A 24 per cent growth in net profit for the March quarter rounded off a strong year for Hindustan Unilever (HUL). Domestic sales expanded 20.4 per cent with an underlying volume growth of 9.6 per cent in the same quarter.
Led by soaps
A thrust on premium products drove sales and margins, with key brands in detergents and personal care clocking double-digit growth.
Cementing its dominance in the soaps and detergents segment, HUL's sales for the category expanded 28 per cent.
Much of this heady growth is attributable to superior pricing rather than volumes. Operating margins for the segment came in at 11 per cent for the March 2012 quarter, compared to the seven per cent the year-ago.
Foods falter
Personal care, HUL's other growth driver, too, recorded a healthy 17 per cent sales growth, helped by a thrust on premium products.
But the performance in the foods segment, which includes beverages and packaged foods, paled in comparison.
Sales for the foods category grew just eight per cent, despite launches of variants in product portfolios such as Knorr and Kwality Walls. Margins for the foods segment also dipped in the March quarter.
However, packaged foods had begun to show signs of slowing growth from the December 2011 quarter. Neither is HUL the sole company to face troubles in the segment with biggies such as Nestle also reporting decelerating growth in sales and net profits.
Margins hold up
Continued economy on advertising, as has been the case for the past couple of quarters, helped HUL push overall operating margins. For the March quarter, margins stood at 14.5 per cent compared with the 12.9 per cent in the year-ago period. As a proportion of sales, adspend dropped to 12 per cent, where it stood at 13 per cent in the March 2011 quarter.
Input costs had showed signs of slowing impact in the December 2011 quarter dropping to 52.5 per cent as a proportion of sales. This proportion has surged back to 55.2 per cent, on par with the levels in the earlier quarters. HUL does wield pricing power; but it may not have much more room for further cuts in adspends in a competitive environment. A depreciating rupee also adds to the cost burden. Operating margins, therefore, may not show significant improvements going forward.