The only stock in India’s benchmark index to rise this year, Hindustan Unilever Ltd(HUL), said third quarter (Q3) profit climbed 34%, exceeding estimates, on a one-time gain from sale of properties.
Net profit rose to Rs547 crore in the three months ended 30 September, from Rs408 crore a year earlier, the Mumbai-based company said in a release on Friday. That compares with the Rs477 crore median estimate of 13 analysts surveyed by Bloomberg.
HUL, the country’s biggest maker of household products, will benefit from a decline in prices of raw materials, including palm oil and petroleum derivatives used to make soaps and detergents. Chief executive officer Nitin Paranjpe had raised prices of soaps, including Lifebuoy and Liril, as the cost of raw materials rose to a record earlier this year.
“There has been a slight margin contraction because of high commodity prices earlier this year that affected the company’s soaps and detergents business,” said Anand Shah, an analyst at Angel Broking Ltd in Mumbai. He has a “neutral” rating on the stock. “With input prices declining, the margin is set to improve.”
The company’s operating margin, the percentage of sales left after subtracting production, marketing and other expenses, narrowed to 12.9% in the quarter from 13.2% a year earlier. Earnings include a one-time gain of Rs109 crore from the sale of properties.
Sales climbed 20% to Rs4,030 crore in the quarter. That compares with analysts’ estimate of Rs4,020 crore.
HUL’s stock is the best performer this year on the 30-stock Sensex with a gain of 5%, compared with a 57% drop in the benchmark. HUL fell Rs18.40, or 7.56%, to Rs224.90 in Mumbai trading on Friday. The Sensex slumped 11%.
Revenue from soaps and detergents gained 26% to Rs1,990 crore. Sales of Fair and Lovely skin cream, Pepsodent toothpaste and other personal care products rose 18% to Rs1,050 crore. Profit before interest and tax rose 4.3% to Rs268 crore.
Declining prices of commodities may help boost profitability for fast moving consumer goods companies such as HUL. The UBS Bloomberg CMCI Commodity Index of 26 commodities has fallen 46% since peaking on 2 July.
“If commodity prices are softening, we need to see that they are sustained,” D. Sundaram, HUL finance director and vice-chairman, said in a conference call with reporters. “Our own approach to pricing has been consistent. We need to give value to our customers and remain very competitive in the marketplace in terms of pricing.”
Earlier this year, HUL passed on higher costs of raw materials to consumers. The company raised the price of Surf Excel detergent in July after doing the same for soaps earlier this year. Soaps such as Lifebuoy and Lux, and detergents such as Surf Excel and Wheel account for about half of the company’s revenue.
Advertising spending rose 14% to Rs404 crore, or about 10% of sales, as competition intensified from rivals, including ITC Ltd and Procter and Gamble Co.
The company’s London- and Rotterdam-based parent,Unilever, owns about 52% of the Indian unit. India is Unilever’s biggest market in Asia, generating about 6% of annual sales.