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Hindustan Unilever quarterly profit rises 12% amid slowing India demand

Company says demand outlook remains challenging

For the third quarter ended in December, the Indian unit of the Anglo-Dutch Unilever reported a standalone net profit of 16.2 billion rupees ($226 million).   © Reuters

MUMBAI (NewsRise) -- Hindustan Unilever reported a 12% increase in quarterly profit, aided by shrinking expenses, even as India's biggest consumer goods maker continued to remain cautious of growth outlook in the near term.

Consumer goods companies in Asia's third-largest economy are contending with a prolonged demand slowdown triggered by a credit crunch. India's gross domestic product expanded at the slowest pace in six years in July-September, decelerating for six consecutive quarters. The slowdown is deepening even after the nation's monetary policy panel cut interest rates to the lowest in almost a decade.

The downturn has been aggravated by a slump in rural spending amid a delay in payments from government welfare schemes and protests over a new citizenship law in different parts of the country, say analysts. Rural India accounts for about 40% of the nation's consumer spending.

For the third quarter ended in December, the Indian unit of the Anglo-Dutch Unilever reported a standalone net profit of 16.2 billion rupees ($226 million). Analysts were expecting the company to post a net income of 16.5 billion rupees, according to Refinitiv data.

Total income grew 2.9% to 99.5 billion rupees, while sales volume, one of the most important metrics tracked by analysts, grew 5% -- unchanged over the past three quarters. Analysts were expecting the sales volume to grow around 4.5%.

HUL kept a lid on its total expenses which remained almost unchanged at 76.2 billion rupees. The cap on expenses helped expand operating margins 335 basis points to 24.9% during the quarter, the company said.

The quarter witnessed an "overall challenging" market environment, reflecting the sharp slowdown in rural and discretionary spending, Sanjiv Mehta, HUL chairman and managing director, said in a statement. Mehta warned that the demand outlook and growth remain challenging in the short term.

For HUL, the rural markets, which have been traditionally growing at 1.5 times the urban areas, have barely been growing at 0.5 times.

Consumer goods companies such as HUL, whose brands such as Lux soaps, Lipton Tea, and Dove shampoo are sold through thousands of mom-and-pop stores across the country, had been riding the strong demand in rural areas after reasonably good monsoon rains last year. The rural market accounts for more than 40% of the company's overall revenue.

The company has also been cutting prices to boost sales volumes over the past six months amid benign raw material prices. However, with rising inflation and the price of crude derivatives, HUL is planning to take 5% to 6% price increases across its products in a phased manner, Srinivas Phatak, the company's chief financial officer, told reporters at a news conference.

HUL's parent Unilever had in December cut its annual underlying sales target blaming the "significant deceleration" in growth in South Asia, including in India.

Earlier this week, smaller rival Godrej Consumer Products reported a 5% increase in third-quarter profit, as strong demand in overseas markets outpaced the slowing domestic consumption.

HUL shares lost 1.2% in Mumbai trading on Friday before the company released earnings. The benchmark S&P BSE Sensex fell 0.5%.

-- Dhanya Ann Thoppil

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