Home / Companies / Company-results /  Lower costs, raw material prices push up HUL profit

New Delhi: Hindustan Unilever Ltd (HUL), India’s largest packaged consumer goods maker, on Friday reported a higher-than-expected net profit in the quarter to March as it sold more personal and home care products, kept prices low and benefited from low raw material costs.

The maker of Lux and Dove soaps, Surf detergents, Kissan ketchup and Lipton tea posted a 16.73% increase in net profit to 1,018.3 crore in the three months from 872.13 crore a year ago. Net sales at the company rose 8.93% to 7,555 crore from 6,935.82 crore. Sales volume grew 6%.

The company had been expected to post a net profit of 960.2 crore, based on a Bloomberg poll of 27 analysts.

HUL received a boost from a one-time credit of 71.5 crore after it won a favourable decision on an excise duty levy it contested.

The company’s profit trailed estimates in the previous two quarters as consumers, especially in the countryside, cut back on household budgets, switched to cheaper items of everyday use like soaps and toothpastes, and waited for stronger signs of a turnaround in the economy.

Easing inflation failed to get consumers to open up their wallets.

Moderating wages and farm yields, and lower prices for farm produce deterred spending in the rural areas, where recent unseasonal rains damaged crops across several states. To boost demand, HUL cut prices in the December quarter by 5-6% across key soap brands—Dove, Lifebuoy and Hamam.

Low raw material costs helped HUL. Cost of raw materials rose just slightly, by 0.66%, to 2,929.18 crore in the March quarter, thanks to the end of the commodity supercycle. The company also increased spending on advertising and promotions.

“Input costs were benign and this is reflected in the 310 bps (basis point) reduction in cost of goods sold. Investment behind brands was sustained at competitive level; overall advertising and promotions was up by 188 crore, up 150 bps," the company said in a statement.

A basis point is one-hundredth of a percentage point.

Investors gave the thumbs up to the company’s results. The HUL stock gained 3.34% to 894.60 on Friday on BSE, while the benchmark Sensex rose 1.9% to 27,105.39 points.

Even so, HUL chairman Harish Manwani hesitated to call the performance a turnaround.

“Markets have been soft and have remained soft for a while. For this to turn, we will require evidence of at least a couple of more quarters and particularly see how rural demand shapes up in the coming quarter or so," Manwani said.

The Met department has predicted a second successive year of below-average monsoon rainfall this year, clouding prospects of a turnaround in rural demand.

Chief executive officer and managing director Sanjiv Mehta said HUL had found no clear emerging trend on demand in urban and rural India.

“In near term, pace of market recovery is largely dependent on rural. The fiscal headwinds are likely to continue for another year," added chief financial officer P.B. Balaji.

Rivals of HUL and market researcher Nielsen have indicated initial signals of a recovery in consumer demand, said Abneesh Roy, associate director (institutional equities research) at Edelweiss Securities Ltd. Even HUL has performed well across most of its product categories, he said.

In a November report, Nielsen predicted that growth in the consumer packaged goods sector would revive to 10% in 2015 and 12% in 2016 as consumer sentiment and economic conditions improve. Growth in the sector declined to 7% in 2014, the worst in five years.

“However, one will have to see how the monsoon is panning out. Rains can play a spoilsport in lifting rural demand. I expect a recovery of urban demand by the second half of the current financial year. Though the scene is still dynamic based on several factors, the worst seems to be behind and there are early signs of recovery," Roy said.

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