Unilever says India business growth has recovered after demonetisation

Unilever’s guidance on India, ahead of Hindustan Unilever’s Q4 results, comes as a shot in the arm for the whole FMCG sector reeling from demonetisation


Analysts expected demonetisation to hurt business for consumer packaged goods companies in the March quarter as well, but Unilever’s India guidance should come as a relief. Photo: Reuters
Analysts expected demonetisation to hurt business for consumer packaged goods companies in the March quarter as well, but Unilever’s India guidance should come as a relief. Photo: Reuters

Mumbai: Unilever Plc said on Thursday that its Indian business has recovered from the hit it experienced following the government’s invalidation of high-value currency notes in November. This guidance, ahead of the fourth-quarter earnings of its unit Hindustan Unilever Ltd, comes as a shot in the arm for the whole consumer packaged goods sector, which has been reeling from demonetisation.

Analysts expected the lingering effects of demonetisation to hurt business for these companies in the March quarter as well.

“Growth in India recovered from the uncertainty experienced due to the removal of the Rs500 and Rs1,000 notes in November 2016, while Brazil continued to be adversely impacted by the economic crisis,” Unilever said in the statement uploaded on the website and filed with stock exchanges. Brazil and India are two of the multinational’s largest markets.

Overall, Unilever’s sales grew 6.9% and volumes grew 2.2% in the Asia and AMET/RUB region this quarter, the statement said. It didn’t give India-specific estimates. AMET and RUB stand for Africa, Middle East, Turkey, Russia, Ukraine and Belarus, whose results are reported together with Asia.

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In a similar statement filed in January, the Anglo-Dutch packaged consumer goods giant said its growth in India “was below historic levels, particularly in the last quarter (October-December), when demand was adversely impacted” by demonetisation.

In the December quarter, HUL’s volumes fell 4% year-on-year after the cash crunch hit consumer spending. This came after a 1% decline in the three months to September.

The Unilever statement comes at a time when brokerages have pencilled in volume declines or marginal increases in their March quarter estimates. Motilal Oswal Financial Services, for instance, has forecast a 0.5% decline in HUL’s volumes and 4% for ITC Ltd. Nomura Research estimates a 1% volume growth.

“Demand that had started to show signs of recovery in October got dampened due to the cash crunch. Now that money is back in the system demand has come back”, said Ajay Thakur, lead analyst, Anand Rathi Institutional Equities. “Additionally, (sales) growth in the March quarter will also be on account of price increases taken by most companies on account of inflation.”

Most analysts say that companies with a tilt towards urban markets will benefit more.

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“Following demonetisation, we expect consumer companies with a focus on urban consumption, and larger contribution from direct reach to overall channels to see better results,” analysts at Nomura said in a 11 April note.

In a report previewing the company’s March quarter results, ICICI Securities said it expects HUL to show a 3.59% increase in domestic revenue, partially helped by an early summer onset.

“A slightly early summer resulted in growth of summer care products and is likely to benefit companies such as Emami and HUL,” the brokerage said. HUL owns several personal care brands that target summer sales including Liril, Rexona, and Dove.

Since the beginning of the calendar year, the BSE FMCG Index has risen by 14.54%, outperforming the benchmark index, Sensex which has risen 10.50%.

Sapna Agarwal contributed this story.

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