The September 2019 quarter earnings reported by Hindustan Unilever Ltd (HUL) – the bellwether of the FMCG (fast moving consumer goods) sector – demonstrates that all is not lost for packaged consumer goods makers, despite the gloom and doom surrounding consumerism in the country at present.
Despite challenging market conditions, HUL managed to report a healthy growth in earnings for the second quarter of fiscal 2020, reported on October 14. The company reported a 20% year-on-year growth in profit after tax (before exceptional items) to ₹1,832 crore. Sales grew 6% in the same period to ₹9,708 crore. The government’s decision to provide succour to India Inc. by slashing corporate tax rates showed an impact on HUL’s bottomline for the September quarter, with the company’s effective tax rate coming in at 22%, vis-à-vis the 30.5% tax it had to pay on earnings in FY2019. The earnings before interest, tax, depreciation and amortisation (EBITDA) of ₹2,443 crore reported by the company during the quarter was a 16% growth (on a comparable basis after adjusting for Ind AS 116 accounting norms) over the year-ago period.
In its investor presentation HUL confirmed that rural consumption (indexed to urban consumption) had indeed slowed down and was 0.5x of urban consumption during the last three months, one of the lowest levels witnessed in several quarters. Despite this, the maker of Dove soaps, Vim detergents, and Taj Mahal tea reported domestic consumer growth of 7% and underlying volume growth of 5% year-on-year. HUL witnessed sales growth across business verticals with its home care business growing 10%, beauty and personal care growing 4% and foods and refreshment reporting 8% growth.
“Amidst a challenging market environment, HUL has delivered another quarter of resilient performance and sustained margin improvement. Our focus on consumer value, excellence in execution and market development continues to serve us well,” HUL’s chairman and managing director Sanjiv Mehta said in the company’s earnings statement.
“The management has indicated that the near term outlook for rural India continues to be challenging. However, they are hopeful of a recovery in demand in the medium term on account of various initiatives taken by the government to drive rural demand and RBI initiatives to boost liquidity in the system,” said a research report dated October 15 by Antique Stock Broking. “However in view of subdued macroeconomic conditions, we believe that the muted revenue growth would continue in the short term.”
In a conference call with analysts following results, HUL’s management indicated that future growth in a challenging market would be driven by a focus on core portfolio, driving premiumisation and market development, innovation and efficient execution.
To boost sales, HUL has also taken a price correction on some of its products like soaps and personal wash items.