Price cuts on soaps, detergents hit Hindustan Unilever profit

Hindustan Unilever Ltd (HUL), the Indian arm of Anglo-Dutch consumer goods major Unilever Inc, reported a 2.62 per cent fall in its net profit at Rs962 crore for the quarter ended 30 September 2015, on the back of exceptional income from the sale of properties in the base quarter and a higher effective tax rate.

Profit after tax and before exceptional items, PAT (bei), grew 1 per cent to Rs970 crore while net profit stood at Rs962 crore, HUL stated in a release.

Profit before interest and tax (PBIT) grew 7 per cent and PBIT margin improved by 40 bps.

HUL had reported a net profit of Rs988 crore in the corresponding quarter of the previous financial year. The company reported 2.4 per cent YoY increase in sales at Rs7,820 crore for the September quarter compared with Rs7,639 crore reported for the year-ago period.

The company reported a volume growth of 7 per cent for the quarter, compared with 5 per cent growth registered in the July-September quarter year ago.

The board of directors have declared an interim dividend of Rs6.5 per equity share of face value Re1 each, for the year ending 31 March 2016.

HUL said price cuts for key products, including soaps and detergents dragged down its profit margins in the second quarter, missing market estimates despite improved sales.

HUL said the company has passed on the benefits of falling commodity prices and removal of excise duty on sops to consumers with lower prices.

Grappling with weaker demand in rural India, Hindustan Unilever had slashed prices for items like its Lux soap - part of a segment which accounts for nearly half its revenue.

That helped drive sales volumes up 7 per cent and revenues up 5 per cent, but hit the bottom line, the company said.
 
However, lower input costs resulted in a 320 bps reduction in cost of goods sold, HUL said.

Brand investments were sustained at competitive levels across segments and overall A and P was up 220 crore (+230bps). 

''The business delivered another quarter of profitable volume-led growth. We continue to invest behind our brands and in-market executional capabilities to drive the competitiveness of our portfolio. The deflationary commodity cost environment is likely to continue in the near term and our strategy of delivering consistent and competitive growth with sustainable improvement in operating margin remains unchanged,'' Harish Manwani, chairman, commented.

"We don't see a substantial step up in rural growth compared with what we have had in the past," PB Balaji, the company's chief financial officer, told reporters.

HUL, the atypical Indian consumer goods company, has been under pressure in recent quarters. Demand from India's villages contributes about 35 per cent to its total sales, but a weak monsoon and rising food prices have squeezed households.

Balaji said he expects future growth to be driven by volume, as raw materials have become cheaper in recent months.