By Preetika Rana
NEW DELHI-- Hindustan Unilever Ltd., India's largest consumer
goods company, said Monday that its profit rose last quarter
despite anemic sales as lower input costs and one-time gains from
property sales offset a dip in demand growth.
The Indian arm of Unilever PLC's net profit rose 18% 12.52
billion rupees ($202 million) in the three months ended in December
from 10.62 billion rupees a year earlier. Sales rose 8% to 75.79
billion rupees.
While net profit expansion was the highest the company has
recorded in 2 1/2 years, analysts said most of the extra profit
came from one-time gains.
Hindustan Unilever shares plunged close to 6% after the
announcement as the volume sales--which investors look at as a good
indicator of demand trends--only expanded 3% during the
quarter.
A weak monsoon was largely to blame for sluggish demand in rural
India, which accounts for nearly half of HUL's domestic sales,
analysts said.
"We had hoped for a revival of growth," said Aashish Upganlawar,
a consumer goods analyst at Mumbai-based brokerage Elara Securities
(India) Pvt. "But, instead, it has turned out to be a very, very
disappointing quarter."
Sales at Hindustan Unilever--which sells Lux soap, Axe deodorant
and hundreds of other products through hundreds of thousands of
tiny shops across the subcontinent--are closely watched as an
indicator of consumer sentiment in Asia's third-largest
economy.
Some analysts had expected to see stronger growth as consumer
and corporate sentiment has been improving in recent quarters.
India's gross domestic product grew at less than 5% in the year
ended in March--a dramatic slowdown from growth rates of more than
9% several years ago.
India's central bank lowered interest rates last week for the
first time in close to two years in an attempt to spur growth. If
India's inflation remains in check and the central bank continues
to lower interest rates as expected, then the country could see its
gross domestic product growth climb toward 7% again.
The World Bank said last week that with the help of economic
revamping started by India's new business-friendly prime minister,
its expansion rate could outpace that of China in the next couple
of years, making it the fastest-growing big economy in 2017.
Hindustan Unilever results, though, suggest the enthusiasm has
yet to trickle down to the spending habits of India's
consumers.
At a news conference Monday, company executives said that the
market had shown "modest" signs of recovery over the last
quarter.
"It takes a lag between a change in the consumer confidence and
the pickup in the economy to translate into tangible improvements
in volumes in the (consumer goods) sector," Chief Executive Sanjiv
Mehta told reporters. "We have to give another quarter or two
before we start seeing the positive impact on the economy."
Write to Preetika Rana at preetika.rana@wsj.com
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