Flat margins, low volumes and the packaged foods segment sliding back into losses made the December 2012 quarter for Hindustan Unilever (HUL) a gloomy one. But bright spots came from the beverages segment which kept up its growth spurt and the mainstay soaps and detergents, which saw key brands sporting good volume growth.
FMCG sales for HUL expanded by 15 per cent for the December 2012 quarter compared to the year ago period. Growth is down a whisker from the 16 per cent in the September 2012 quarter. But the more worrying factor is that the once-strong volume growth of around 9 per cent has given way.
The December 2012 quarter saw volumes expanding just 5 per cent, atop the 7 per cent volume expansion in the September 2012 quarter.
Healthy growth
The soaps and detergents segment, which contributes about half of HUL’s revenues, grew at a healthy 20 per cent. Surf and Rin clocked a double-digit growth in volumes. With a 18 per cent expansion, the beverages segment, posted its second quarter of good growth, driven by teas and new launches in the Bru range.
This segment had seen several quarters of faltering growth before perking up in the September 2012 quarter onwards, and contributes about a tenth of revenues for HUL. Margins in this segment also improved remarkably compared to earlier quarters.
But packaged foods returned to muted growth, with sales expanding a meagre 8 per cent, snuffing out the brief spark that flared up in the first quarter of this fiscal. The segment also fell back into losses.
Surprisingly for this time of the year, personal care too was lacklustre, growing 13 per cent below growth in earlier quarters.
The December quarter is usually peak period of sales for personal care. Product lines such as face creams haven’t done well, with discretionary spending taking a hit, rise in sale of low-priced sachets, and competition heating up in premium skin care. Launches in hair care such as TRESemme and variants in the Dove range, which have seen good initial response, could prop up numbers.
Margins flat
But this will entail advertising and promotions, given the competition crowding the space. Adspend as a proportion to sales rose 1 percentage point to 12.8 per cent for the December quarter. The company has been slowly raising adspend after input costs took a downturn in the June 2012 quarter. Input costs were firm at 53 per cent of sales, and are likely to remain so. The higher adspend offset controls over other expenses, with the result that operating margins remained at 16 per cent for the December quarter.
The company will also increase royalty payment to Unilever from the current 1.4 per cent of turnover to 3.15 per cent, to be increased in phases to March 2018. Given the gradual increase in these payouts, the effect on margins is likely to be minimal.