10/05/2009 (Bloomberg) - Hindustan Unilever Ltd., India’s biggest household products maker, posted a 3.7 percent increase in profit in the March quarter, missing estimates after a one- time charge for retirement benefits and restructuring.

Net income increased to 3.95 billion rupees ($80 million) in the three months ended March 31, from 3.81 billion rupees a year earlier, the Mumbai-based company said in a release today. That lags behind the 4.51 billion rupee median estimate of 15 analysts surveyed by Bloomberg News. Net income before one-time items rose 20 percent, the company said.

Hindustan Unilever is benefiting from a decline in prices of raw materials including palm oil and petroleum derivatives and a cut in excise tax announced by the government in February to stimulate demand. India’s economy has slowed from an unprecedented 9 percent average growth in the past four years, damping consumer demand.

The company made a one-time provision of 604.8 million rupees for retirement benefits and 257 million rupees for restructuring in the quarter ended March, it said.

Sales rose 6 percent to 39.9 billion rupees, the company said. That compares with analysts’ estimates of 43.6 billion rupees. Hindustan Unilever has changed its accounting year to the 12-month period starting April 1.

The company attributed the slower-than-estimated growth in sales to wholesalers keeping lower stocks on expectations of price cuts, the shutting of outlets of retail chains and the cutting down of exports to European nations.

Soap Prices
The company reduced prices of several items including Lux and Lifebuoy soaps, Vice Chairman D. Sundaram told reporters in a conference call.

“Because of frequent price corrections, trade downstocking has been observed,” Sundaram said. “The number of organized retail stores has also come down.”

Retailers are shutting money-losing stores to shore up profits as the economy slows.

Acting Finance Minister Pranab Mukherjee on Feb. 16 lowered excise duty to 8 percent from 10 percent and the service tax to 10 percent from 12 percent. He also extended a 4 percentage point cut in central value-added tax announced in December beyond March 31.

India announced the tax cut after its economy expanded 5.3 percent in the three months ended December, the slowest pace since the last quarter of 2003.

Raw Material
The company’s operating margin, the percentage of sales left after subtracting production, marketing and other expenses, rose 2 percentage points to 13.92 percent in the quarter from 11.92 percent a year earlier on the lower cost of raw materials.

The cheaper prices of commodities such as palm oil and crude have boosted profitability at consumer companies such as Hindustan Unilever.

Palm oil, used to make soaps, has dropped 41 percent to 2,000 ringgit ($569) at the end of March from a year earlier. The commodity reached a record of 4,486 ringgit on March 3, 2008. Crude oil had declined 66 percent on March 31 from its July record of $147.27.

Revenue from soaps and detergents, which contribute about half of sales, gained 16 percent to 20.1 billion rupees. Profit before interest and tax rose 43 percent to 3.34 billion rupees.

Profit before interest and tax from personal care products such as skin creams and toothpaste fell 2.8 percent to 2.39 billion rupees. Sales of Fair & Lovely skin cream, Pepsodent toothpaste and other personal care products rose 1.9 percent to 10.4 billion rupees.

Promotions and advertising spending rose 2.6 percent to 4.51 billion rupees, or about 11 percent of sales.

The company’s London- and Rotterdam-based parent, Unilever, owns about 52 percent of the Indian unit and started selling Sunlight soap in the country in 1888. India is Unilever’s biggest market in Asia, generating about 6 percent of annual sales.