Unilever India arm's earnings margin shrinks on cost inflation

By Praveen Paramasivam

CHENNAI (Reuters) -India's Hindustan Unilever on Thursday reported a drop in fourth-quarter earnings margin after increased commodity costs overshadowed sales growth.

A sharp rise in commodity costs through last year has cast a cloud over fast-moving consumer goods (FMCG) makers even as they sought to shrug off the effects via price increases and reduced package sizes.

The Indian unit of UK consumer giant Unilever reported a nearly 11% jump in expenses to 117.08 billion rupees ($1.43 billion) for the quarter ended March 31, with gross margin dipping to 48% from 49% a year earlier.

"The decline is basically a reflection of two years of cumulative inflation that commodities have seen," Chief Financial Officer Ritesh Tiwari said in a conference call with media.

The margin decline came as growth in product prices slowed to its lowest in more than a year to 7%, while sales volumes expanded 4%, down from 5% at the end of December. Still, the price increase and volume expansion drove the sale of products 11% higher to 146.38 billion rupees.

The price growth "will tail-off further," the company said in a presentation. HUL has already lowered prices of its soaps, detergents and tea as prices of some raw materials eased, which it believes will drive the gross margin higher in the quarters ahead.

It also expects volumes to pick up on the back of selective price cuts.

The Dove soapmaker's profit rose about 10% to 25.52 billion rupees in the quarter that ended March. Revenue from its top two businesses - home care as well as beauty and personal care - climbed 19 and 10%, respectively.

HUL shares fell about 2%, taking their total declines this year to nearly 4%.

Parent Unilever, meanwhile, smashed quarterly sales forecasts on higher prices but said price increases would step down from here.

($1 = 81.6900 Indian rupees)

(Reporting by Praveen Paramasivam in Chennai; Editing by Savio D'Souza and Dhanya Ann Thoppil)