Rural slowdown keeps HUL numbers subdued in Q1

Hindustan Unilever Ltd has reported a flat net profit growth during the April-June quarter on slowdown in rural demand and pricing de-growth.

Net profit at the leading consumer goods company during the first quarter remained flat at Rs 1,059 crore compared with Rs 1,057 crore posted a year ago as higher taxes also impacted profit growth.

Net sales grew 5.3% during the quarter to Rs 7,973 crore, with domestic consumer business (including FMCG and water) growing 5.4%. Operating profit grew 14.5% to Rs 1,431 crore while profit after tax before exceptional items rose 3.2% to Rs 1,052 crore.

P B Balaji, chief financial officer, HUL, on Tuesday said, "The business environment remains challenging. The market recovery is yet to stabilise and that's particularly in rural, and deflationary trend in inputs costs are impacting price growth. In this context we have delivered a profitable volume-led growth and that has been sustained in this quarter as well."

There is a 6% underlying volume growth during the quarter. Balaji said the volume growth was broad-based in all segments. The growth in the quarter was impacted by the phasing out of the excise duty incentives and price falls as the benefit of lower commodity costs was passed on to consumers.

In individual segments, soaps and detergent portfolio showed nil growth, and adding fiscal benefits it grew 2%. Personal products reported 12% growth, beverages grew 9% while packaged food portfolio sales rose 12%.
"In soaps and detergent category, the healthy volume growth has been almost entirely wiped off by the negative price growth," Balaji said, adding the soft commodity scenario is likely to continue in which the resultant price de-growth in some of the categories, particularly in soaps and detergents, would stay for the next few quarters.

He said in the near term the improvement in the market growth was largely dependent on rural performance.

"In the near term, we clearly see a price de-growth because the commodity is coming off. There is improvement in market sentiment, market growth, etc. We also believe it largely depends on rural, because rural growth has started to become very close to urban growth compared to what it used to be," Balaji said.

The rural growth used to be higher by one-and-a-half to two times than urban growth. "With unseasonal rains, with pressure on disposable incomes, there are fair number of reasons why we see stress in rural. The urban is more in line that what it used to be before," he said. For the company, around 35% of sales comes from villages and small towns.

Sanjiv Mehta, chief executive officer, said, "If we are saying rural and urban are growing at same level. So you can get an idea of how the market for our products are growing. The full impact of the price de-growth has not yet been felt, and as you go forward in quarters you will still see price de-growth in categories, especially in soaps and detergents. We started on taking price reduction in December last year, and at this stage we are not looking at any price increase."

Shares of the company on Tuesday closed at Rs 891.45 apiece, down 2.34% the previous close on the BSE.