Hindustan Unilever, India's top consumer goods maker, on Sunday reported a better-than-expected 29% rise in second-quarter net profit and said it would spend up to $156 million on its first ever share buyback.
Hindustan Unilever said net profit rose to 4.93 billion rupees (US$122 million) in the three months to end-June from 3.81 billion rupees a year earlier, helped by price increases and robust sales. Net sales rose to 34.81 billion rupees from 30.83 billion.
That compared with a Reuters poll forecast of a net profit of 4.36 billion rupees on net sales of 34.84 billion. Its profit was boosted by a one-off gain of 211.7 million rupees from the sale of a property.
Hindustan Unilever, 52% owned by Anglo-Dutch Unilever, has battled high prices of palm oil, a key ingredient of its dominant soaps and detergents business, while high inflation has muted sales of premium personal care products.
Operating margin, a key gauge of efficiency, rose to 14.5% from 13.6% in the same period a year earlier, but the company cautioned that pressure on margins, particularly in the competitive categories of detergents and shampoos, persisted.
"Judicious price increases, together with buying efficiencies and aggressive cost-saving initiatives helped sustain gross margins despite escalating costs," said Chairman Harish Manwani.
"The challenge of inflationary pressure continues and will be met through a combination of selective price increases and cost leadership across the supply chain," he told reporters.
Lever said sales of home and personal care products including Surf detergent and Lux soap, grew 11% and foods -- including Lipton tea and Wall's ice cream -- expanded by a quarter.
Its full-year profit is forecast to rise 13% to 18.02 billion rupees, according to Reuters Estimates.
Lever also announced its first ever share buyback of up to 1.2% of its outstanding equity at up to 230 rupees per share, a 17% premium to Friday's closing price. The company said the buyback would make its balance sheet leaner and more efficient to improve returns.
Lever has hived off some smaller units to focus on its core portfolio, and analysts have questioned why the company did not opt for an acquisition to defend itself against growing competition.
"The buyback in no way prevents us from pursuing inorganic growth opportunities should those arise," Manwani said.
Top cigarette maker ITC has launched packaged foods and personal care products, and others including Dabur India, Marico, Tata Tea and the local units of Procter & Gamble, Nestle and Colgate-Palmolive are threatening Lever's dominance.
ITC on Friday reported a stronger-than-forecast 20% rise in quarterly net profit to 7.83 billion rupees.
Rising incomes and the expansion of modern trade are expected to increase demand for consumer goods in India, but steeper inflation could shift demand to cheaper substitutes.
Shares in Hindustan Unilever, valued at $11 billion, trade at 24.9 times forecast earnings, compared with 19.6 times for ITC.
Hindustan Unilever shares fell 8% in the second quarter, trailing a 5% gain for the sector index and a 12% gain for the main index reflecting the increased competition from other companies.