Q3 COMMENT. HUL: Let down by soaps & personal-care segments

The December quarter for Hindustan Unilever saw volume growth slip to 3 per cent over the year ago, a level it touched in the March 2014 quarter.

With soaps and detergents, and personal-care – HUL’s two big segments – slowing down in the December quarter, volumes and sales both took a blow.

For the October-December 2014 period, the personal care segment saw sales expanding at 7 per cent over the year-ago period, down from the 10-15 per cent growth of the two preceding quarters.

Apart from a squeeze in discretionary spending taking a toll, the segment’s blue-eyed boy Fair & Lovely was relaunched in the September 2013 quarter, as it was faring poorly. This improved growth in the subsequent months, increasing the base. Intense competition in soaps and detergents also impacted growth. For the December 2014 quarter, the segment grew 6 per cent, the slowest in five quarters. But owing to muted prices of input palm oil, the segment’s profit margins improved slightly by a percentage point to 14 per cent over the year-ago period.

Packaged foods held on to double-digit sales growth, thanks to instant soups category. Green tea and coffee brand Bru helped the beverages segment also maintain growth rate. Both segments, though, saw profitability drop. Coffee and tea prices, for instance, inched higher over the past year.

Overall, operating profit margins for HUL stood at 15 per cent for the December 2014 quarter almost unchanged from the 14.8 per cent in the December 2013 quarter.

HUL has not, however, been pushing advertising very hard; the adspend to sales ratio has been at lower levels in the first nine months of this fiscal compared to the year ago.

A further correction in inputs, thanks to cheaper oil, may allow a little more elbow room on this front. HUL already has plans to improve its flagging oral-care portfolio.