With slowing sales underpinned by just four per cent volume growth, Hindustan Unilever (HUL) latest numbers were at sharp variance with its recent stock price performance.

HUL delivered a mere 7.3 per cent in sales growth in April-June, with price increases on its products becoming difficult. Earlier quarters had seen price hikes drive FMCG sales even as volumes slowed.

HUL’s growth fell prey to the cutback in discretionary consumer spends, hurting segments such as ready-to-eat foods and cosmetics. Sales in the personal care (cosmetics) segment grew a mere two per cent, a far cry from the 12-17 per cent of earlier quarters.

As personal care offers much higher margins than other segments, this may signal muted profitability in the coming months, given the sluggish sales.

The soaps and detergents segment, which accounts for half HUL’s revenues showed a growth of just eight per cent, partly be due to price cuts undertaken in the March quarter. The only segment which showed perkiness is beverages, driven by a revamp of the tea portfolio and marketing drive.

Costs to the rescue

Some respite came from benign material prices, with the raw material to sales ratio dropping two percentage points to 54 per cent over the year ago.

But gains could reverse in the coming quarters – as prices of key inputs such as palm oil, crude oil and its derivatives are beginning to inch up again - further lifted by a weak Rupee.

The departure of HUL’s MD & CEO, Nitin Paranjpe, to take up a global position, may also be viewed as negative. While he was at the helm since April 2008, the HUL stock has almost doubled.