HUL net rises 21%, soft demand hurts

Trend of last three months indicates a slowdown, says chairman Sanjiv Mehta

A man arrives at the Hindustan Unilever Limited (HUL) headquarters in Mumbai May 14, 2013. Global companies betting on India's potential as a consumer market are looking beyond the worst patch in a decade for Asia's third-largest economy and investing billions of dollars in the country. In the biggest recent deal, Unilever is spending up to $5.4 billion to lift its stake in its Indian subsidiary, Hindustan Unilever, the country's largest consumer goods maker. Picture taken May 14, 2013. REUTERS/Danish Siddiqui (INDIA - Tags: BUSINESS)

Hindustan Unilever Ltd. (HUL), the country’s largest pure-play fast moving consumer goods (FMCG) company, reported a 7% increase in sales in the second quarter amidst an overall lacklustre demand scenario due to factors such as subdued wage rates that affected rural sales.

For the quarter ended September 30, the company registered sales totalling ₹9,708 crore — a rise of 6.24% over the corresponding quarter of the previous fiscal — while net profit rose 21% to ₹1,848 crore.

Volumes accounted for around three-fourth of the sales growth even as the 5% growth in volume or number of units sold was similar to that of the June quarter, which itself was the lowest in seven quarters.

“The market remains stable and we have not seen demand pick up yet,” said Sanjiv Mehta, chairman, HUL, while addressing the media.

“The market at a moving annual total or trailing twelve months was growing 9% in value but in the last three months, it has come down to 5%. Volumes which were growing at close to 7% are now growing under 3%. There is a discernable difference between 12 months and three months which indicates a slowdown,” he added. Rural growth, which once was nearly double that of the urban area, has halved, though the firm is hopeful of a revival due to government schemes and a good monsoon.

“The government is cognizant of [this] and that is the reason for the ₹6,000 transfer and the Prime Minister talking about doubling farm income. With a good monsoon, which has happened, and the festive season coming in, we hope it will spur confidence,” said Mr. Mehta.

Personal care up only 4%

Sales in the company’s beauty and personal care business, which accounts for nearly half its overall sale, rose only 4% in the quarter at ₹4,543 crore.

It was primarily on account of the price cuts in the personal wash and soaps segment due to lower raw material costs. Further, the company will be reducing the cost of soap brands such as Dove and Pears in the current quarter.

While the foods and refreshments business expanded 8% to ₹1,581 crore, the homecare segment grew 10% to ₹3,392 crore. On taxation, the firm expects the effective rate of taxation to fall from 30.5% to 27% this fiscal due to the recent reduction in corporate tax rates.

“We expect volume growth trajectory to sustain in the range of 5-7% in the near term,” said Kaustubh Pawaskar, research analyst, Sharekhan. HUL’s board declared an interim dividend of ₹11 per share for the current financial year.