y for Hindustan Unilever, or HUL,  the nation s largest consumer-products manufacturer by sales, the cost of keeping its share of consumer spending is turning out to be pretty high.Marred by rising competition from rivals such as Godrej Consumer Products Ltd. and Procter Gamble Hygiene Health Care Ltd. — who took advantage of the economic downturn to pitch cheaper products to price-sensitive Indian consumers — HUL has been losing market share in its key soaps-and-detergents segment, which made up 45% of its sales in the January-March period.The bid to regain lost market share has seen the company slash product prices and increase advertisement spends, taking a hit on profits. Notwithstanding the positive 11% expansion in sales volume (compared to the 4% decline in the fourth quarter of the 2009 financial year), Tuesday s fourth-quarter results were not much improved and have left analysts disappointed.Sales of soap brands such as Lifebuoy, Lux, Dove and Rexona and detergent brands like Wheel, Surf Excel and Rin slipped 1.9%, while advertising and promotion costs jumped 39% year-on-year. Moreover, the 47% year-on-year rise in net profit to 5.81 billion rupees, despite being helped by a significant one-time gain of 1,toms shoes sale.43 billion rupees primarily related to the sale of long-term investments, was lower than the net profit of 6.49 billion rupees in the preceding quarter.But thanks to gains in the broader domestic market, the impact on HUL s stock has been muted. It was down just 0.4% at 229.15 rupees in afternoon trade, but still sharply underperforming the 1.5% rise for the benchmark 30-stock Sensex. With pricing pressure likely to sustain and higher advertising spends coupled with inflation in raw material cost and higher royalty outgo, with the royalty increase likely to impact margins by 50-60 basis points, the company s profitability is likely to witness severe stress in FY2011, says the Mumbai-based Sharekhan brokerage.HUL is expected to spend more on royalty payments based on a pact it signed with Unilever in December related to the use of some of its parent company s brands,cheap toms shoes.Sharekhan has slashed its net profit estimates for HUL by 8.9% and 6.3%,tomsoutletsalecheap.com, respectively, for the present financial year and the following one.HUL s stock has lost a quarter of its value since hitting a 52-week high of 306 rupees in July last year — pretty much reflecting the company s plight.JP Morgan, while saying that HUL s strategy of driving volumes and growing market share is a long-term positive and could start to bear fruit in the medium term, added that the markets may start rewarding the stock only after seeing visible signs of such success. Add a Comment Error message Name We welcome thoughtful comments from readers. Please comply with our guidelines. Our blogs do not require the use of your real name. Comment Comments (1 of 1) View all Comments 12:09 pm June 6, 2010 yadwinder sandhu wrote: PLZ SAVE THE ENV. India Real Time offers quick analysis and insights into the broad range of developments in business, markets, the ec Related articles:

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