New Delhi: India’s largest maker of consumer goods by sales, Hindustan Unilever Ltd (HUL) on Sunday said operating profit increased by at least a quarter in the three months ended 31 March, but net earnings grew at a slower pace as the company took one-time charges.
HUL’s operating profit increased to Rs599 crore in the quarter, a 27% rise from a year earlier. Sales increased 6% to around Rs3,990 crore. The company reported an improvement of 2.5 percentage points in its operating margin.
Net profit increased by a mere 3.7% in the quarter, to Rs395 crore from Rs381 crore a year earlier. The company made a one-time provision of Rs60.48 crore for retirement benefits and Rs25.7 crore for restructuring in the quarter ended March, it said.
Operating leverage: HUL chairman Harish Manwani. Abhijit Bhatlekar / Mint
Harish Manwani, chairman of HUL, said a “continued focus on costs and improved operating leverage” had helped the company.
HUL also is benefiting from a decline in prices of raw materials, including palm oil and petroleum derivatives, and a cut in excise tax announced by the government in February to stimulate demand. India’s economy has slowed from an unprecedented 9% average growth in the past four years, damping consumer demand.
Sales fell short of analysts’ estimates of Rs4,360 crore. The company attributed the slower-than-estimated growth in sales to wholesalers keeping lower stocks on expectations of price cuts, the shutting of outlets of retail chains and the cutting down of exports to European nations.
Retailers in the country are shutting money-losing stores to shore up profits as the economy slows.
The company reduced prices of several items including Lux and Lifebuoy soaps, vice-chairman D. Sundaram told reporters on a conference call. Because of frequent price corrections, trade downstocking has been observed, he said.
HUL said the improvement in margins, the percentage of sales left after subtracting production, marketing and other expenses, was driven mainly by a decline in commodity prices.
“Going forward, our mantra will be business as usual on growth, but business unusual on costs,” Manwani said, alluding to cost-cutting measures undertaken at HUL. “We’ll be tough on costs to create the right headroom on growth.”
Prices of palm oil, used to make soaps, has dropped 41% to 2,000 Malaysian ringgit (around Rs28,050) at the end of March from a year earlier. The commodity reached a record of 4,486 ringgit on 3 March 2008. Crude oil had declined 66% on 31 March from its July record of $147.27 (around Rs7,260).
Revenue from soaps and detergents, which contribute about half of sales, gained 16% to Rs201 crore.
Analysts have been concerned about HUL’s declining market share across product categories even as the broader consumer products market expanded in defiance of an economic slowdown.
Saikat Chatterjee works with Bloomberg