Unilever Plc’s Indian unit reported a 12% increase in quarterly profit as declining prices of key raw materials, including palm oil, boosted the consumer goods giant. It also raised royalties to its European parent.
(Bloomberg) — Unilever Plc’s Indian unit reported a 12% increase in quarterly profit as declining prices of key raw materials, including palm oil, boosted the consumer goods giant. It also raised royalties to its European parent.
Mumbai-based Hindustan Unilever Ltd. posted net income of 25.1 billion rupees ($309 million) for the quarter ended Dec. 31, according to an exchange filing Thursday. That narrowly beat the average profit estimate of 24.86 billion rupees by analysts in a Bloomberg survey.
Revenue matched estimates at 149.9 billion rupees, while total costs climbed 19% to 119.8 billion rupees compared to the year-ago period. Volume growth for the quarter was 5%. Hindustan Unilever will also increase royalty payouts to Unilever to 3.45% from 2.65% over three years.
Read more: India Inflation Cools to 5.72% in December Amid Tight Rates
The robust earnings come on the back of lower edible and crude oil costs as well as the gradual easing of entrenched inflationary pressures, which last year forced Indian consumer staple companies to hike prices and shrink pack sizes to protect their margins. India’s retail inflation dipped for a third straight month in December, helped by a fall in food prices.
Hindustan Unilever believes “the worst of inflation is behind us,” Sanjiv Mehta, the company’s chief executive officer and managing director, said in a statement. “This should aid in a gradual recovery of consumer demand.” However, on a subsequent call with reporters Thursday, Chief Financial Officer Ritesh Tiwari cautioned that year-on-year inflation is “still high.”
Pinching Demand
The maker of Dove soaps and Magnum ice-cream is attempting to protect its dominant market share in the country of 1.4 billion people. Inflation is still pinching demand in India’s vast countryside, where 70% of the population lives, and competition is expected to intensify.
Conglomerates led by billionaires Mukesh Ambani and Gautam Adani have ambitious plans to scale up in the consumer goods space, while existing rivals like Tata Consumer Products Ltd. are also looking to bulk up their portfolio through acquisitions.
Read more: Billionaire Adani’s Unit Eyes Acquisitions to Push Food Business
Mehta also warned on the call with reporters that volumes in rural India still have a “long way to go” before fully recovering. Inflationary pressures continued to weigh on buyers in the hinterland, with many downtrading to smaller packs and brands, especially in discretionary categories, according to a January report published by Nomura Holdings Inc.
Many in the sector are “taking price cuts mainly to perk up volumes specifically in rural regions,” Sanjay Manyal, an analyst at ICICI Securities in Mumbai, wrote in a report last week, adding that Hindustan Unilever reduced the prices of soaps and detergents by 5%-10% in October.
Godrej Consumer Products Ltd., a rival Mumbai-based goods maker, also warned earlier this month that the sector “witnessed slow growth driven by poor rural consumption and a slowdown post the festive season.”
(Updates with management comments from fifth paragraph.)
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