New Delhi: India’s largest maker of household and consumer care goods, Hindustan Unilever Ltd (HUL), posted third quarter earnings on Tuesday that signalled demand recovery, but profit growth was eroded by heavier spending on advertising and promotions as well as price reductions.

Graphics: Paras Jain / Mint

But taking out exceptional items and the market value of forex transactions, net profit grew by just 0.1% in the three months ended December to Rs609.18 crore, the company said in a statement. Net sales rose 4.5 % to Rs4,504.26 crore, driven by accelerated volume growth, specially in winter products.

During the quarter, HUL spent Rs632 crore on advertising and promotions, two-thirds more than the Rs380 crore it spent in the same quarter the previous year. The company said the higher expenditure was needed to strengthen “market competitiveness".

“We are seeing good results from the actions that we have taken to drive growth," chairman Harish Manwani said in the statement. “Volume growth accelerated in the quarter, backed by quality innovations, increased brand support and continued focus on market execution."

Still, profit after tax lagged behind analyst expectations. Seventeen analysts surveyed by Bloomberg had estimated an average Rs6,610 crore of net profit for HUL.

Colder temperatures in the winter, compared with the previous season, boosted sales of Pond’s and Fair & Lovely creams, which account for almost half of HUL’s pre-tax profit. Growth in the nation’s $1.2 trillion economy is also putting more money in the hands of consumers, signalling demand recovery.

HUL’s home and personal care business grew 4%, with volume growth in soaps, detergents and personal products partly offset by price reductions in the laundry segment. Underlying overall volume growth accelerated to 5% in the quarter, more than analysts’ expectations of around 4%.

“The results are below expectations as the growth should be looked at holistically. The 5% increase in volumes has come at the cost of margins and bottom line," said Sameer Deshmukh, analyst at Tata Securities Ltd.

Bloomberg contributed to this story.