HUL's Q1 revenues miss estimates on rural headwinds

Image: Danish Siddiqui / Reuters

India’s largest consumer goods company Hindustan Unilever Ltd (HUL) reported weak earnings growth for the three months ended June 30, 2016 as rural demand, the firm’s main engine of growth, has still to pick up in a major way.

Volume growth was flat compared with the previous quarter and revenues, too, came in below street expectations.

For the first quarter of FY17, HUL—the maker of Dove soap and Sunsilk shampoo—posted a 4 percent volume growth, the same as that posted in the January-March quarter of FY16.

Net sales came in at Rs 7,988 crore, up 3.6 percent from Rs 7,713 crore in the corresponding quarter a year earlier. Analysts had forecast the company to clock sales of Rs 8,550 crore on volume growth of 4.5 to 5.5 percent. HUL’s net profit for the quarter rose 9.8 percent year-on-year to Rs 1,174 crore, against expectations of Rs 1,156 crore.

The company’s stock ended the day down 2.04 percent at Rs 920.45 on BSE.
 
“During the quarter, against the backdrop of a challenging environment, where market growth slowed further in volume and value terms, the business continued to track ahead of the market with sustained margin improvement. Consumer business growth came in at four percent and operating margins expanded by 70 basis points,” the company said in a statement to the stock exchanges.

In the previous fiscal, HUL, like its peers, had lowered prices for key products including soaps, detergents and shampoos, to gain market share at a time when two consecutive years of poor monsoons had hurt farm output and rural spending. A normal monsoon this year is expected to provide a boost to rural consumption, but a clear turnaround is yet to emerge.

The FMCG giant plans to invest Rs 1,000 crore in a new manufacturing plant within its existing factory at Doom Dooma in Assam.