Active Stocks
Mon Mar 18 2024 15:55:53
  1. Tata Steel share price
  2. 149.60 5.69%
  1. Tata Motors share price
  2. 972.20 2.75%
  1. ITC share price
  2. 417.40 -0.51%
  1. State Bank Of India share price
  2. 730.70 -0.18%
  1. ICICI Bank share price
  2. 1,082.00 0.32%
Business News/ Companies / Company-results/  HUL disappoints in December quarter as consumers hold back on spending
BackBack

HUL disappoints in December quarter as consumers hold back on spending

Net profit after adjustments grew just 0.06% to ₹955.32 cr from a year ago; sales up7.69% to ₹7,579.18 cr

Hindustan Unilever has been hurt in the last few quarters by weaker consumer demand in India that grew less than 5% in the past two fiscal years. Photo: Pradeep Gaur/MintPremium
Hindustan Unilever has been hurt in the last few quarters by weaker consumer demand in India that grew less than 5% in the past two fiscal years. Photo: Pradeep Gaur/Mint

Mumbai: Hindustan Unilever Ltd (HUL), the country’s largest consumer packaged goods company, reported weak earnings and sales growth which was below analyst expectations as consumers continued to hold back on their small and discretionary spends.

Net profit after adjustments grew just 0.06% to 955.32 crore, compared with 954.74 crore a year ago, the firm said on Monday.

During the quarter, HUL gained from the sale of properties and restructuring expenses which pushed up the headline net profit by 18% to 1,252 crore from 1,062.30 crore a year ago.

The maker of Lux and Dove soaps, Kissan ketchup and Surf detergents reported sales growth of 7.69% to 7,579.18 crore from 7,037.8 crore. However, volume growth for the quarter was at 3%, lower than the average growth of 4-6% seen in the past two years and also below analysts’ expectations for the quarter.

A Bloomberg poll of 22 analysts estimated net profit at 1,091.30 crore and sales at 7,938.10 crore. Analysts expected the firm to benefit from falling inflation and an improving macroeconomic environment.

Indians emerged as the second most confident about their economy globally by the end of 2014, according to a 16 January report by global research firm Ipsos. The Ipsos’ Economic Pulse of the World study, noted India’s economic confidence level shot up to 81% in December 2014, a significant rise of 29 points over the previous 12 months. Falling inflation and the government’s commitment to promote investment and economic development are factors that have pushed up confidence levels, said the study. Inflation based on the Consumer Price Index (CPI) decelerated to 5% in December from the 6.46% seen in September, driven by lower price increases in food and fuel items.

That doesn’t seem to have helped consumer spending. The overall consumer packaged goods sector grew at 1% in terms of volumes and 6.5% in value terms during the December quarter, said Sanjiv Mehta, chief executive officer, HUL, quoting market researcher Nielsen.

In the last 12 weeks, volumes have picked up in categories such as home care and beverages, and across rural and general trade, said Mehta. But there are still many parts of the market that are shrinking, he added—urban, modern trade, large packs, and skin cleansing products.

“There is weakness in demand as disposable income across urban and rural India declines," said Dhananjay Sinha, co-head (institutional research) at Emkay Global Financial Services Ltd, adding that the agriculture sector is more vulnerable because of declining food prices and lower realizations from farm produce.

Even government spending has been slowing. Total government spending between April and November 2014 rose 5.12% year-on-year against 17.26% a year ago. “This has impacted rural cash flow," said Sinha, adding rural wage growth has also decelerated to near 6% from 16-18%, 12-18 months ago.

Analysts said urban salaries and disposable incomes are not growing.

Meanwhile falling inputs costs saw regional and local competition surface in segments such as detergents, tea and skin cleansing, resulting in HUL’s advertising spends increasing by 5.13% to 977.12 crore from 929.46 in the year-ago period.

The Indian unit of Anglo-Dutch Unilever Plc also cut prices in the December quarter by 4-5% across key soap brands—Dove, Lifebuoy and Hamam. Promotions are also underway on select stock-keeping units (SKUs) across leading laundry brands Surf Excel and Rin, said a 6 January report by JP Morgan Asia Pacific Equity Research.

Prices of raw materials such as palm fatty acid distillate (PFAD), linear alkylbenzene (LAB) and crude derivatives have declined 10-40% over the past six months.

The soaps and detergents business—which accounts for 40% of HUL’s sales—grew 5.96%, personal products grew 6.54% and beverages grew 8.19%.

All the same, there could be some improvement in volume growth in the next two quarters, said the HUL management.

“Going forward, we do expect to see a lower price-led growth because of the sharp fall in commodities and a potential upside in volume growth," said chief financial officer P.B. Balaji.

On Monday, shares of HUL closed at 892.80 apiece down 5.27% on BSE, while the benchmark index, Sensex, gained 0.5% to close at 28,262.01 points. The BSE FMCG Index lost 0.71% to close at 8,096.04 points. In the month to date, HUL shares have gained 17.55%, outperforming the Sensex which gained 2.77%. The consumer product firm’s shares have risen on expectations of an improvement in operating margins due to lower commodity prices and a pick-up in volume growth in fiscal 2016.

“We have delivered another quarter of competitive growth and margin improvement. We continue to strengthen the core of our business and drive the competitiveness of our brands in the market. At the same time, we are leading market development in relatively nascent categories such as packaged foods and premium personal care with strong results. Given the fast changing external environment, we are managing our business dynamically for sustained volume-led growth and margin improvement," said Harish Manwani, chairman of HUL, in a press release.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 19 Jan 2015, 03:23 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App

Chat with MintGenie