The September 2015 quarter performance of Hindustan Unilever (HUL) is in many ways a repeat of the June 2015 quarter, with the company continuing to clock single-digit volume growth and weak performance at the top and bottom-line.

With rural consumption (40-45 per cent of revenue) showing no significant improvement and urban consumption picking up only in select discretionary pockets, net sales for the three months ended September 2015 grew by a muted 4.7 per cent to ₹7,820 crore.

Overall volume growth for the quarter at 7 per cent implies that price cuts have pulled down top-line growth. To push volumes, the company has been cutting prices in its key soaps and detergents segment (which accounts for half the revenue) since the December 2014 quarter. However, like in the June 2015 quarter, smaller segments such as personal products (30 per cent of revenue) and packaged foods (6 per cent of revenue) have supported top line by clocking 9-12 per cent growth in sales. Premium products in the personal segment such as Ponds premium skin lightening and Dove in the hair care space led the growth there.

Flat margins

Though raw material as a percentage of sales declined from 52 per cent in the September 2014 quarter to 49.6 per cent now, operating margins did not show any significant improvement, being almost flat at 16.6 per cent. While weak top-line growth may partly be a reason for this, higher ad spends has also played a role. For the third quarter in a row, ad spends have grown by 22-24 per cent, over the corresponding year-ago periods.

Like in the three months ended June 2015, ad spends to sales ratio stood at about 14.5 per cent. It was 12.4 per cent a year ago. While personal products and packaged foods did see an expansion in margins, segment margins for soaps and detergents, and beverages contracted by 80 basis points and 280 basis points, respectively, over September 2014. Due to the muted overall performance, adjusted net profits grew by 3.7 per cent to ₹974 crore.

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