The fourth quarter profit of Hindustan Unilever Ltd (HUL), India's biggest fast-moving consumer goods manufacturer, fell 2.4 per cent after it wrote down the value of investments and loans to a subsidiary.
The dip was also because strong sales in some segments were offset by a slowdown in others. The results were in line with analysts’ expectations.
HUL's net profit fell to Rs 613 crore for the quarter ended December 31, 2008, compared with Rs 631 crore for the corresponding period of the previous year. Led by price hikes, HUL's net sales rose 17 per cent to Rs 4,308 crore from Rs 3,687 crore a year ago.
"The growth this quarter was led by value (price-led) as the volume growth was 2 per cent," D Sundaram, vice chairman and chief financial officer, Hindustan Unilever, said.
HUL had gained Rs 112.87 crore on exceptional items in the same period in 2007, which fell into the negative zone in the reporting quarter in which it recorded a loss of Rs 30.29 crore on the same account. Apart from this, there was a Rs 16.5 crore loss on extraordinary items.
But for this, the company’s net profit would have gone up by around 12 per cent.
Operating margin during the quarter was 16.8 per cent, 20 basis points below the year-ago quarter.
HUL said the strong volume growth in personal care products and foods was partly offset by a slowdown in soaps and detergents, due to high input cost-led price growth and volume contraction in detergents. Soaps and detergents account for the largest portion of its revenues, followed by personal care products.
"Commodity prices are softening, and this augurs well for us, if sustained. We will have to see how this will reflect in running the business," Sundaram told reporters. Of the growth in sales, only about 2.3 percentage points was from volume growth, the rest from price rises, he said.
Analysts agreed and said the company is likely to benefit from a decline in prices of raw materials, including palm oil and petroleum derivatives used to make soaps. Palm oil prices have declined 51 per cent in the last year and crude oil prices have fallen 47 per cent. However, they also said the downturn in the economy may put pressure on sales growth in the second half of the year.
The home and personal care (HPC) and the laundry businesses grew 21 per cent, but this was largely a price-led growth as there was no volume growth for the high-cost items. According to AC Nielsen, soaps and detergents actually recorded a de-growth this quarter.
Even the foods business, which includes its ice creams, beverages and processed food brands of Knorr Soups, Kissan and Annapurna Atta, showed a price-led growth of 23 per cent. The FMCG major, however, saw its exports decline 22 per cent to Rs 265 crore this quarter compared with Rs 345 crore for the corresponding period in the previous year.
The quarter ended December quarter is proving tough for FMCG companies. Example: Godrej Consumer Products, which is the second-largest toilet soaps player with a market share of 9.7 per cent, also showed a net profit drop of 7.3 per cent. HUL has also decided to change its accounting year from January-December to April-March from the next financial year.
