HUL's Q2 profit rises 8.1% to Rs988.16 crore; shares fall 5% - Livemint

The soaps and detergents business, which accounts for over 49% of HUL’s overall sales, grew 10.6%; personal products grew 9.9% and beverages grew 7.6%, led by premium tea and coffee. Photo: Pradeep Gaur/Mint

Mumbai: Hindustan Unilever Ltd (HUL ), India’s largest packaged consumer goods company by sales, reported an 8.1% increase in net profit for the three months ended 30 September, marginally below analyst expectations, signalling that an uptick in consumer sentiment is yet to translate into higher spending.

The unit of Anglo-Dutch consumer goods maker Unilever Plc. said net profit rose to Rs.988.16 crore in the quarter, from Rs.913.80 crore a year ago. Sales rose 10.4% to Rs.7,132.69 crore from Rs.6,459.47 crore, said the maker of Knorr soups, Surf and Wheel detergents and Lux soaps.

The company had been expected to post a net profit of Rs.1,000 crore on net sales of Rs.7,667.50 crore, based on a Bloomberg poll of 33 analysts.

Faster economic expansion and slower inflation had been expected to bolster consumer sentiment, hurt by a downturn that pushed growth to sub-5% levels for two consecutive years. The economy grew 5.7% in the June quarter, the fastest pace in two-and-a-half years.

In September, inflation based on the Consumer Price Index (CPI) decelerated to a record 6.46% since the index was launched in January 2012, driven by lower price increases in food and fuel items.

Still, the overall consumer packaged goods segment recorded an increase in sales of less than 4% in value terms, and a contraction in sales growth by volume in the three months ended 30 September, similar to the trends seen in recent quarters, according to a findings of a market study released by HUL.

HUL shared the findings of the study by market researcher Nielsen to provide the context for its announcement of second-quarter earnings.

“Have we seen a significant uplift in the quarter gone by? The answer is no,” said HUL’s chief executive officer Sanjiv Mehta . “Has it stabilized, I would say so. It hasn’t deteriorated beyond the kind of levels we saw in the previous quarter. But we still haven’t seen an uplift in the demand.”

Shares of HUL closed 4.75% lower at Rs.721.90 on the BSE on Monday, a day the benchmark Sensex shed 0.37% to end at 26,752.90 points.​

HUL’s growth was driven by volume growth of 5%, slightly lower than the 6% volume growth seen in the June quarter. The soaps and detergents business, which accounts for over 49% of HUL’s overall sales, grew 10.6%; sales of personal care products grew 9.9% and beverages by 7.6%, led by tea and coffee.

Optimism about economic growth prospects hasn’t meant hard cash in the hands of consumers yet, said Gaurav Gupta , a senior director at the consulting firm Deloitte Touche Tohmatsu India Pvt. Ltd.

According to Gupta, not much has changed since the April-May general election produced a change of government, triggering hopes of a turnaround in the economy.

Interest rates haven’t dropped; there has been no significant increase in compensation and salary levels in the public or private sectors.

“As of now the liquidity is not there,” said Gupta, explaining the reason for subdued consumer spending.

While volume growth remains sluggish, HUL’s operating margin expanded by 50 basis points, helped by reduced advertising expenditure. The firm’s advertising spending fell 3% to Rs.925.05 crore in the September quarter from a year ago. One basis point is one-hundredth of a percentage point.

“In a long growth environment, our emphasis on market development and innovations have helped deliver another quarter of double-digit growth and a healthy improvement in operating margins,” said Harish Manwani , non-executive chairman of HUL, in a statement.

In the coming quarter, the company will benefit from the cooling prices of raw materials such as palm oil and linear alkyl benzene, used to make detergents.

“Raw material prices started coming down towards the end of the quarter,” said P.B. Balaji , chief financial officer.

In the September quarter, the cost of materials consumed was 1.76% higher than in the the year-ago period.

HUL is the first leading packaged consumer products maker to report second-quarter earnings.

Ahead of the earnings, analysts had expected such companies to report a pickup in revenue growth because of higher demand in urban areas and a fall in inflation levels.

A Mint survey of six brokerages—Anand Rathi Shares and Stock Brokers Ltd , India Infoline Ltd , Kotak Institutional Equities, Motilal Oswal Financial Services Ltd , Prabhudas Lilladher Pvt. Ltd and Edelweiss Securities Ltd—showed that analysts estimated profit growth of 10.2-17.9% and sales growth of 12.2-17.6% for the sector.