Hindustan Unilever posts mixed results

29 July 2009

MUMBAI: Hindustan Unilever, the Indian arm of the Anglo-Dutch consumer goods company, increased its marketing expenditure by more than 25% in the last quarter, but still saw its net profits fall by 2.7%, to 543 crore rupees ($112.2m; €79.4m; £68.3m), year-on-year.

According to a recent forecast by FICCI and Technopak, the annual value of the Indian FMCG sector could increase from $25 billion in 2008 to at least $43bn by 2013.

Hindustan Unilever is also hoping to increase the revenues earned through its food arm to 20,000 crore rupees in the next ten years, a figure which is only slightly below its entire annual turnover in 2008.

The company's net sales for the three months to the end of June this year increased by 7.8%, to 4,475 crore rupees, with its home and personal care segment up by 11.9%, and its food arm by 17.3%.

By contrast, exports declined by 34.7%, to 256 crore rupees, with "other income" also tumbling by 14.4%, to 71 crore rupees.

The main reasons for its overall decline in earnings were said to include the fact that many consumers had begun to trade down in highly profitable sectors such as soap, tea and detergent.

Moreover, the relaunch of certain brands, and the company's initiation of a price reduction programme across certain elements of its portfolio, also exerted a downward pressure on profits.

Its expenditure on ads and other brand promotions rose by 26% percent, to 561 crore rupees, or about 13% of sales, over the last three months, with these funds mainly being diverted to "new launches and higher media investments."

Harish Manwani, HUL's chairman, said "we have taken decisive actions to strengthen our competitiveness and execution capabilities in the marketplace."

"These have started to show positive results with good volume recovery in personal products and foods," he added.

However, Vanmala Nagwekar, an analyst with India Infoline, said "the market was expecting more from the company. It has taken a hit in market share in its high-margin segments such as personal care products, soaps and detergents."

A recent report from Euromonitor also argued that "the company has come under increasing pressure from smaller rivals, such as Dabur, Emami and L'Oréal, which have adopted aggressive expansion policies and have consequently eaten into Hindustan Unilever's value share."

Data sourced from Business Standard; additional content by WARC staff