The results announced on Sunday did not disappoint the market as analysts expected profitability to improve following a price hike in HLLs products after unprecedented global crude oil prices affected input, packaging and transportations expenses.
Crude oil prices have risen 22% since last year, peaking to $78.40 a barrel on July 14. Worried investors brought down the HLL scrip 16% during Q2 against only a 12% drop in the BSE Sensex.
We are facing pressure from high fuel prices, packaging material and freight costs. But we will continue to focus on cost savings and selective price increases to mitigate the impact, HLLs finance director D Sundaram said in a conference-call with reporters.
Net profit growth was largely due to the FMCG segment, especially the home and personal care (HPC) business which recorded 13.9% growth in sales, with all categories growing by double digits. Cost-saving initiatives, together with buying efficiencies and selective price increases, improved HLLs gross margin, Harish Manwani, chairman, HLL, said.
The FMCG segment, which also includes the foods business, posted 12.15% growth in sales at Rs 2,730.70 crore during the quarter, compared with Rs 2,434.89 crore last year. The foods business by itself grew 3.9%.
HLL and rival Procter & Gamble both increased the prices of detergents, soaps and shampoos after a bitter price war that lasted over a year.
Both HLL and Procter & Gamble hurt their bottom lines in the bargain before deciding to increase prices. Due to the intensifying competition in the FMCG space, HLLs advertising and promotion costs have risen nearly 20% during the quarter.