UPDATE 1-India's Hindustan Unilever Q2 volumes disappoint, shares fall

Fri Oct 26, 2012 6:26am EDT

* Q2 net profit at 8.07 bln rupees vs 7.5 bln estimate

* Shares fall as much as 2.9 percent after results

By Nandita Bose

MUMBAI, Oct 26 (Reuters) - Hindustan Unilever Ltd, India's largest consumer goods maker, posted a better-than-expected 17 percent rise in net profit but disappointing sales volumes sent the company's shares down as much as 2.9 percent.

"There has been some slowdown in discretionary spending categories such as pastes, food, etc., which has had an impact on volumes," R.Sridhar, chief financial officer, told reporters

The Indian unit of Anglo-Dutch conglomerate Unilever Plc said its net profit rose to 8.07 billion rupees ($150.4 million) for the fiscal second quarter ending Sept. 30, from 6.89 billion a year earlier.

Net sales for the quarter rose 11.6 percent to 61.55 billion rupees, with 7 percent underlying volume growth. The market was expecting volume growth of 8 percent, according to analysts.

Analysts on average had estimated a profit of 7.5 billion rupees on sales of 63.2 billion, Thomson Reuters Starmine Estimates showed.

"Volume growth has been impacted because there was some delay in monsoon (rains) and that has had a marginal impact," said G. Chokkalingam, chief investment officer at Centrum Wealth Management. He does not own HUL shares.

He said the stock was also correcting on Friday, as it has risen about 25 percent since July.

HUL, valued at $22.9 billion, makes popular brands such as skin fairness cream Fair and Lovely, Clinic Plus shampoo, and soap brands such as Dove.

Indian consumer goods makers face a difficult choice between raising prices and retaining market share as inflation and weak consumer sentiment pinch margins and price increases hurt volumes.

HUL's operating margins in the quarter rose 100 basis points from a year ago, with its operating profit rising 19 percent, slowing from the June quarter.

Sales at the home and personal care segment grew 12 percent, while its foods business grew 10 percent.

Shares in the company, which have risen 36 percent since the start of 2012 compared with a 42 percent rise in the BSE FMCG index, ended 2.1 percent lower on Friday.

The company trades at 32.7 times its 12-month forward earnings, compared with 15.9 times for ITC Ltd, 32.9 times for Nestle and 25.4 times for Godrej Consumer, Thomson Reuters Starmine Smart Estimate showed.

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