input costs upward amid intense competition, putting pressure on margins.
The Rs637.51 crore profit posted by the maker of Lux, Wheel, Dove and Kissan fell short of the Rs646 crore average of 20 analyst estimates compiled by Bloomberg.
The profit decline was sharper at 2.1% after the exclusion of exceptional items such as sale of properties, long-term trade investments and restructuring costs.
Rising expenses during the quarter, including a 19% increase in the consumption of raw materials and packaging costs, a 19% increase in the purchase of goods, and a 17% increase in advertising and promotion expenses saw operating profit drop 9.9%.
Unilever Plc’s Indian subsidiary saw revenue grow 11.6% to Rs5,027.01 crore from Rs4,504.26 crore. For the fourth quarter in a row, HUL sustained double-digit underlying volume growth in the domestic consumer business at over 13%.
“In an inflationary environment, we will manage our business dynamically, through judicious pricing actions and increased focus on cost effectiveness, while ensuring that we remain competitive in the marketplace,” said Harish Manwani, chairman of HUL, in a press release.
The growth in revenue was led by categories such as personal care products—up 20% to Rs1,655 crore—and processed foods, growing 18.5% to Rs221 crore.
HUL’s key soaps and detergents segment, which contributes 43% to revenue and 23% to operating profit, grew a dismal 5.8% to Rs2,192 crore. With brands such as Hamam and Wheel being relaunched during the quarter, the segment’s profit was down 39%.
Input cost inflation continued to rise during the three-month period. The cost of goods sold went up by 220 basis points as a result of a steep rise in material costs, especially in commodity-sensitive categories, the company’s release said. One basis point is one-hundredth of a percentage point.
To offset high input cost inflation, the company has selectively started raising prices. For instance, in the December quarter, it raised the price of a 1kg Rin pack from Rs50 to Rs54. In January, it increased the price of the Lux 90g pack from Rs16 to Rs17.
However, “pricing will not mitigate cost inflation as competitive intensities are high”, Sridhar Ramamurthy, chief financial officer of HUL, told reporters.
“The still low growth in key categories and pressure on operating margins is a cause of concern,” said Vanmala Nagwekar, equity analyst at India Infoline Ltd. The brokerage has maintained its “market perform” rating on the stock and has a “buy” rating on ITC Ltd, which reported earnings on 21 January.
Rivals such as Godrej Consumer Products Ltd, which has brands such as Cinthol and Godrej expert hair colour, and ITC have declared operating profit margins of 25.2% and 36%, respectively. Marico Ltd, maker of Parachute and Saffola, and Procter and Gamble Hygiene and Health Care Ltd, the listed subsidiary of Procter and Gamble Co., will declare earnings on 27 January and 28 January, respectively.
HUL dropped 5.45% to Rs281.65 on the Bombay Stock Exchange, while the benchmark Sensex index fell 0.95% to 18,969.45 points.