Hindustan Levers Ltd, India's top consumer goods firm, is likely to report first-quarter net profit fell nearly 13 per cent and revenue dipped as distributors held off on new orders due to uncertainty over a new value-added tax.
Hindustan Lever, a household name with brands such as Lux and Lifebuoy soaps, Fair & Lovely skin lightening cream and Wheel detergents, recently decided to focus on 30 key brands and to phase out unprofitable businesses.
The company, 51-per cent owned by Anglo-Dutch consumer goods giant Unilever Plc, has shown improved operating margins in recent quarters, but sales are under pressure from competition and a sluggish economy. It is due to release its first-quarter results on Wednesday.
A Reuters survey of six brokerages produced a median net profit forecast of Rs 3.74 billion ($79 million) on sales of Rs 23.42 billion. That compares with a net profit of Rs 4.29 billion on sales of Rs 23,81 billion in January-March 2002.2
Excluding extraordinary income of Rs 747.2 million from selling its seeds business in the year-earlier period, profits are expected to have risen six per cent.
"It is going to be very tough for fast-moving consumer goods companies to deliver growth," said Nikhil Vora, senior vice-president in charge of research at ASK Raymond James.
"The big issue was the concern over the implementation of Value Added Tax," he said.
India was to have implemented a VAT, which aims to cut multiple layers of state and federal tax, from April 1, but it has been postponed to June.
Traders and distributors did not know whether they would get credit for the sales tax already paid on inventory, leading them to focus on clearing old stocks rather than buying new supplies from manufacturers.
Before the VAT effect, analysts had expected HLL to benefit from a slight uptrend in retail sales in recent months and see profit boosted from the low base of the previous year.
HLL's home and personal care segment continues to lead, while the other segments like food, beverages and oils, lag, they said.
The consumer goods giant battles with other multinationals such as Colgate-Palmolive India, Procter & Gamble and Nirma and also smaller low-cost firms in a price-conscious market.
But the company, which earns about half its revenue from rural areas, depends on a good monsoon to spur demand there. The effect of a delayed monsoon and drought in several states has kept a lid on sales growth.
Shares of HLL, which is the third-largest by market capitalisation at $6.6 billion, have lost 21.6 per cent in 2003, while the benchmark Bombay Stock Exchange index is down 11.2 per cent.
