Bulk Of HUL’s Portfolio Is Growing As Economy Reopens
Bulk of the portfolio of India's largest consumer goods maker is now growing, suggesting that consumption in Asia's third-largest economy continues to rebound from one of the harshest Covid-19 lockdowns in the world.
About 80% of the portfolio—including health and hygiene including soaps and shampoos, and food and nutrition—is growing at 10%, the management of Hindustan Unilever Ltd. told analysts in a conference call after announcing July-September results. The rest, it said, comprising cosmetics, deodorants and ice-cream contracted 25%.
HUL's volumes rose marginally in the three months ended September after contracting for two quarters. Rural demand is growing faster than urban consumption as people have moved away from cities towards small towns and villages, the company told analysts. Economic activity, according to the management, has stepped up after sequential easing of lockdowns, increased mobility and measures taken by the government and the Reserve Bank of India.
A normal monsoon, increased MSP and demand shift from urban to rural because of movement of people has aided rural consumption, according to Sanjv Mehta, chairman and managing director at the maker of Lifebuoy soaps. "We are seeing rural markets, as well as smaller towns perform relatively better."
Nielsen India said in recent report that its conversations with executives at consumer goods companies revealed that they are now focused on expanding their reach in middle India (population with over a million people) and rural India (population of more than 3,000 people). That comes as demand has tapered off its post-lockdown peak.
Yet, according to HUL, the worst is behind. Though it still expects inflation in certain categories to continue and its gross margins to remain under pressure.
- Contribution from e-commerce has doubled to almost 6% of revenue for HUL as consumers continue to remain indoors.
- The company has improved its direct reach during the quarter by 1.1 times and also launched more than 100 stock keeping units in the last two quarters.
- The company cut prices in its fabric wash category by 2.5% as it was impacted due to confined living.
- In the skin care segment, the essentials portfolio has shown resilience. But the supply chain has not yet started to stock up winter products. The management, however, is confident that demand will pick up once winter sets in.
- In the tea portfolio, HUL increases prices as costs rose--it didn't give details.
“Our performance in tea was particularly stellar with all our brands really growing in double digits,” Srinivas Phatak, chief financial officer at HUL told analysts. Raw tea prices have increased 50-70%, Phatak said, adding that the company has been judicious in its pricing across the category.