HUL Q2 profit up despite weak rural consumer demand, D-Mart's decent show in tough times; all this and more in Moneycontrol Pro

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The HUL puzzle: If rural growth is in the dumps, why are earnings shining…

Here’s the thing that’s most puzzling about Hindustan Unilever’s September quarter results. Consumer demand has weakened considerably in rural areas but that did not do any significant damage to HUL’s growth. Its volume sales grew by 5 percent, on a year ago base of 10 percent, and value sales rose by 7 percent. Rural growth slipped sharply, falling to half of urban growth, compared to being on par in the June quarter and at 1.4 times in the September 2018 quarter. How could HUL sustain volume growth —it was at 5 percent in the June quarter too--despite this sharp deceleration in rural growth? Do rural markets matter that much? Read more.

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… And what should investors do?

Our in-house research team asks investors to note the consistent increase in HUL’s operating margin. They say this shows how HUL is among the select few FMCG companies that can stand out during an economic slowdown because of operational excellence. Time and again HUL has been able to build upon its growth levers, particularly distribution reach, as and when there is an opportunity – for example, after the goods and services tax (GST) implementation. The present demand moderation is another such opportunity where the company is utilizing its reach, advertising push and product launches to consolidate market share gains. Read more.

How do Indian govt finances compare with others in the region?

India’s government finances are very different from most East Asian countries. For instance, government revenues as a percentage of GDP in 2018 were higher for India than for Indonesia, Malaysia and Singapore, despite India being a much poorer country. And Hong Kong, South Korea, Thailand and the Philippines had government revenues only slightly higher than India’s, as a percentage of GDP, although these countries’ per capita income is well above India’s. How then did these countries have much lower government deficits than India? Read more.

GST blues and avoiding wrong medicines

GST has become the major angst afflicting virtually every player in the country’s business space, causing Union Finance Minister Nirmala Sitharaman to ask professionals, in so many words, not to seek to throw out the baby with the bathwater. “Many parties in parliament and state assemblies worked together and came up with the (GST) act. …We cannot damn it. It might have flaws, it might probably give you difficulties but I am sorry, it is the law of the land,” she said. Instead of “cursing” it, stakeholders had to suggest solutions for better compliance. What is the basic malady with GST? Read more.

D-Mart Q2 FY20: Decent show in tough times

Avenue Supermarts, the operator of D-Mart stores, reported a good September quarter performance. Healthy same-store sales growth, network expansion and benefits of scale make our in-house analysts positive about the company. The steep valuation, however, makes it vulnerable to future disappointment. However, this has to be weighed against risks such as revenue growth momentum faltering if the slowdown continues, a dip in same-store sales growth and competition induced pricing pressure. So, what should investors do? Read more.

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