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Consumer

Hindustan Unilever posts better-than-expected profit on lower tax, cost cuts

India's biggest consumer goods maker remains wary of weak growth outlook

  © Reuters

MUMBAI (NewsRise) -- Hindustan Unilever reported a better-than-expected 21% jump in quarterly profit, aided by a tax cut and cost controls, even as India's biggest consumer goods maker remained wary of a weak growth outlook for rural markets.

Indian consumer goods companies have been contending with a demand slowdown as a credit crunch damped consumer sentiment in Asia's third-largest economy. India's gross domestic product expanded at the slowest pace in five years in April-June as banks tightened credit in the face of ballooning bad debt. The slowdown has been aggravated by a slump in rural spending amid a delay in payments from government welfare schemes and floods in different parts of the country, say analysts. Rural India accounts for about 40% of India's consumer spending.

For the second quarter ended in September, the Indian unit of the Anglo-Dutch Unilever reported a profit of 18.5 billion rupees ($260 million). Analysts were expecting the company to post a net income of 16.7 billion rupees, according to Refinitiv data.

The profit was helped by a 45% slump in tax expenses. HUL said it accounted for the corporate tax cut announced last month that saw headline rates being slashed by eight percentage points to 22%.

Revenue grew 6.3% to 97.1 billion rupees, while sales volume, one of the most important metrics tracked by analysts, grew 5%, in line with the previous quarter. Analysts were expecting HUL's sales volume to grow around 4%.

The company's margins expanded to 24.8% during the quarter, due to cost controls, improved product mix, and benign commodity prices, it said.

"The near-term outlook for demand, especially in rural India, remains challenging," Sanjiv Mehta, HUL chairman and managing director, said in a statement. The rural markets, which have been traditionally growing at 1.5 times the urban areas, have barely grown at 0.5 times in the last quarter, Mehta told reporters at a news conference.

Consumer goods companies such as HUL, whose brands such as Lux soaps, Lipton Tea, and Dove shampoo are sold through tens of 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.

"There is still growth in the market. But the rural growth we expected was at a much higher rate because the penetration levels in rural India are much lower," Mehta said. This slowdown is broad-based, across regions, he added.

The company has also been cutting prices to boost sales volumes in the soaps and shampoo segment. A 15% to 20% slump in the vegetable oil prices allowed the company to drop prices in the cleansing category by up to 6%, said Srinivas Phatak, HUL chief financial officer. Phatak said HUL has recorded some benefits of the price cut in the current quarter, while the rest will be accrued in the December quarter.

HUL shares gained 0.5% in Mumbai trading before the company released the earnings. The benchmark S&P BSE Sensex closed up 0.2%.

--Dhanya Ann Thoppil

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