Hindustan Unilever followed up a sparkling March 2015 quarter with a sedate one in June. While the FMCG giant kept its volume growth steady at 6 per cent for the June 2015 quarter, domestic FMCG revenues grew just 5 per cent over the year ago. This growth is the lowest in at least eight quarters.

Much of this slump is due to price corrections taken across its soaps and detergents portfolio; the segment accounts for half HUL’s revenues. HUL pre-empted competition and had already taken price corrections of 5 per cent in this segment in the December quarter and followed it up with further cuts.

This move did pay off with volumes bouncing higher, but the cut in product prices wiped out price-led growth in revenue for the segment. Growth in the soaps and detergents dropped from 11 per cent in the September 2014 quarter to being flat by the June 2015 quarter.

Packaged foods and personal products kept up their double-digit growth with brands such as Kissan, Knorr, Fair & Lovely and Lakme. Beverages, on the other hand, slipped back into the 8-10 per cent growth band it has been in for the past six quarters, after a brief spurt in the March 2015 quarter.

The way rural demand pans out will also dictate growth. Some comfort may come from urban discretionary demand picking up over the medium term.

Margins up With a benign input cost picture, HUL intensified its advertising thrust over the past two quarters, upping amount spent by 22 per cent in both quarters over the corresponding year-ago periods. The adspend to sales ratio for the June 2015 quarter at 14.5 per cent is much higher than the 12.5 per cent in the same 2014 quarter.

Even so, operating profit margin improved to 17.2 per cent in the recent June quarter against the 15.5 per cent in the June 2014 quarter. Raw material expenses shrank 2 per cent, with inputs such as palm oil distillates, packaging, crude-oil linked chemicals and so on much lower.

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