The net profit of India’s largest fast-moving consumer goods maker, Hindustan Unilever, fell in the second quarter (July to September) on a one-time charge related to a settlement with former workers.
The year-earlier quarter also had an exceptional gain of Rs 109 crore, primarily from a property sale.
As a result, the company, a subsidiary of Anglo-Dutch firm Unilever Plc, reported a net profit of Rs 429 crore, down 21.6 per cent from Rs 547 crore a year ago. Net sales rose to Rs 4,228 crore from 4,028 crore a year earlier.
Operationally, however, HUL has done well, with operating margin, the percentage of sales left after subtracting production, marketing and other expenses, rising to 14.3 per cent in the quarter from 12.9 per cent a year earlier on lower costs of raw materials. Operating margin went up by 140 basis points due to competitive pricing, better product-mix and better cost management.
HUL has increased spending on advertisements and promotions by 38 per cent as it introduced new versions of its soaps and spent more on personal-care products to garner a higher share of the market as competition intensified. The company boosted advertising spending to Rs 571 crore, or about 14 per cent of sales, compared with 10 per cent of sales a year earlier.
“To support the innovations and interventions, we have stepped up our advertisement and promotions by 320 basis points,” R. Sridhar, chief financial officer, told reporters today. “The increase in spending is also driven by the higher proportion of personal care products in our portfolio.”
HUL reported a one-time expense of Rs 166 crore for the quarter after employees at its shut Sewree factory accepted compensation.
Profit before interest and tax from personal care products such as skin cream and toothpaste rose 23 per cent to Rs 313 crore. Sale of personal care products rose 13 per cent to Rs 1,190 crore.
Revenue from soaps and detergents, which contributed about 47 per cent of revenue, gained less than 1 per cent to Rs 2,000 crore. Profit before interest and tax rose 1.6 per cent to Rs 273 crore.
The company, which makes popular soaps such as Lux, Dove and Surf detergent, said it expects growth in volumes to be sustained but expressed concerns over the lag effect of the poor monsoon rains, rise in commodity prices, inflation and interest rates.
“We would expect the FMCG sector to continue to grow but we have yet to ascertain what impact the poor monsoons will have and the rise in consumer prices,” Sridhar said.
Domestic consumer sales grew 8 per cent, while FMCG sales grew 7.02 per cent over last year’s quarter. Exports, on the other hand, dropped from Rs 294.92 crore to Rs 226.34, a reduction the company had planned.
Even though the underlying volume growth was just 1 per cent, Sridhar pointed out, three-fourths of the FMCG business had, in fact, grown in double digits backed by strong volume growths. HUL Managing Director Nitin Paranjpe attributed growth to a combination of improved quality, price corrections and reworked execution at the store level.
However, the sluggishness was attributed to the balance of the FMCG portfolio that cater to the mass market, where the company had been found on the wrong foot in the last few quarters, hit by down-trading by consumers and competitive local players.
