Hindustan Unilever net beats Street, but rural demand slows
Hindustan Unilever Ltd, India’s largest consumer goods firm, said on Monday its fourth-quarter profit rose 7%business Updated: May 09, 2016 19:23 IST
Hindustan Unilever Ltd (HUL), India’s largest fast-moving consumer goods (FMCG) major, reported a fourth-quarter net profit above estimates, on the back of higher exceptional income in the year-ago quarter.
Net profit rose 7% to Rs 1,090 crore during the January-March quarter, against the year-ago period. Analysts had expected the company to post a net profit of Rs 1,078 crore, according to Reuters.
Revenue for the Mumbai-based company rose 4% to Rs 7,946 crore during the quarter, compared to the year-ago period, as sales remained sluggish, particularly in the rural areas.
The slowdown impacted volume growth for HUL, which rose 4% during the fourth quarter, from 6% in the third quarter.
The company reported exceptional gains of Rs 43 crore from the sale of properties and part profits from the sale of the Modern bakery business during January-March. A year-ago, it had exceptional gains of Rs 179 crore.
“The rural market used to grow at twice the rate of urban growth. Now it is growing at a slower rate,” HUL CEO Sanjeev Mehta said. Rural sales account for 40% of the company’s total revenue.
Rural growth has been slowing for some time now due to two successive years of poor monsoon.
The company’s input costs in the quarter fell 3% to Rs 2,845 crore, and the company took around 2% price cuts in the quarter, mainly in the soaps and detergents space.
HUL also raised its advertising and promotional (A&P) spends by Rs 65 crore to Rs 1,090 crore. A&P spending accounted for 14% of HUL’s sales in the fourth quarter.
“Sales growth slowed down to 3% year-on-year in the personal products segment, versus estimated growth of 6%,” said Ritwik Rai, analyst at Kotak Securities.
Any pick-up in overall demand will largely depend on a pick-up in rural sales, HUL officials said .
But chairman Harish Manwani said the company “does not see any tailwinds at this stage.”
Competition has increased in the FMCG space, particularly with the introduction of Baba Ramdev’s Patanjali Ayurveda. HUL admitted it was under represented in this space, and so the company was looking to increase its focus. “We are upping our game in naturals. That’s the reason we acquired Indulekha (hair oil brand) in December 2015. We have relaunched our own brand Ayush, we have relaunched Fair & Lovely Ayurvedic and there is more coming up,” Mehta said.