HUL's Q2 sales growth disappoints as rural growth slows down

Sanjiv Mehta, MD, HUL

India’s largest consumer goods company Hindustan Unilever Limited (HUL) posted a 4.7 percent growth in sales to Rs 7,819 crore during the July-September quarter of the current fiscal. Part of the reason for the tepid performance was the seven percent price decrease the company took in its soaps and detergents portfolio, which constitutes half of its sales. Volume growth across all its brands was seven percent while the other half of its portfolio, which includes beverages and packaged foods, saw an increase in prices. As a result, profit after tax rose by 1.4 percent to Rs 970 crore.

Hindustan Unilever’s numbers, which were announced before other consumer companies report theirs, point to another worrying trend – the slowdown rural growth. “We have seen urban and rural growth rates converge. Both markets are now growing at the same rate,” said Sanjiv Mehta, managing director of Hindustan Unilever. This is significant as the growth in rural markets till 2014 had outpaced urban by 1.5 times. Mehta also pointed out that the impact of a poor and uneven monsoon was yet to be seen.

To tide over lacklustre consumer demand, Hindustan Unilever had to increase its advertising and promotional expenses by a whopping Rs 220 crore to Rs 1,145 crore. This was partly due to competitors upping their spends, which the company had to match. Going forward, the company expects growth to come from increase in volumes as it expects commodity prices to remain benign. 

There were, however, some bright spots for the company. Premiumisation continues apace. Surf Excel is now the fastest growing detergent brand. From smaller bases, Dove and Magnum ice cream are also the fastest growing brands in their respective segments. Commodity prices are expected to remain benign for at least this quarter and Ebit (earnings before interest, tax) margins have improved to 16.3 percent. 

HUL hinted that it could take another year for consumer demand to look more robust. “At this stage, it is difficult to call out whether there is a reversal to the high growth trend that we saw 2-3 years ago,” said Harish Manwani, chairman, HUL.