UPDATE 1-Hindustan Unilever Q3 sales growth slows, no immediate recovery

Mon Jan 27, 2014 6:02am EST

* Dec quarter sales volumes grow 4 pct vs 5 pct year-ago

* Slowdown will continue for the next few quarters

* Profit before exceptional items up 9 pct, net profit up 22 pct

By Nandita Bose

MUMBAI, Jan 27 (Reuters) - Hindustan Unilever, India's largest consumer goods maker, expects sales growth to remain muted for the next few quarters at least, stymied by a sluggish economy which led to its seventh consecutive quarter of weaker sales.

The slowdown in sales intensified in the quarter ending Dec. 31, as demand from rural India, which accounts for nearly half of the company's sales, fell. Demand in urban areas was also lower as customers spent less in a weakening economy, the company said.

"Market growth continued to be slow and as we stand today, in the near term, we can expect to see a few more quarters of slow growth," Chief Financial Officer R. Sridhar told a conference call after the company announced its third-quarter earnings on Monday.

Overall sales volumes in the December quarter grew 4 percent, in line with market estimates of 4-5 percent growth but lower than the 5 percent growth logged a year ago.

India's economy has been hit by slowing private consumption as well as declining capital investment and public spending, leading to the slowest growth in a decade for the fiscal year that ended in March.

Hindustan Unilever (HUL) is majority owned by Anglo-Dutch firm Unilever Plc , which this month said it would remain focused on emerging markets even though economic weakness in India and Indonesia last year had hurt its performance.

Unilever generates more than half of its sales in emerging and developing markets.

HUL faces the difficult choice of raising prices or retaining market share, as high promotional expenditure pinches margins and higher prices hurt volumes.

Higher promotional spending pushed up sales in the personal care segment by 12 percent year-on-year, while the company's food business grew an annual 13 percent.

HUL, which manufactures detergent brand Rin and Dove soap, said its net profit in the December quarter rose 22 percent to 10.6 billion rupees ($169.63 million) aided by a one-time gain. Profit before exceptional items grew a conservative 9 percent.

Net sales rose 9.5 percent year-on-year, to 70.4 billion rupees.

Analysts had on average estimated a net profit of 9.3 billion rupees on sales of 71.3 billion rupees, according to Thomson Reuters Starmine Estimates.

A sharp depreciation in the rupee between May and August last year impacted the company's December quarter earnings, Sridhar said.

Valued at $19.5 billion, Hindustan Unilever also makes Fair and Lovely skin cream, Clinic Plus shampoo and Lipton tea.

Shares of the company have remained flat with a 0.8 percent drop so far this year, in line with a 0.6 percent fall in the consumer sector index of the Mumbai stock exchange.

The company trades at 31.5 times its 12-month forward earnings, compared with 25.9 times for ITC Ltd ITC.NS, 35.4 times for Nestle and 24.8 times for Godrej Consumer, Thomson Reuters Starmine Smart Estimate showed

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