Hindustan Unilever, the largest consumer goods maker in India, missed market estimates on Wednesday as price cuts taken during the July-September quarter, on top of exceptional gains in the year-ago quarter, pulled down net profit by 2.6%.
The results disappointed markets and HUL stock fell 1.9% on the BSE on Wednesday.
The maker of Surf detergent and Red Label tea reported a net profit of Rs 962 crore the quarter against Rs 988 crore a year ago.
Analysts had estimated HUL to report a net profit of Rs 1,043 crore, according to a Reuters poll.
“Business environment continued to be challenging. Market growth had been fundamentally led by volumes in a deflationary context and soft commodity prices continued this quarter as well,” said P Balaji, CFO, HUL.
Net sales rose 5% year-on-year to Rs 7,820 crore during the quarter. Volumes grew 7%, helped by price cuts in segments such as soaps and detergents and increased advertising and marketing spends.
In the year-ago quarter, HUL clocked a net gain of close to Rs 49 crore from the sale of properties, while in the last quarter, it had taken a charge of Rs 12 crore.
The company’s operating profit rose 7% to Rs 1,250 crore during the July-September quarter.
During the quarter, while input costs declined 2.4% year-on-year to Rs 2,903 crore, advertising and promotional (A&P) spends jumped 24% to Rs 1,145 crore.
The sharp rise in A&P spends reflects the heightened competition in the market and the need to promote heavily to maintain volume growth, analysts said.
In the near-term, the company expects commodity costs to remain benign and growth to be led by volumes, Balaji said.
Rural growth has also slowed in the last few quarters and urban and rural markets are growing at similar rates, managing director Sanjiv Mehta said. There there are no clear signs yet of growth picking up going forward, he added.