UPDATE 1-Weak consumer demand mars Hindustan Unilever Q2 earnings

Sat Oct 26, 2013 12:00pm EDT

By Nandita Bose

MUMBAI Oct 26 (Reuters) - Sales growth at Hindustan Unilever slowed for the sixth straight quarter between July and September and India's largest consumer goods maker said weak consumer demand would continue to drag until well into next year.

The company's fiscal second quarter results came after parent Anglo-Dutch consumer conglomerate Unilever warned in September that a slowdown in markets such as India had accelerated.

"The slowdown in business environment has continued in this quarter both in terms of volume and value growth," Chief Financial Officer R. Sridhar told reporters at an earnings press conference late on Saturday. "In particular, premium segments and discretionary categories are much more under pressure."

Sales volumes in the September quarter grew 5 percent, in line with market estimates of about 4-5 percent growth but slower than the 7 percent growth logged a year before.

India's economy is facing its worst downturn since 1991. That has hit discretionary consumer spending, leaving HUL's volume growth stagnant at around 5 percent for the past two quarters.

HUL said the slowdown in sales growth could last until next March although it is hopeful of a pick-up in the medium- to long-term as consumer demand improves.

HUL, which manufactures detergent brand Rin and Dove soap, said its net profit in the September quarter rose an annual 13.2 percent to 9.14 billion rupees ($148.39 million). Net sales rose 9.6 percent year-on-year, to 67.47 billion rupees.

Analysts had on average estimated a net profit of 8.7 billion rupees on sales of 67.1 billion rupees, according to Thomson Reuters Starmine Estimates.

Rising inflation and meager urban salary increases have reduced incomes in Asia's third-largest economy and heated up the competition in the $13 billion consumer goods sector.

Hindustan Unilever faces a difficult choice between raising prices and retaining market share, as high promotional expenditure pinches margins and higher prices hurt volumes.

"The input cost environment was volatile this quarter due to a sharp depreciation of the rupee," said Sridhar.

The rupee fell as much as 20 percent against the dollar between May and August, which the company reckons will have a greater impact on its December quarter earnings.

Despite the weakness of its Indian business for the past few quarters, Unilever in April pumped in $5 billion to raise its stake in Hindustan Unilever, banking on the country's long-term growth.

Valued at $21.5 billion, Hindustan Unilever also makes Fair and Lovely skin cream, Clinic Plus shampoo and Lipton tea.

Higher promotional spending drove up sales in the personal care segment by 12 percent year-on-year, while the company's food business grew an annual 9 percent.

Promotional spending during the quarter grew 24 percent on year to 9.54 billion rupees.

Shares of the company have risen 13 percent so far this year, compared with a 16 percent increase in the consumer sector index of the Mumbai stock exchange.

The stock has the fourth highest forward 12-month price-to-earnings ratio of 34.4 among top consumer product companies in the world, according to Thomson Reuters Starmine data.

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