HUL slips on soaps & detergents, but lower input costs boost profit
Apr 28 2014 , Mumbai
The maker of soaps such as Lux and Dove witnessed a tepid three per cent growth in sales volume, which provided more evidence that growth has slowed to a crawl for the fast-moving consumer goods sector. High inflation, low consumer sentiment and high raw material costs have singed the industry for many months now.
“The slowdown in growth across categories in both value and volume terms continues,” R Sridhar, CFO of HUL, told a press conference. “There is definitely pressure in the premium and discretionary categories.”
HUL said the operating environment remained challenging through the quarter, with slower market growth and high competitive intensity. Input costs were managed through a mix of judicious pricing and cost savings. CFO Sridhar said the demand situation should improve soon.
That projection could be tampered by forecasts of a weak monsoon that can potentially hurt rural demand for consumer goods.
“HUL’s volume growth needs to be monitored in the ensuing quarters, as El Nino risk may have a bearing on rural consumption. HUL’s 45 per cent rural exposure could be at relative risk,” said Abneesh Roy, associate director of Edelweiss Capital.
The company pegged its consolidated March quarter profit at Rs 870 crore on an 8.9 per cent year-on-year growth in revenues, which stood at Rs 6,935.82 crore. Twenty-nine analysts in a Bloomberg poll had estimated profit at Rs 853.10 crore and sales at Rs 6,997.30 crore. Ritwik Rai, a research analyst with Kotak Securities, termed the results a ‘mixed bag.’ “Profits are ahead of expectations, but investment in brands has been weaker,” he said.
Rai said the beverage segment surprised positively with 20 per cent YoY growth, but personal care products grew at a weak five per cent, that too on a fairly low base. Revenues from soaps and detergents increased to Rs 3,497.12 crore while that from personal care products rose to Rs 1,983.29 crore. “Ebitda has come in ahead of expectations mainly on the back of a lower-than-expected input expenses and lower advertising and promotions spend,” said Rai of Kotak Securities.
HUL said brand investments were sustained at competitive levels with higher advertising spend being offset by lower promotional activities. “Net profit growth was impacted by significant property sale in the previous year. Cash generated from operations at over Rs 5,000 crore for the year was up Rs 462 crore over the last year,” it said. The firm’s board of directors has announced a final dividend of Rs 7.50 per share with a face value of Re 1 for the financial year.