The Hindu Business Line : Not-so-inspiring numbers from HUL

In the backdrop of strong double-digit profit growth from smaller rivals such as Marico, Dabur and GSK Consumer, Hindustan Unilever Ltd (HUL) has declared an uninspiring set of numbers for the September quarter.

A one-off event, a lockout at a key personal products manufacturing facility at Assam, has contributed in part to the sedate 9.7 per cent growth in net sales and a 7 per cent growth in sustainable profits this quarter, compared with the previous year.

Interrupted production at this unit has dented both sales and overall profitability, as personal products has the highest margin profile within HUL’s portfolio.

Lower Growth

With production resuming at this unit, growth in the personal products business may move into a higher trajectory in the December quarter, which is also seasonally a good one for this business.

One-off factors apart, HUL’s other businesses have also not displayed significant growth momentum. On a sequential basis, sales growth in soaps/detergents has been maintained, but both beverages and processed foods have seen lower growth than witnessed in the first two quarters of 2007.

This, combined with an escalation in input costs and relatively low growth (4 per cent expansion in the quarter) in ad-spend, indicative of low launch/promotional activity, make the overall picture quite unexciting. The latest numbers, combined with the significant 14 per cent appreciation in the company’s stock price between mid-August and this week, set the tone for the stock’s 5 per cent decline on Wednesday’s trading.

Sustained Declines

HUL’s ongoing buyback programme, in which it has mopped up about 45-lakh shares over the past few weeks, may provide some protection against significant and sustained declines in the stock price in the markets.

However, upside in the stock may be capped until the next quarter brings reassurance that HUL’s profit growth, net of exceptional factors, is on track.

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