Oct. 31 (Bloomberg) -- Hindustan Unilever Ltd., the nation’s biggest household products maker, said second-quarter profit fell by the most in two years as it boosted advertising and on a one-time charge related to former employees.

Net income dropped to 4.29 billion rupees ($91 million) for the three months ended Sept. 30, from 5.47 billion rupees a year earlier, the Mumbai-based company said in an e-mailed statement today. That lagged behind the 5.07 billion rupee median estimate of 17 analysts complied by Bloomberg. Sales increased 5 percent in the quarter to 42.3 billion rupees.

Hindustan Unilever has increased spending on advertisements and promotions by 38 percent as it introduced new versions of its soaps and spent more on personal-care products to garner a higher share of the Indian market as competition from Procter & Gamble Co., ITC Ltd. and other rivals intensified.

“The growth in the top-line remains an issue and is mainly because of the increase in competitive pressure,” said Anand Shah, a Mumbai-based analyst at Angel Broking Ltd. who rates the stock as “neutral.” “The advertisement spend is linked to the increase in competition. Otherwise, the operating performance has been good with an increase in margins.”

The company boosted advertising spending to 5.71 billion rupees, or about 14 percent of sales, compared with 10 percent of sales a year earlier.

“To support the innovations and interventions, we have stepped up our advertisement and promotions by 320 basis points,” R. Sridhar, chief financial officer, told reporters today. “The increase in spending is also driven by the higher proportion of personal care products in our portfolio.”

One-time Loss

Hindustan Unilever reported a one-time expense of 1.66 billion rupees for the quarter after employees at its shut Sewree factory accepted compensation, it said. The company also posted 308.4 million rupees in profit on sale of properties, compared with a 1.31 billion rupees gain a year earlier.

The company’s operating margin, the percentage of sales left after subtracting production, marketing and other expenses, rose to 14.3 percent in the quarter from 12.9 percent a year earlier on lower costs of raw materials.

Profit before interest and tax from personal care products such as skin creams and toothpaste rose 23 percent to 3.13 billion rupees. Sales of Fair & Lovely skin cream, Pepsodent toothpastes and other personal care products rose 13 percent to 11.9 billion rupees.

Revenue from soaps and detergents, which contributed about 47 percent of revenue, gained less than 1 percent to 20 billion rupees. Profit before interest and tax rose 1.6 percent to 2.73 billion rupees.

The company’s London- and Rotterdam-based parent, Unilever, owns about 52 percent of the Indian unit and started selling Sunlight soap in the country in 1888. India is Unilever’s biggest market in Asia, generating about 6 percent of annual sales.

To contact the reporters on this story: Saikat Chatterjee in New Delhi at schatterjee4@bloomberg.net.

Last Updated: October 31, 2009 08:00 EDT