FMCG stocks take a hit.
By R. Chandrasekaran
CHENNAI: India’s biggest fast moving consumer goods (FMCG) company, Hindustan Unilever, delivered the slowest sales growth in over three years in tune with the overall volume sluggishness. The company’s first quarter results has not only disappointed investors, but also dragged down its stock at the end of Friday by over 3 percent.
The company’s results come on the heels of another big company ITC’s results that also disappointed the investors, whereas Dabur delivered results in line with Street expectations.
Hindustan Unilever’s results could have been further slower if not for the detergents and soaps compensating the sales slackness in other segments. Both soaps and detergents contribute about 58 percent of the incremental sales increase during the first quarter, whereas personal products contributed 9 percent.
The company’s profit was Rs.10.19 billion in the June quarter compared to adjusted net profit of Rs.8.54 in the previous year quarter. Including one-time gain, it had earned a profit of Rs.13.30 billion in the year-ago quarter. Analysts were expecting a profit of Rs.8.7 billion.
HUL’s consumer product sales advanced by 7.1 percent to Rs. 64.2 billion driven by sales growth of 12.5 percent by foods segment and 5.9 percent by the home and personal care segment. Of this, soaps and detergents rose 7.7 percent to Rs.34.08 billion. The volume witnessed 4 percent growth, whereas the adjusted volume rose nearly 5 percent.
However, the significant aspect from the result is that its cost of goods sold increased only by 3.4 percent, which is much lower than the sales upside. The gain in margins had been used for hiking advertisement and promotion spends by 8.6 percent.
The slower sales growth is attributed to the macroeconomic conditions. The situation is unlikely to change at least in the next two quarters as food inflation is still at the elevated higher levels and the purchasing power will be further tested by higher interest rates.
Commenting on the trend, HUL’s chief financial officer R Sridhar told the press, “We are seeing a slowdown in market growth in both volume and value terms. Over the next two-three quarters, these challenges will continue.”
The stock has given a return of over 30 percent in the current year, whereas the BSE’s Sensex has gained a little over 20 percent. The company’s stock surged significantly after its parent company Unilever’s offer to buy Indian company’s shares at Rs.600 a share closed recently. In the last one month, there was a significant interest for FMCG stocks. Now with ITC and HUL delivering below than expected results, there could be some selling in the coming days.
To contact the author, email to rchandrasekaran@americanbazaaronline.com