HUL to intensify price war; Q4 net profit beats forecast

Last Updated: Mon, Apr 29, 2013 10:32 hrs

Hindustan Unilever Ltd will intensify a price war against lesser-known detergent and skincare brands this year as it seeks to win back India's increasingly thrifty shoppers and reverse four consecutive quarters of slowing sales.

HUL, India's largest consumer goods maker, has already cut prices of some soaps and detergents by 15-18 percent over the past month to fight off competition from smaller domestic rivals like Rohit Surfactants, Bharti Soap Works and skincare firm Ayur Herbals.

The Indian unit of Anglo-Dutch conglomerate Unilever Plc will likely deepen such discounts this year to remain competitive and revive sales growth, Chief Financial Officer R. Sridhar said during an earnings conference call. He gave no further details.

"It will be a tough year for big companies like HUL," said G. Chokkalingam, chief investment officer at Centrum Wealth Management, who has a hold rating on the consumer goods sector. "Most will have to spend heavily on promotional activity more than ever to retain and regain market share," he added.

High inflation, meagre urban salary raises and drought in the agricultural heartland reduced incomes in Asia's third-largest economy last year and heated up the competition in the $13 billion consumer goods sector.

HUL, which manufactures detergent brand Rin, Dove soap and Fair and Lovely skin creams, posted on Monday a better-than-expected 15 percent increase in net profit for the fiscal fourth quarter ending March 31 as lower raw material costs boosted margins.

Net profit was 7.87 billion rupees ($144.7 million) for the fiscal fourth quarter ended March 31, from 6.87 billion rupees a year earlier.

Analysts on average had estimated a profit of 7.6 billion rupees on sales of 64.2 billion, Thomson Reuters Starmine Estimates showed. Net sales for the quarter were 13 percent higher at 63.6 billion rupees while net profits were at 7.8 billion.

Sales volumes for the quarter, however, grew a more conservative 6 percent, slightly higher than analysts' expectations of 5-5.5 percent growth.

"The stress on volumes will continue for at least the next two quarters after which there might be a revival," said Phani Shekhar, fund manager, portfolio management services at Angel Broking. "We may see consumers switch to low price point products during this time, especially in soaps and detergents."

HUL, India's 13th-largest listed company with a $18.6 billion market capitalisation, posted operating margins of 15.02 percent this quarter, up from 14.05 percent a year ago.

Sales at the home and personal care segment grew 12.7 percent, while its food business grew 15.1 percent. These segments have been hit due to the dip in consumer demand.

HUL shares, which have fallen 11 percent since the start of 2013 compared with a 3 percent rise in the consumer sector's benchmark BSE FMCG index, rose as much as 6 percent after the results on Monday.

The company trades at 28.8 times its 12-month forward earnings, compared with 28.4 times for ITC Ltd, 34.7 times for Nestle and 34.6 times for Godrej Consumer.

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