Lower volume growth and a new royalty deal at Hindustan Unilever (HUL), India's largest consumer goods maker, wiped the shine off a 16% rise in third-quarter net profit as higher prices and lower raw material costs aided margins.
HUL, the Indian unit of Anglo-Dutch consumer goods maker Unilever, reported a 15.5% increase in net profit at R871.36 crore for the third quarter ended December 31, 2012 as compared to R753.81 crore during the corresponding quarter previous fiscal.
The maker of Knorr soups and Lux soap said the company’s net sales rose to R6,433.69 crore in the third quarter as against R5,844 crore during the same period in previous fiscal. During the quarter, the company's domestic consumer business grew at 15% with underlying volume growth of 5%, which analysts said was the lowest in the last three years.
Announcing the results, HUL chief financial officer R Sridhar said, “In a challenging operating environment, FMCG markets have sustained levels of double digit growth. Our net profit is up by 15% on the back of innovations.”
HUL’s results follow that of its peer ITC which has posted a 20.6% increase in its net profit at R2,052 crore in the third quarter, despite sluggish economic growth. “There’s a slowdown in discretionary products. Less discretionary spending among consumers cut sales of products such as packaged foods and personal care items,” said Sridhar.
HUL’s personal products grew 13% in the third quarter, with a double digit growth in skin, hair and oral care.
On HUL’s results, V Srinivasan, a research analyst with Angel Broking said the company has delivered a disappointing set of numbers, with just 5% underlying volume growth. “Operating profit margin fell by 122 basis points y-o-y to 13.5%, due to higher input costs and R132 crore of higher advertisement and promotion expenses (up 100bp on y-o-y basis),” he added.
Sharing similar sentiments, Nitin Mathur, an FMCG analyst with Espirito Santo Securities said despite higher advertising and sales promotion (A&P), volume growth tapered off to sub-5% levels for the first time in 3 years. “We believe weakening consumer sentiment following high inflation and employment challenges are putting pressure on consumers’ wallets. Discretionary categories are now facing stress and the lack of inclusive growth in the economy will continue to hurt low ticket spending,” he added. Shares of HUL closed at R481.55 on the BSE, down 2.88% from their previous close.
However, chairman Harish Manwani was upbeat about the company's performance in Q3 FY 13. “In an environment that