What Unilever Plc. said on Monday, after market hours, should not have surprised investors, least of all in India where signs of a slowdown have been visible for some quarters now. The consumer company said that it expects the September quarter to see sales grow in the 3-3.5% range compared with 5% growth in the preceding three months.

But Unilever’s comments that the emerging market slowdown has accelerated caused shivers in the local markets, visible in the share of its listed Indian subsidiary—Hindustan Unilever Ltd (HUL)—which fell by 2.4% over Monday’s closing level. That may seem logical as India is indeed one of the key markets in Unilever’s emerging markets sphere.

But then slowing growth in India is no secret either. Slower gross domestic product growth and high levels of consumer inflation are eating into consumer budgets, affecting demand for products of daily consumption as well as discretionary ones. In a recent investor presentation, HUL talks about how the FMCG market remains attractive in the long run, though the near term is seeing a market slowdown.

From peak levels since June, HUL’s shares have declined by 15%, while the S&P BSE FMCG index has declined by 10.2% and both have underperformed the Sensex that has declined by 3.6%. Part of this underperformance is attributable to the expensive valuations of FMCG stocks. Even now, the sector trades at 39 times its trailing four quarter earnings—more than double that of the 17.2 times figure for the S&P BSE Sensex price to earnings multiple.

The worry is that HUL’s September quarter earnings may miss expectations and that may explain the nervous reaction to Unilever’s sales growth warning. But that is a one-time event. And HUL has been doing all it can, spending more behind growing sales, cutting costs wherever possible, and becoming more efficient. These are factors in its control. But the real issue is whether inflation will settle down to less alarming levels, so that growth gets a fighting chance and consumer demand recovers. The real problem is the consumer goods market itself—a factor HUL has little control over.

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