Mumbai: Hindustan Unilever Ltd (HUL), the country’s largest consumer packaged goods company by sales, will announce its first quarter earnings on Wednesday.
The parent Unilever Plc, which announced its results in April, had said that growth in India recovered from the uncertainty experienced after demonetisation in November. Hence, it would be interesting to see if volume growth is back.
Volume growth numbers are a good indicator of gauging consumer demand. For HUL, the maker of Knorr Soup and Surf detergent, volume growth had shrunk 4% in the December quarter had 1% in the September quarter, compared to the same quarters a year ago.
One of the reasons for the accelerated decline in volume growth was the collapse of the wholesale channel post-demonetisation. There are over nine million small stores across urban and rural India that are part of the traditional wholesale distribution channel which transacts mostly in cash. The cash crunch after the note ban caused a crack in the wholesale business model and fear of tax scrutiny has kept it shut since. It would be interesting to understand how this channel is now faring—has its growth revived? Are retailers stocking goods once again? Or are they in a wait and watch mode given that the goods and services tax (GST) is expected to be implemented by 1 July.
It would also be interesting to see what’s driving top line growth. Inflation is on the rise and consumer companies have been passing on some of these price increases to the end customer. Usually, industry leaders take the lead in raising prices. However, given muted consumer demand in the previous quarters, even leading consumer companies have not had much pricing power. Hence, any commentary on whether it signals a return of price-led growth over volume-led growth going forward will be welcome.
Usually, there is an inverse relationship between price and volume growth. It is to be seen if the company is willing to sacrifice margin growth in favour of volume growth. As such the margins of the company will also be watched.
In the previous quarter, HUL had cut back on advertising and marketing costs. Have such measures continued in the March quarter? What is the outlook for rural demand? Given the outlook for another good year of monsoons, are we seeing signs of rural demand recovery already? These are just some of the questions that HUL, the bellwether of the consumer goods industry, may address when it announces its results later in the day.