Price war shaves 46% off Hind Lever net

The price war in the fast-moving consumer goods (FMCG) industry has taken its toll on Hindustan Lever, the largest player in the business.

Hindustan Lever yesterday announced a 45.8 per cent drop in its net profit to Rs 244.49 crore for the quarter ended June 30, 2004, compared with Rs 450.93 crore in the same quarter last year.

Net sales during the period slipped 5 per cent to Rs 2,571.64 crore in the quarter ended June 2004 from Rs 2,700.97 crore in the corresponding quarter of last year. The company has declared an interim dividend of Rs 2.50 per share with a face value of Re 1.

Hindustan Lever Chairman MS Banga said: "The quarter was challenging for the company, with intense competition in key categories. However, we have held market share (in volume) in shampoos and laundry. Competitive pricing and higher brand support have hit our products in the short term."

The operating profit (profit before interest and tax) for the quarter slipped 34.6 per cent to Rs 331.19 crore because of a reduction in margins in the soaps and detergents businesses.

Low treasury income and higher interest costs have further hit profit before tax, which fell 42.6 per cent to Rs 328.79 crore. Expenditure went up 3 per cent to Rs 2,252.75 crore.

As a result, earnings per share came down from Rs 2.05 to Rs 1.11 on shares of a face value of Re 1.

During the first half of the financial year, the company's net profit fell sharply to Rs 539.37 crore from Rs 833.85 crore in the corresponding period last year. Net sales during the period slipped from Rs 5,071.90 crore to Rs 4,924.98 crore.

A fierce price war is on between Hindustan Lever and Procter & Gamble in detergents and shampoos. An FMCG analyst with a domestic brokerage said the price cuts did not translate into immediate sales growth. "The competitive pressure is likely to continue and the lack of new growth prospects is also seriously hurting the company," he added.

Sales of home and personal care goods, the main money spinner for Hindustan Lever, fell to Rs 1,800.43 crore from Rs 1808.83 crore in the corresponding quarter of last year.

Income from the food business fell to Rs 385.88 crore from Rs 428.56 crore. Exports went up to Rs 333.82 crore from Rs 321.58 crore. Income from continuing businesses came down to Rs 2,571.64 crore from Rs 2,621.26 crore. Other income slipped from Rs 98.61 crore to Rs 70.26 crore.