HUL spends Rs656 crore on ads to earn a net profit of Rs581 crore!  

May 25, 2010

In the fourth quarter, HUL spent Rs656 crore on advertising and promotions. However, its net profit (excluding a one-time gain) increased by just Rs46 crore and its sales went up only by 8%, compared to the year-ago period

Hindustan Unilever Ltd (HUL), the unit of Anglo-Dutch Unilever PLC, spent Rs656 crore on advertising and promotions, however its fourth quarter net profit increased just by Rs46 crore, excluding a one-time gain. Even after including the one-time gain of Rs143 crore, HUL’s net profit of Rs581 crore is much less than its ad-spend. In short, after spending Rs656 crore on ads, the company could manage to earn a ‘pure’ net profit of just Rs438 crore compared with Rs395 crore, reported during the same quarter last year.

For the quarter to end-March, the company said its net profit rose 47% on a one-time gain while net sales increased 8%. However, on a consolidated basis, HUL's net profit fell 14% as sales declined 13% to Rs17,764 crore.

During the quarter, the company reported a net profit of Rs581 crore compared with Rs395 crore, in the same period last year, due to a one-time gain of Rs143 crore related to sale of property, long-term trade investments and lower provisions for retirement benefits.

“In an environment of heightened competitive intensity we have accelerated volume growth, ahead of the market. Broad-based actions have been taken to enhance competitiveness of our brands, build new segments, expand offerings in foods and improve the overall quality of our innovations and speed to market. These initiatives have started to yield positive results,” said Harish Manwani, chairman, HUL, in a release.

The company said during the quarter, domestic consumer and fast moving consumer goods (FMCG) business grew 8%, driven by strong 11% volume growth. Growth was broad-based across home and personal care (HPC) and foods and in aggregate, ahead of reported market growth. Although the company reported total revenues of Rs4,380 crore compared with Rs4,057 crore for the March quarter, on a consolidated basis, its total revenues fell 14%. On a consolidated basis, HUL's total revenues fell to Rs17,764 crore from Rs20,891 crore, a year ago.

During the quarter, HUL’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) margins declined 147 basis points on the account of 39%, 28.3% and 10.5% increase in ad-spend, purchase of finished goods and raw material consumption, respectively.

Despite spending Rs656 crore in the March quarter on advertising and promotions compared with Rs450 crore in the same quarter last year, HUL's net sales increased by just 8%, supported by personal care products, beverages and exports. Its soaps and detergents segment declined 2% to Rs1,978 crore from Rs2,016 crore from the year-ago period.

In the fourth quarter, HUL spent Rs206 crore more on advertising and promotions; however, its ‘pure’ net profit (excluding the one-time gain) increased by just Rs46 crore.

For the year to end-March, the company declared a final dividend of Rs3.5 per share, taking its total dividend to Rs6.5 per share, compared with Rs6 per share last year.

HUL shares ended Tuesday 0.6% down at Rs230 on the Bombay Stock Exchange, while the benchmark Sensex closed 2.7% down at 16,022 points.  —  Moneylife Digital Team