Premium brands help cushion weak sales for Hindustan Unilever

By Zeba Siddiqui

MUMBAI (Reuters) - Demand for its higher-end brands, from Dove soaps to Pond's face creams, helped Hindustan Unilever beat analysts' profit forecast for the fourth quarter, despite a drought that weighed on sales growth for India's largest consumer goods firm.

A bellwether for Indian consumer sentiment, Hindustan Unilever posted growth in sales volumes of just 4 percent in the January-March quarter, but said it hoped to improve that in the next three months to June - even as it considers steps to raise prices.

"Going forward, one does hope, with a combination of all factors, life should look better than the 4 percent number," CFO P.B. Balaji told reporters, when asked about growth expectations for its new financial year.

Two consecutive years of drought have taken a toll on spending and consumer sentiment in Asia's third-largest economy. But the country's weather office has estimated a better monsoon for this year, leading analysts to expect demand will bounce back in fiscal 2017. .

Balaji said demand so far remains subdued, especially in rural areas, but a good monsoon would be a "welcome tailwind".

Rural sales account for about 35 percent of revenue for the Indian unit of Anglo-Dutch consumer group Unilever .

But sales of the company's Dove and Ponds personal care products rose as consumers increasingly opted for premium brands that promise extra value.

Hindustan Unilever's profit rose 7 percent to 10.90 billion rupees ($164.06 million), above an average analyst forecast of 10.78 billion, according to Thomson Reuters data.

The company, which sells everything from soaps and detergents to tea and coffee, has had to cut prices in the past year because of slack demand and lower input costs. But raw material prices are going up, and Hindustan Unilever said it was now considering to pass on that cost - including price increases.

Hindustan Unilever's shares rose as much as 2.4 percent in early trade in Mumbai on Tuesday, against a 0.2 percent dip in the broader Nifty.

($1 = 66.4400 Indian rupees)

(Reporting by Zeba Siddiqui in Mumbai; Editing by Sunil Nair and Muralikumar Anantharaman)