Q4 results: How HUL plans on staying ahead of the curve

By Samar Srivastava

Hindustan Unilever Ltd, the country’s largest consumer goods company, reported a strong set of numbers and has, for the time being at least, erased fears of a sharp slowdown in consumer spending.

The company ticked the boxes on all three parameters - revenue growth, profit growth and volume growth. In the quarter ended March 31, HUL reported a profit of Rs 780 crore, an increase of 17 percent with a 60 basis points increase in operating margin. Sales for the quarter were up 12.5 percent to Rs 6,367 crore. Volume growth, a key indicator of the health of the business was up 6 percent. While this was lower than previous growth rates it was nowhere as low as the market feared.

Still, the company did acknowledge that it faces a tough operating environment. Two indications of this are the growing volatility in commodity prices and currency fluctuations. That makes planning and forecasting for the future that much harder, according to Nitin Paranjpe, CEO of the Hindustan Unilever. He pointed out that the weekly quantum of fluctuations in some commodity prices are what they would earlier see in a year. There’s also been an increase in advertising and promotion spends to Rs 144 crore, up 90 basis points.

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[caption id=“attachment_738279” align=“alignleft” width=“380”] While it was business as usual in most categories with growth rates in line with or slightly above the competition, HUL also saw a slowdown in discretionary spends by consumers.[/caption]

While it was business as usual in most categories with growth rates in line with or slightly above the competition, HUL also saw a slowdown in discretionary spends by consumers.

Skincare and ice creams were two categories that saw reduced spending. Both categories were affected by the shutting down of modern trade stores that contributed to a disproportionate amount of sales. About 300 modern trade stores have closed in the last year.

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So what is the company doing to make sure it keeps growing rapidly? For one it is investing in what it terms are categories of the future. These products - conditioners, shower gels, tea bags and so on - now make up Rs 1,000 crore in sales. “It is our job to identify these and take steps before it becomes obvious and imperative for others to react,” said Harish Manwani, chairman of HUL and COO of Unilever.

Second, it is powering ahead with trebling its rural direct distribution reach, as part of an initiative it had launched in July 2010. The company has added a million outlets across rural India to its distribution network so far.

HUL’s shares ended the day at Rs 497, a jump of 7 percent. The stock had been under pressure in the last quarter as the company announced an increase in royalty payments to its parent Unilever. The company announced a higher dividend payout at R s6 per share. The announcement also lifted stocks of other consumer goods companies. ITC hit a lifetime high at Rs 325.

Samar Srivastava writes for Forbes India