HUL's domestic business grows 10%, but there are speedbreakers ahead

India’s largest consumer goods maker, Hindustan Unilever Ltd (HUL), may have reported 10 percent year-on-year growth in its domestic consumer business for the third quarter ended 31 December driven by price increases of close to 6% and volume growth of 4%,but it doesn’t mean the slowdown is over. In fact the company expects the next couple of quarters to remain muted due to sluggish demand from both urban and rural Indiabecause of weak macro parameters and rising inflation.

“Consumers are far more cautious about family budgets, which means markets are growing but growth rates are slow. In the near term, we can expect to see a few more quarters of slow growth,” said HUL Chief Financial Officer R Sridhar.

More from Business

Hyundai India’s Rs 27,870 crore IPO oversubscribed by 2.28X, largely driven by institutional investors How Indian fintech startups are driving Malaysia’s UPI-like digital payments revolution

This basically means that the consumption story remains weak in the current fiscal and things are not going to improve anytime soon. Secondly, a price increaseinkey raw materials (resulting from a weak rupee ) resulted in more price hikes and less offers and discounts in Q3.

[caption id=“attachment_989145” align=“alignleft” width=“380”]  AFP[/caption]

Thirdly, consumer demand in the urban markets has remainedweak while that in rural India has moderated. Premiumisation (one of thekey growth drivers of HUL) has also slowed down in most segments. Premium products are growing at a slower rate than their respective categories.

Though rural demand is expected to improve on the back of higheragricultural output, the company management feels the real losers are the urban poor. So even if rural demand picks up, the benefit will be offset by falling demand in theurban markets. Hence, the volume growth of HUL’s domestic consumer businessis likely to sustain in the 4-5% range in the coming quarters.

Impact Shorts

More Shorts

Chennai Ranks #1 in Challan Checks: ACKO Insights for Smarter Car and Two Wheeler Insurance Decisions

Tata Harrier EV vs Mahindra XEV 9e: Design and road presence compared

Hindustan Unilever reported a 22 percent year-on-year growth in net profit in the third quarter. Net profit stood at Rs 1,062.3 crore from Rs 871.4 crore during the year-ago period, helped by lower tax payments and higher product sales.

The profit included gains from sale of a property and a net write-back of tax provisions from earlier years amounting to Rs 92.8 crore. Without these one-time gains, net profit was Rs 955 crore, a 9 percent increase year on year.

Total income increased to Rs 73,660.10 crore in the October to December quarter this year from Rs 67,885.40 crore in the same quarter last fiscal.

“Our growth has been competitive and profitable and the results are a reflection of how we dynamically managed the business despite the headwinds in the environment,” Harish Manwani, Chairman, said.

During the quarter, the domestic consumer business grew at 10 percent ahead of the market, with four percent underlying volume growth, the company said in a statement. This is in line with street estimatesbut lower than the 5 percent growth in the year-ago period.

The company’s significant presence in intensely competitive segments such as soaps and detergents has also hurt volumes.

Revenues from the soaps and detergents business (which includes brands like Dove, Pears, Lifebuoy, Surf, Wheel, etc) climbed 7 percent year-on-year to Rs 3,398 crore. This division contributes 50 percent to total revenues.

“Soaps and detergents delivered single digit growth due to rising inflation. This segment will grow slowly as price hikes will be higher than volumes,” said Sridhar. The slowdown in consumption is more pronounced in this segment with discretionary spends coming down sharply during the quarter.

Though it will continue to invest in advertising and promotional activities, the company has curbed promotions in the soaps and detergents segment. Given high competition and slowing demand, the company may not be able to push through any more price hikes to pass on the input cost inflation.

Personal products, however, continued to perform well and delivered double-digit growth during the quarter.

Revenues from personal products like Fair & Lovely, Sunsilk, Pepsodent, Dove, CloseUp, Elle 18, Lakme, etc, were up 12.4 percent to Rs 2,304 crore in Q3.

The healthy performance in this segment comes despite fears of up-stocking, lower premiumisation and stalling growth at mass-end brands.

“The personal products segment of the company, which had registered three consecutive weak quarters (prior to this one), has registered 14% (y/y) growth in profits - this, in our view is the highlight of segment results,” said Ritwik Rai, FMCG Analyst, Kotak Securities .

The company, a subsidiary of the Anglo-Dutch Unilever plc, has a wide distribution network that reaches thousands of supermarkets as well as smaller shops across India. Andsensing the goodlong-term growth prospects of the domestic consumersector in India, the company is gaining good parental support and has been consistent in adding new productsor entering into new categories.

Sridhar hinted that the company may be planning an acquisition soon but refused to comment on the category. He, however, did rule out any shopping sprees in the soaps and detergents space.