Slowing demand in rural India hurts Hindustan Unilever profit

By Nivedita Bhattacharjee

MUMBAI (Reuters) - Weakening rural demand and low pricing hurt Hindustan Unilever Ltd as the Indian unit of Anglo-Dutch consumer group Unilever Plc missed market expectations for quarterly profit, sending its shares down almost 5 percent on Tuesday.

Consumer price inflation in India has ticked up to an eight-month high, making Indian consumers, a quarter of whom live on less than 74 U.S. cents a day, pull back on discretionary spending.

Hindustan Unilever is Asia's largest consumer goods maker by market capitalisation and sells products such as Lux soap, Lipton tea and Dove shampoos through thousands of mom-and-pop stores as well as big retailers across the country, making it a barometer of Indian consumer sentiment.

"What we notice for sure is that there is pressure building on rural (markets)," PB Balaji, the company's chief financial officer, said on a conference call with reporters.

"In the past, rural markets have seen 15-20 percent growth, almost one and half or two times that of urban. What we see now is that rural is more or less in line with urban markets," he added.

For Hindustan Unilever, 35 percent of sales comes from villages and small towns, making an uptick in this market key to its future growth as urban markets saturate.

The company has aimed to revive demand by bringing down prices on some of its products, passing on to consumers the benefits of lower commodity raw material costs.

Net sales from operations were 79.73 billion rupees ($1.25 billion) for the quarter ended June 30, up from 75.71 billion rupees last year.

The company said its net profit for the quarter was 10.59 billion rupees, compared with 10.57 billion rupees a year earlier. Higher taxes also pegged back profit growth, it said.

Analysts on average were expecting a profit of 11.35 billion rupees, according to Thomson Reuters data.

Hindustan Unilever shares fell as much as 4.6 percent on Tuesday but erased some of the losses to be down 2.4 percent in late afternoon trade.

($1 = 63.5600 rupees)

(Editing by Anand Basu and Muralikumar Anantharaman)