The country's largest fast consumer goods company Hindustan Unilever (HUL) reported a 17% growth in net profit for the quarter ended September 30, 2012 to Rs 806.92 crore from Rs 688.92 crore a year ago. But the slowdown in discretionary spends appeared to have taken its toll on the company with topline growth at 12% to Rs 6,155.41 crore from 5,516 crore a year ago. Underlying volume growth - which has hovered in the 9-10% zone in the last few quarters - was 7% for the quarter under review.
Analysts had estimated volume growth to be in the region of about 8-9% for the second quarter given that the June to September period is generally considered to be a weak one for an FMCG company.
While soaps and detergents, which gives HUL nearly half of its turnover grew at 22% during the quarter, it was personal products that had a disappointing show. The segment grew by 12% only in comparison to the 14% growth it saw in the year ago period. Analysts were estimating HUL to sustain momentum here since the company has invested significantly in personal care in the last few years launching and relaunching products and premuimising its portfolio.
"There are challenges in the short term. Over the last few months, we have begun to see some slowdown in discretionary categories, where there is an opportunity for the consumer to defer the choice between today and tomorrow," Nitin Paranjape, managing director & chief executive officer, HUL said.
HUL's profit growth was helped by a 83% jump in other income to Rs 149 crore from Rs 81.11 crore a year ago.
Its profit before exceptional items rose 23% to Rs 806 crore and profit before interest & taxes (PBIT) margins improved 100 basis points, the company's chief financial officer R Sridhar said
HUL's raw material costs during the second quarter rose 18% year-on-year to Rs 2,701 crore, while advertising and sales promotional (ASP) expenditure were up 18% to Rs 769 crore.
"The operating context remained challenging during the quarter with heightened competition," Sridhar said. The FMCG industry while growing in double-digits was lower than the previous quarter. Consequently, advertising and sales promotion expenditure was stepped up and maintained at competitive levels," he added.
While the Rs 170,000-crore FMCG industry grew at 16-17% in the first quarter of the current fiscal, growth rate in the second quarter was marginally down to about 14-15%, Sridhar said.
Analysts say that companies will spend more on ASP spends in the near-term to beat the slowdown in discretionary categories.
HUL's beverage and packaged foods segments saw 10% growth at Rs 720 crore and Rs 3,663 crore during the quarter under review.
Sales from others, which includes exports, chemicals, water etc. declined 38% to Rs 288 crore.
HUL's board has also declared a special dividend of Rs 8 per share to be paid to its shareholders as of Nov 2. The special dividend will be in addition to the interim dividend of Rs 4.5 per share for the year ending March 31, 2013, it said.
HUL shares were down 2% on the Bombay Stock Exchange to close Rs 551.75 following announcement of the results in the afternoon.
