India's Hindustan Unilever slides as weak rural recovery drags volume growth

BENGALURU (Reuters) -Shares of India's consumer goods major Hindustan Unilever (HUL) fell on Friday as a weak rebound in rural demand pushed volume growth to a seven-quarter low.

The Indian unit of UK's Unilever on Thursday reported a 2% on-year increase in volumes during the September quarter. Analysts had estimated volume growth to be between 3% and 4%.

High inflation has hurt rural demand, with consumers tightening discretionary spending over the last year. Activity has also been hamstrung by uneven rainfall during the September quarter, analysts said.

The uneven distribution of India's southwest monsoon showers has impacted agricultural income, hurting the weak rural demand recovery, according to Elara Securities.

Shares of HUL were down 2% at 12:10 p.m. IST, among the top losers on the blue-chip Nifty 50 index. The shares fell as much as 2.3% in early trade.

Rival consumer goods company ITC also declined 2.6% after missing second-quarter profit estimates. ITC and Hindustan Unilever dragged the Nifty FMCG index down 1.4%.

Revenue in HUL's home care division, which accounts for about a third of HUL's business, rose 3% year-on-year. The company said volume growth in the segment was in the mid-single digits.

"The disappointment came from the company's home care segment, because the price cuts were stronger, leading to slower revenue growth," said Shirish Pardeshi, research analyst at Centrum Broking.

Easing raw material prices, however, contributed to HUL's second-quarter profit beat and aided the core profit margin, which rose to 24.6% from 23.3% last year.

HUL's shares have declined 2.4% so far this year. In contrast, the Nifty FMCG index has risen 17.4%.

(Reporting by Varun Vyas in Bengaluru; Editing by Mrigank Dhaniwala)