India's largest consumer goods company, Hindustan Unilever Ltd (HUL), on Tuesday reported a 15.6% year-on-year jump in net profit in the October-December third quarter to Rs. 871 crore against Rs. 750 crore a year ago, but lagged market expectations as low volume growth and a rise in royalty payments to parent Unilever hurt profits.
The results sent its shares down 2.9% on the Bombay Stock Exchange.
The maker of Surf detergent, Fair & Lovely cream, Sunsilk shampoo and Kissan ketchup, saw net sales grow by 10% to Rs. 6,433 crore during the third quarter against Rs. 5,844 crore a year ago.
A boost in other income by 67% to Rs. 134 crore aided profits.
Reuters said analysts had estimated a profit of Rs. 880 crore and sales of Rs. 6,570 crore.
"HUL has delivered the lowest volume growth over the last 12 quarters at 5%, much below estimates of 7%, for its domestic consumer business," said V Srinivasan, research analyst, FMCG, Angel Broking. "While the low-margin soaps and detergent division posted a 20% sales growth, sales of personal products division grew at a modest 13%."
"The company does not have too many categories to drive and needs to refocus on large new product delivery to improve visibility over longer term," said Nikhil Vora, managing director and research head, IDFC Securities.
The company also announced changes in royalty payments. Under the new agreement the royalty HUL pays to parent Unilever for the use of its trademarks will increase in a phased manner. The company will pay a royalty of 3.2% of turnover by March 2018 against the current 1.4%.
"HUL will see at least Rs. 110 crore wiped out of its profits next year alone owing to the increase in royalty cost. This number will go up every year over the next five years," said Srinivasan.