Hindustan Unilever Quarterly Sales Miss Estimates

May 11 (Bloomberg) -- Hindustan Unilever Ltd., India’s biggest household products maker, posted lower-than-estimated sales as retail chains shut stores and wholesalers reduced inventories on speculation of price reductions.

Sales rose 6 percent to 39.9 billion rupees ($810 million) in the quarter ended March, lower than the 43.6 billion rupee median estimate of 15 analysts surveyed by Bloomberg News.

Companies are cutting prices to boost demand and retailers are shutting money-losing stores to shore up profit as Asia’s third-biggest economy slows from 9 percent average growth in the past four years, damping consumer demand. India has announced tax cuts to boost demand after its economy expanded 5.3 percent in the three months ended December, the slowest pace in five years.

“Because of frequent price corrections, trade downstocking has been observed,” Vice Chairman D. Sundaram told reporters in a conference call yesterday. “The number of organized retail stores has also come down.”

The company cut prices of several items including Lux and Lifebuoy soaps, Sundaram said.

Indian retailers are shutting unprofitable stores and reducing costs to maintain profit margins as the economic slowdown hurts sales. Retailer Subhiksha Trading Services Ltd. said on Jan. 30 its business has come to a “near standstill” and it needs 3 billion rupees to survive.

Hindustan Unilever has lost 7 percent of its market value compared with a 23 percent gain for India’s benchmark Sensitive Index. Hindustan Unilever gained 1 percent to 233.05 rupees on May 8.

Profit Estimate

Hindustan Unilever 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 in the three months ended March, the company said. That lags behind the 4.51 billion rupee median estimate of 15 analysts surveyed by Bloomberg News.

Profit before one-time items rose 20 percent as the company benefited from lower raw material prices, it said.

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.

Prices of raw materials including palm oil and petroleum derivatives have reduced from record levels last year.

“Input costs are down sequentially except in tea” Hindustan Unilever said yesterday.

Lower costs and cost savings boosted the operating margin, or the percentage of sales left after subtracting production and other expenses, by 2 percentage points in the quarter.

Hindustan Unilever’s 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 more expensive 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.