Hindustan Unilever net down 22% in Dec quarter

Firm points to continued price declines as a key reason

Hindustan Unilever (HUL), the country's largest consumer goods company, missed analyst estimates for the December quarter, the third such in a row, as profit slid and revenue growth remained muted.

September-December is traditionally considered the strongest quarter for a fast moving consumer goods (FMCG) company. However, HUL’s net profit fell 22.4 per cent to Rs 971 crore versus Rs 1,054 crore in the same quarter a year before. Net revenue grew only 3.2 per cent, to Rs 7,823 crore from Rs 7,579 crore.

The Bloomberg consensus estimate was for net sales at Rs 8,122 crore and net profit at Rs 1,036 crore for the quarter. The only comforting factor was the six per cent underlying volume growth the firm saw for the quarter - in line with street estimates.

HUL said quarterly growth continued to be impacted by phasing out of excise duty incentives and price declines. “Almost 50 per cent of our portfolio is impacted by a negative trend seen in price growth,” said Sanjiv Mehta, managing director.

In soaps & detergents, close to half of its overall revenue, the company took a two per cent price cut in the quarter. In all, said P B Balaji, chief finance officer, the price cut in soaps and detergents over the past year was 10 per cent.

The net profit decline was also, said HUL, due to sale of properties for Rs 407 crore in the base quarter (meaning, of 2014) and a provision for restructuring of Rs 117 crore in the current one.

“Profit before interest and tax (operating profit) grew seven per cent, while the PBIT margin showed a 60 basis points (bps) improvement, reflecting underlying business performance,” said Balaji.

Cost of goods sold was lower by 290 bps in the quarter on account of lower crude oil prices. Advertising & sales promotion (ASP) expenditure increased 16.4 per cent, to Rs 1,138 crore. As a percentage of sales, ASP was 14.5 per cent, up 165 bps over a year.

Segment-wise, soaps & detergents grew 0.8 per cent in revenue to Rs 3,630 crore. Earnings before interest and tax (Ebit) here rose 1.3 per cent and the margin expanded by seven bps only, from the year-ago period. Revenue from personal products, 30 per cent of revenue, rose 5.6 per cent year-on-year, to Rs 2,593 crore. Its Ebit was up 10 per cent and margin by 120 bps. The reported growth here was impacted by delayed winter and a one-time realignment of channel spending, said Balaji.

Beverages showed seven per cent growth, with Ebit rising 22.5 per cent and margin expansion of 230 bps.  The stock closed at Rs 804.15, down 2.7 per cent after hitting a 52-week low of Rs 776.60 on the BSE on Friday.

The company also announced its board of directors had approved a scheme that envisaged the transfer of the entire balance of Rs 2,187 crore in general reserves to the profit and loss account. This is subject to shareholders’ and court approval. “The new Companies Act says mandatory transfer of profits to general reserves, which happened earlier, need not happen. Given that this option was available, the thinking was why not give it back to shareholders, since it is in excess of the company's needs," said Balaji.