HUL bounces back into green post Q4 results

MUMBAI: Hindustan Unilever Ltd, the maker of Rin detergent and Knorr soups, beat Street estimates to post an 11% rise in net profit for the fourth quarter ended March, despite a sluggish economy and a decline in consumer demand across India.

Sanjiv Mehta, managing director and CEO of HUL, isn’t perturbed about the dismal economic climate. "There will always be challenges in the market and despite that we have to win. So business is fun and I enjoy it," the soft-spoken leader told ET. "When the winds are strong, even turkeys can fly. It’s only during tough times the character of an organisation comes out. Yes, it is challenging and is very different from what it was two years back, but I am not daunted by the challenge," he added.

Reflecting Mehta’s confidence, the Indian unit of Anglo-Dutch giant Unilever said domestic sales rose 9 per cent to Rs6,682.2 crore from. Rs 6,127.7 crore a year earlier, ahead of the broader FMCG industry, which grew 6per cent during the quarter.

Net profit rose toRs872 crore from Rs 787 crore a year ago. A poll of 27 brokerage firms by Bloomberg had forecast an 8per cent rise in profit. "HUL is not in distress and is doing well. We are not at a turnaround stage and are growing ahead of the market, growing market shares and improving margins. But doing the same thing into the future might not help, so you will have to change some aspects, so that you keep growing in a consistent manner," said Mehta.

The performance of the company, present in a range of daily consumption items such as soaps, shampoos and food, makes it a good indicator of consumer sentiment. It still sees evidence of customers trading up for premium brands, HUL said.

HUL chairman Harish Manwani said Indian consumers aren’t cutting back, but the growth of new users for its categories is slowing down. "India is still a market which is relatively underdeveloped in terms of consumption. Therefore, growth primarily comes from recruiting new users or making the same consumers consume more. In a slowdown, the rate of conversion comes down, but that doesn’t mean people stop using products," Manwani explained.

While analysts welcomed HUL’s sales growth, they were sceptical that profits came from sacrificing advertising spends. "While the profits are ahead of expectations, the outperformance has been enabled by weaker investments in brands. Weakness in personal products’ profit growth is an area of concern as the segment accounts for about 45per cent of the company’s profit," said Ritwik Rai, FMCG analyst with Kotak Securities. During the quarter, HUL’s sales of soaps and detergents — its largest business segment — rose 10per cent toRs3,497 crore while new launches such as TRESemme and the relaunch of Fair & Lovely drove up sales of personal care products by 8per cent toRs1,983 crore.

For the full year, HUL posted a profit before exceptional items ofRs3,555 crore, up 7per cent from 2012-13. Net sales rose 9per cent toRs26,336 crore, and the company generated cash from operations ofRs5,000 crore, which translates into more than the entire domestic business of Marico and Godrej Consumers.