Savings in raw material costs saw Hindustan Unilever (HUL) closing the March 2013 quarter with a 15 per cent net profit growth. The company reported a 20 per cent jump in operating profits, with operating margins improving a percentage point to 14 per cent. This seemed to perk up the stock, which was up by six per cent on Monday.
Growth worry
HUL ended 2012-13 with lower volume growth than it started out with, a sign of consumers cutting back on economic worries. Sales volume growth for the year, at seven per cent, was also well below the nine per cent-plus levels of the two previous years. HUL’s domestic FMCG sales for the quarter grew 13 per cent over the year-ago period.
Slowing volumes spell trouble for HUL now, as there is limited room to hike product prices either, to prop up sales. The company has already cut prices in the soaps segment, and with inputs ruling low, selling prices could remain under pressure. It needs to be seen if price reductions aid higher volumes.
Margins up
With the falling prices of commodities, costs of key FMCG inputs such as palm oil, palm fatty acids and packaging have been falling. As a percentage of sales, HUL’s material costs, thus, dropped to 53.6 per cent in the March 2013 quarter from the 55.2 per cent in the year-ago period. HUL has been ploughing back the savings in costs into advertising and promotions. Adspend-to-sales ratio was up almost a percentage point to 13 per cent in the March 2013 quarter.
Beverages shine
For the third quarter in a row, the beverages segment did well, growing 18 per cent over the year-ago period. Growth was driven by Bru and a marketing thrust in tea.
Product price cuts in soaps brought down the growth rate in the soaps and detergents segment to 13 per cent over the year-ago period against the earlier 20 per cent-levels. Profit margins in the segment too, improved a percentage point to 13 per cent against a year ago.
But the personal care segment is yet to return to its heydays, growing just 12 per cent. Profit margins in the segment were down two percentage points to 24 per cent.