Unilever Nepal’s Revenue Rises, but Cost Surge Pulls Fourth-Quarter Profit Down 19%

Kathmandu — Unilever Nepal Limited posted higher operating revenue in the fourth quarter of fiscal year 2082/83, but a much sharper rise in costs eroded profitability, pulling net profit down by nearly 19 percent from the same period a year earlier.

According to the company’s unaudited financial statements, operating revenue increased to Rs 2.256 billion from Rs 2.079 billion in the corresponding quarter of the previous fiscal year. This represents growth of about 8.5 percent, indicating that demand for the company’s products remained relatively resilient despite pressure on household spending.

The improvement in sales, however, was not enough to offset the rise in operating costs. Total expenses climbed to Rs 1.795 billion from Rs 1.513 billion, an increase of nearly 18.6 percent. Expenses therefore grew at more than twice the pace of revenue, emerging as the main factor behind the deterioration in earnings.

As a result, Unilever Nepal’s net profit declined to Rs 390.8 million, compared with Rs 485.7 million in the same period last year. The fall amounts to around Rs 94.9 million, or approximately 19.5 percent.

The figures show that the company’s key challenge during the quarter was not generating sales, but converting those sales into profit. Based on the reported figures, net profit represented about 17.3 percent of operating revenue, compared with roughly 23.4 percent a year earlier. This means the profit margin narrowed by about six percentage points in a year.

The rise in the expense burden is equally visible in the cost-to-revenue ratio. Total expenses accounted for nearly 79.6 percent of operating revenue in the latest quarter, up from about 72.8 percent in the corresponding period last year. In practical terms, a larger portion of every rupee earned from sales was absorbed by costs before reaching the bottom line.

The company has attributed the pressure largely to higher prices of raw materials and packaging inputs. Geopolitical tensions and supply-chain disruptions in the Middle East have particularly affected the prices of petroleum-linked materials, many of which are important inputs in consumer goods manufacturing and packaging.

Unilever Nepal has also pointed to changes in the tax structure in neighbouring markets as an additional challenge for product pricing. While companies can normally respond to higher input costs by increasing retail prices, transferring the full burden to consumers is difficult when household budgets are already under pressure.

That appears to have created a pricing dilemma for the company. Raising prices aggressively could protect margins but may weaken sales volumes or encourage consumers to shift toward cheaper products. Keeping prices competitive, on the other hand, helps defend market share but leaves the company absorbing part of the higher cost.

The financial statements suggest that Unilever Nepal largely faced the second situation during the quarter. Revenue continued to grow, but profitability weakened because the increase in selling prices and other revenue-management measures did not fully compensate for cost inflation.

Consumer behaviour has also become an important factor. The company said customers are increasingly moving toward relatively lower-priced products as pressure on household finances continues. Such a shift can support overall volumes but can also reduce the average revenue and profit generated from each unit sold.

Among its business segments, home care remained the strongest contributor to growth, supported partly by the introduction of a new fabric-enhancer product. Beauty and wellbeing as well as personal care businesses also recorded growth, although at a more moderate pace.

The deterioration in profit was reflected in shareholder return indicators. Quarterly earnings per share stood at Rs 474, compared with Rs 516 a year earlier. Annualised EPS declined more sharply to Rs 1,732 from Rs 2,131, a drop of nearly 18.7 percent.

Net worth per share also decreased to Rs 5,533 from Rs 5,665, suggesting a modest weakening in the company’s equity position on a per-share basis.

The company reported a current ratio of 2.37, which indicates that current assets remain more than twice current liabilities. On its own, the ratio suggests a comfortable short-term liquidity position, although a fuller assessment would require comparison with previous periods and the company’s working-capital structure.

Its price-to-earnings ratio stood at 27.25 times. The figure indicates that investors are paying more than 27 times annualised earnings for the stock at the reported market valuation. Whether that represents an expensive or justified valuation depends on expectations regarding future earnings growth, dividend capacity and comparable companies, and cannot be judged from the P/E ratio alone.

The balance sheet also contracted slightly during the period. Total assets fell to Rs 7.730 billion from Rs 7.893 billion, a decline of about 2.1 percent. Total equity decreased by around 2.4 percent, from Rs 5.227 billion to Rs 5.100 billion.

The reduction in both assets and equity, combined with weaker profit, suggests that the quarter was characterised more by pressure on profitability than by deterioration in sales activity.

However, the year-on-year profit comparison also requires some caution. The company has said the previous year’s earnings included the impact of a one-off royalty-related adjustment. Excluding that exceptional effect, management estimates that the underlying decline in profit this year would be closer to 10 percent, rather than the headline 19 percent fall.

This distinction is important because it suggests that part of the reported earnings contraction reflects an unusually favourable base in the previous year. Nevertheless, even after adjusting for that factor, the underlying trend still points to weaker profitability.

Management is now relying on selective price revisions and revenue-management measures introduced toward the end of the quarter to recover part of the increased input costs in the coming periods.

The effectiveness of those measures will depend on how much pricing power the company retains. If higher prices can be introduced without materially weakening demand, margins could recover. If consumers continue trading down to cheaper products, however, the company may have to choose between protecting market share and rebuilding profitability.

Inflation, commodity prices, freight costs and foreign exchange movements will therefore remain important variables for Unilever Nepal’s earnings outlook.

The company has said it will continue investing in brand development, product innovation, distribution, digital capabilities and supply-chain efficiency while maintaining tighter control over expenditure.

Government measures announced through the national budget, including tax relief and salary-related adjustments, could also support household purchasing power over the medium term. Stronger consumer demand would give consumer-goods companies greater room to pass on part of their cost increases.

For now, Unilever Nepal’s fourth-quarter numbers present a clear picture: the company is still growing its top line, but its costs are rising considerably faster than its revenue. The next few quarters will therefore be less about whether the company can sell more products and more about whether it can restore the margins earned on those sales.