Hindustan Lever, the country''s largest FMCG company, has reported excellent results for the second quarter ended June 2006. The company had struggled to achieve sales growth and sustain operating margins in the face of stiff competition, which triggered price wars in key product segments.

Latest quarterly results confirm that price realisations have improved and the company''s strategy of focussing on key products is paying off.

For the quarter ended 30 June, 2006, HLL has reported a 35.13 per cent rise in net profits to Rs380.59 crore from Rs281.65 crore for the corresponding quarter of previous year. Net sales increased 8.71 per cent to Rs3,083.23 crore from Rs2,836.32 crore for the prior year quarter.

Domestic FMCG business recorded a growth of 12.15 per cent in net sales over the previous year quarter. Within FMCG, the home and personal care (HPC) segment continued to be the growth driver with sales growth of 13.92 per cent. Performance of the foods division continued to be below par with sales growth of just 3.84 per cent, though the company said some of the branded foods recorded double-digit sales growth.

Domestic HPC sales contributed 74.16 per cent of total sales while 14.41 came from foods. Exports went up 1.93 per cent during the quarter and contributed 10.66 per cent of total sales.

Soaps and detergent sales increased 13.07 per cent over the previous year quarter while personal products sales increased by 13.28 per cent. Sales of beverages declined 3.74 per cent during the quarter, mostly because of sluggish tea sales, while processed foods sales improved considerably by 24.18 per cent. Ice creams were the best performing product segment with a sales growth of 34.28 per cent over the previous year quarter, though on a small base.

All product segments, except chemicals and plantations, were profitable during the quarter. Even processed foods, which had reported a loss during the previous year quarter, turned profitable.

Operating profits, excluding other income, increased 19.94 per cent over the previous year quarter. Operating margins as a percentage of net sales improved to 13.45 per cent from 12.19 per cent for the corresponding quarter of previous year on improved realisations and tighter control of costs.

Cost of goods sold, including cost of material inputs and manufacturing costs, increased by a modest 4.21 per cent. The company increased its spending on advertising, which went up by 20.48 per cent. Staff costs recorded a negligible growth of 0.6 per cent while other operating expenses went up 11.45 per cent.

Depreciation charges declined 5.59 per cent over the previous year quarter. Interest expenses, which are negligible as a percentage of total costs, declined to Rs3.43 crore from Rs5.55 crore.

Other income for the quarter went up by 2.57 per cent over the corresponding quarter of previous year.

Harish Manwani, chairman of HLL, said, "We continue to be encouraged by the growth in our markets, particularly with rural markets gaining momentum. Our strong portfolio of brands across price-points is helping us to sustain growth momentum across a large spectrum of our categories. We remain focused on driving cost efficiencies and in appropriately investing behind our brands. Cost inflation on the back of rising crude prices remains a challenge and is being rigorously addressed within the business."