By Praveen Paramasivam

CHENNAI (Reuters) -Hindustan Unilever (HUL), the Indian arm of UK's Unilever, posted a smaller-than-expected increase in quarterly profit on Friday as competition in the consumer goods space heated up and demand in rural regions remained low.

Consumer goods giants, including HUL peers Nestle India and Britannia Industries, have been struggling with a spending pullback in the rural regions as prices of essentials have shot up.

The festive season did not trigger the expected growth for the industry as consumers, especially in rural India, started to spend cautiously, said Akshay D'Souza, chief of growth and insights at Bizom, which tracks retail trends.

HUL said that the economic recovery in urban areas is outpacing that in the rural regions, but the overall operating environment remains challenging and that the pace of recovery from here on would be determined by a rebound in rural income.

Its profit edged up 0.6% at 25.19 billion rupees ($303.30 million) in the quarter, missing analysts' estimate of 26.8 billion rupees, according to LSEG data.

HUL's sales slipped marginally to 149.28 billion rupees in the quarter, hurt by a drop in its beauty and personal care business, which accounts for 38% of revenue and houses the Dove and Pears brands, among others.

A delayed winter dented the expected pick-up in demand for moisturisers and lotions, the company said.

Sales in its home-care business also fell, with regional players re-entering the fray for market share with deeper-pocketed conglomerates as commodity prices ease.

HUL has cut prices of several products, including detergents and skin cleansers, and said it expects the "competitive intensity (is) likely to stay high."

HUL is the first major consumer goods manufacturer to report quarterly results, with many analysts expecting HUL and Godrej Consumer Products to be among the worst hit.

($1 = 83.0543 Indian rupees)

(Reporting by Praveen Paramasivam in Chennai; Editing by Janane Venkatraman, Sohini Goswami and Savio D'Souza)