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Hindustan Unilever Sales Growth Weakens; Shares Fall

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Hindustan Unilever's aggressive advertising and discounts failed to lift sales volumes for the fifth consecutive quarter and India's largest consumer goods maker said the slowdown in growth may last until the end of the fiscal year.
Hindustan Unilever's fiscal first-quarter results underscores a warning by its parent, Anglo-Dutch consumer conglomerate Unilever, that growth in emerging markets was no longer immune to the global economic weakness.
"India is very much a reflection of the announcement from the parent," Chief Financial Officer R. Sridhar told reporters after the earnings report on Friday.
"We are seeing a slowdown in market growth in both volume and value terms, and over the next 2-3 quarters these challenges will continue," he added. Shares fell 5.7 per cent on the disappointing sales figures.
High inflation and meagre urban salary increases have reduced incomes in Asia's third-largest economy and heated up the competition in the $13 billion consumer goods sector.
Hindustan Unilever faces a difficult choice between raising prices and retaining market share, as high promotional expenditure pinches margins and higher prices hurt volumes.
The company said its adjusted net profit rose 4 per cent to Rs 885 crore for the quarter that ended in June. The actual net profit stood at Rs 1,019 crore and included a one-time gain.
Net sales for the quarter rose 7 per cent to a lower-than-expected Rs 6690 crore with 4 per cent underlying volume growth, below market estimates of about 6 percent growth and slower than the 9 per cent growth logged in the same-year ago period.
Analysts on average had estimated an adjusted profit of Rs 870 crore on sales of Rs 6900 crore, Thomson Reuters Starmine Estimates showed.
Despite the weakness of its Indian business for the past few quarters, Unilever in April pumped in $5 billion to raise its stake in Hindustan Unilever, banking on the country's long-term growth.
India's economy has been hit by slowing private consumption, capital investment and declining public spending, leading to the slowest growth in a decade for the fiscal year that ended in March. Economic growth in the first quarter was 4.8 per cent, in line with expectations.
Hindustan Unilever, valued at $25.1 billion, makes popular consumer brands such as skin fairness cream Fair and Lovely, Clinic Plus shampoo, Dove soap and Lipton tea.
Sales at the personal care segment grew 2 percent , while its food business grew 5 per cent, as consumer demand waned.
Shares of the company have risen 31 percent so far this year, compared to a 22.9 increase in the BSE FMCG index.
The stock has the third-highest forward 12-month price-to-earnings ratio among top consumer product companies in the world, according to Thomson Reuters Starmine data.