No pickup in demand yet, says HUL Chairman
HUL posted a 21% rise in Q2 profit, but its volume growth stayed at the lowest rate in 2 years.
The local unit of Anglo-Dutch Unilever, whose performance is considered a proxy for broader consumer sentiment in India, said macroeconomic factors such as muted wage rates restrained sales growth in rural markets. It, however, hopes recent stimulus measures will help boost rural income and demand.
“The market remains stable and we have not seen a demand pickup yet,” said chairman Sanjiv Mehta. The growth in value has slowed to 5% on a moving average basis for the last three months from 9% for the 12-month period, he said.
“Volumes which were growing at close to 7% are now growing under 3%. There is a discernible difference between 12 months and three months, which indicates a slowdown,” Mehta said.
The maker of Lux soap and Rin detergent posted a net profit of Rs 1,848 crore for the quarter with the cut in corporate tax rate also helping, compared with Rs 1,525 crore a year earlier. Sales rose 5% in volume and 7% in value, both in line with the pace in the first quarter. Volume grew slower last in the second quarter of fiscal 2018.
The company reported domestic consumer sales of Rs 9,852 crore, and said volumes accounted for nearly three-fourths of the incremental growth, consistent with its expansion strategy over the past couple of years.
The Indian fast-moving consumer goods market is set to report its weakest year in more than a decade after rural slowdown accelerated, Credit Suisse said in a recent report.
Consumption in rural India, which accounts for about a third of the market, has been under stress over the past three quarters. Rural growth rates, which were nearly double of those in urban areas, were at par in the last quarter for the sector. “Rural growth has now come down to half the urban growth. The government is cognisant of it and that is the reason for the Rs 6,000 transfer (to farmers) and the Prime Minister talking about doubling farm income,” Mehta said. “With a good monsoon, which has happened, and festive season coming in, we hope it will spur confidence.”
Over the past decade, sales of branded daily needs in the nation of 1.3 billion people have increasingly relied on the rural hinterland, home to more than 800 million, whose purchase behaviour is largely linked to farm output.
Sales in HUL’s beauty and personal care business, which accounts for nearly half its overall sales, rose a tepid 4% to Rs 4,543 crore, as the personal wash or soaps segment dragged value growth after it took price cuts to pass on lower raw material costs. The company said it would reduce prices of soap brands such as Dove and Pears in the current quarter as well. The homecare segment expanded 10% to Rs 3,392 crore while the foods and refreshments business grew 8% to Rs 1,581 crore.
Analysts said HUL’s performance was in line with expectations. “We expect volume growth trajectory to sustain in the range of 5-7% in the near term. The margin expansion will sustain on the back of benign input prices and operating efficiencies,” said Kaustubh Pawaskar of Sharekhan.