By Praveen Paramasivam
BENGALURU/CHENNAI (Reuters) -Nestle India and Hindustan Unilever (LON:ULVR) eased past quarterly earnings estimates on Thursday as city dwellers spent more on affordable pick-me-ups like cookies and coffee, making up for a dip in rural buying.
Consumer goods companies like Nestle India, Hindustan Unilever and Britannia Industries have been struggling with a spending pullback in an inflationary environment that led to prices of essentials like vegetables and dairy shoot up.
However, the introduction of smaller packages and some price cuts have helped generate demand, with Hindustan Unilever, home to household brands Closeup and Lifebuoy, saying spending in urban regions led the growth for consumer goods makers.
The company, which has brands across different price points, is benefiting from demand for "premium" products in urban markets, while Nestle's strength in the coffee segment is "distinctly an urban phenomenon", VS Kannan Sitaram, partner at venture capital firm Fireside Ventures, said.
The Unilever unit saw profit rise 4%, Nescafe maker Nestle's profit soared 37.3%. Both beat LSEG IBES analyst estimates.
"They are getting the upside of the urban economy continuing to perform reasonably well," Sitaram said.
While price cuts helped Hindustan Unilever, Nestle's bigger exposure to cities and towns helped the company, analysts said.
"Nestle India remains a preferred pick given strong volume growth visibility as it is under indexed in small towns and rural India," said Amnish Aggarwal, an analyst at Prabhudas Lilladher.
However, he warned of a possible hit from rising commodity costs in the coming quarters, saying that could hurt any meaningful margin expansion from the high levels of the September quarter for Nestle and Hindustan Unilever.
Nestle India shares climbed as much as 4.1%, touching a record high, after the results, while Hindustan Unilever stock ended unchanged ahead of its results.
"Rural recovery is likely to remain gradual," Hindustan Unilever said in a statement, adding it could take further price cuts if needed. Nestle India warned uneven rain would "impact" the production of major ingredients.
Switzerland-listed Nestle posted a lower-than-expected nine-month sales growth with higher product prices making shoppers balk.