Unilever India’s Profit Disappoints as Covid Crimps Demand

Hindustan Unilever Ltd., the Indian unit of Unilever Plc, missed analyst estimates for quarterly profit, hurt by rising raw material prices and a deadly second virus wave that crimped consumption demand.

Asia’s biggest consumer goods firm by market value posted a 9.6% rise in net income that came in at 20.6 billion rupees ($277 million) for the quarter ended June 30, it said in an exchange filing Thursday. That compares with the 22.1-billion-rupee average profit forecast by analysts in a Bloomberg survey. Revenue rose 13% to 117.3 billion rupees, while volume growth was 9%, the filing said.

The earnings underscore the headwinds for the maker of Dove soaps, Lipton tea and Surf detergent as rising raw material prices ate into its margins and the coronavirus outbreak eroded jobs and gutted consumption demand. A patchy monsoon season is now threatening to further thwart rural spending, including on staples, since more than half of India’s population depends on rain for farming.

“Let’s not come to a conclusion that the monsoon will be bad,” Chairman and Managing Director Sanjiv Mehta told reporters on a post-earnings call. Rural demand in fact led the rebound for the company in June and early July, Hindustan Unilever’s Chief Financial Officer Ritesh Tiwari said on the call.

Muted Demand to Weigh on India’s Consumer Firms Quarterly Profit

Shares of the consumer goods maker fell 2.3% in Mumbai Thursday after earnings were announced, wiping the entire gain this year and pushing the stock into the red. Hindustan Unilever is now down 0.7% in 2021, making it is one of the worst performers this year on benchmark S&P BSE Sensex, which has jumped almost 11%.

Significant Inflation

“The significant inflation in some key raw materials like tea, palm oil and crude” can impact gross margin during the quarter, Antique Stock Broking Ltd.’s analysts led by Abhijeet Kundu wrote in a June 22 report. While Hindustan Unilever “has taken calibrated price hikes to mitigate some part of the inflation,” it has also absorbed part of it to retain sales volumes in a weak demand environment.

Total costs for the June quarter rose 14% to 93.2 billion rupees, according to the filing while other income fell 57% to 670 million rupees.

The latest quarter also saw India battling the world’s fastest-surging Covid-19 outbreak, with daily cases topping 400,000 in early May. But it only triggered localized lockdowns and did not see the kind of frenzied stockpiling of household essentials that Indians did during last year’s nationwide hard lockdown on worries that supplies will run out.

“Consumer buying was more disciplined in the second wave; there were no benefits of pantry loading for packaged goods companies in it as compared to the first wave,” Varun Lohchab, an analyst for HDFC Securities Ltd. wrote in a July 15 note.

©2021 Bloomberg L.P.

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