HUL sights cost pressure

The slowdown in demand for Hindustan Unilever Ltd’s premium products is likely to continue in the near term, chief financial officer R Sridhar (pictured) said on Wednesday.

The fast-moving consumer goods manufacturer sells a range of personal care products under brands such as Axe and Dove, which fall under the discretionary products category. The company gets 52% of its profit from sale of personal care products.

Prices of raw materials used by Hindustan Unilever have been volatile and continue to be so, Sridhar noted.

The company’s key inputs include soda ash and palm oil.

Prices of palm oil remained unchanged during July-September on a year-on-year basis. However, since October, prices of this commodity have fallen around 30% on year.

For the quarter ended September, HUL reported a 12.5% jump in revenues to `6,310 crore and an 18.2% improvement in operating profit to `970 crore – both a tad below analyst estimates.

While operating margins expanded by 74 basis points to 15.5%, boosting earnings growth, volume growth was hurt by “the budget rationalisation in the Canteen Stores Department”, Emkay Global said in a note.

Significantly, growth was driven largely by the soaps and detergents segment which logged a 22.5% growth.

Though the margins for the segment expanded 190 basis points to 14.3%, it remains a low-margin and commoditised business.
Analysts are now worried as the 12% growth seen in personal care products could well be an indicator of things to come. NW18 & Our Bureau