HUL, whose performance is seen as a proxy for the broader consumer sentiment in India, said it expects the gradual demand recovery to continue, aided by higher government spending, recovery in winter crop sowing and better crop realization.

According to chief executive Rohit Jawa, rural income growth and winter crop yields are key factors that will determine the company’s pace of recovery.

For the three months ended 31 December, the maker of Lux soaps and Knorr soups reported a flat 0.55% increase in December quarter net profit to ₹2,519 crore, well below Street estimates. A Bloomberg survey of analysts expected the company to report a standalone profit of ₹2,680 crore.

Revenue dropped a marginal 0.26% to ₹15,188 crore from ₹15,228 crore a year earlier, on account on price cuts on its laundry and skin cleansing portfolio as commodities such as palm oil saw “meaningful correction”.

Citing data from market researcher NIQ, the company said on a two-year CAGR basis, FMCG volumes grew 2% in the December quarter; urban volumes were up 3%, and rural volumes, up 1%.

Underlying sales growth (USG) was flat due to the price reductions. Ebitda margin at 23.7% was up 10 bps year-on-year. Gross margins expanded by 401 bps year-on-year.

Analysts said HUL’s December quarter earnings were a miss. Kaustubh Pawaskar, deputy vice-president, fundamental research, Sharekhan by BNP Paribas, said HUL’s December quarter performance was “below our, as well as, Street expectation, with the company registering flat revenues and PAT during the quarter”.

It was the ninth consecutive quarter of mid-to-low single-digit volume growth, Pawaskar said, adding that any recovery in rural would provide some boost in the quarters ahead.

“In the last two years—if you look at the successive quarters, we’ve seen recovery in urban followed by rural…Not considering any sort of other unknown effects or impacts we expect to see sustained recovery in the quarters to come. Parts of the market are already growing quite fast and we’re also seeing competitive growth whether it’s modern trade, premium segments, big cities etc…Urban has been generally more resilient over this time and is leading growth and we expect to see rural coming back as well in the quarters to come, especially with better rabi sowing, a stronger support from the government and two-and-a-half years of fixing the fact that most consumers faced huge amounts of inflation…that should hopefully be behind us,” Jawa told the media.

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