New Delhi: Across India’s towns and cities, consumption has cooled. And, it’s unlikely to pick up any time soon. That was the sombre message from the quarterly earnings of Hindustan Unilever Ltd, India’s largest packaged consumer goods maker seen as a proxy for domestic consumption.
On Wednesday, the company reported flat volume growth for the third quarter, at a time when concerns of a demand slowdown have grown. Alongside, it has noted signs of a shift in consumer shopping behaviour towards smaller packs, a trend which has strengthened during the quarter.
“It’s quite a clear trend that urban demand has been moderating for the last few quarters and rural has been growing and gradually recovering,” CEO and managing director Rohit Jawa said during the virtual call with mediapersons, adding that the trend in urban markets is unlikely to reverse in the near term. HUL derives 60% of its sales from urban markets, according to the company.
“It is clearly driven by some degree of households managing their budgets, which is the reason why we see that across categories, across the market, people are titrating to smaller pack sizes,” Jawa said.
At the same time, he added that people are buying more premium brands just because they’re buying smaller packs. “So, we do not see that changing in the very near term. As the macros improve, so will the consumption,” he said.
For the three months ended 31 December, the maker of Lux soaps and Knorr soups reported a 2% rise in standalone sales to ₹15,195 crore from ₹14,928 crore a year earlier. HUL reported flat underlying volume growth during the December quarter across all its portfolios.
Ebitda margin came in at 23.5%. Ebitda refers to earnings before interest, tax, depreciation and amortization.
Net profit surged 19% year-on-year in Q3 to ₹3,001 crore, helped by a one-time gain of ₹509 crore from the divestment of the ‘Pureit’ water purifier business last July to AO Smith, while profit after tax before exceptional items was flat. In the comparable quarter of FY24, net profit had grown 0.55% to ₹2,519 crore.
Tea and crude palm oil prices remained inflated during the quarter, prompting the company to bring in one round of price hike in its tea and soaps portfolio.
Analysts were less than impressed with the flat volume growth. “This was below our consensus estimate of 1-2% volume growth as tea and soaps saw a 5%-plus dip in volumes year-on-year. This was due to price hikes taken in the two portfolios,” said Abneesh Roy, executive director and head of research committee at Nuvama Institutional Equities.
Meanwhile, HUL’s home care business reported a 6% jump in quarterly sales growth led by high single-digit volume growth in fabric wash and household care. Beauty & Wellbeing portfolio reported 1% growth while volumes reported a low-single digit decline. The personal care portfolio reported a decline of 4% with mid-single digit volume decline.
According to HUL, volume growth continued to decelerate in urban markets in the December quarter even as it grew sequentially in rural markets in what signals a cause of concern for most packaged consumer goods firms.
Per data sourced from retail technology platform Bizom, urban demand for FMCG products in value terms grew 0.5% in the December quarter while rural markets reported a 5% year-on-year growth in the same period.
Also read | HUL’s demand woe is a sticky issue
Total FMCG volume growth slowed down over the past six months, indicating subdued demand, the company’s management said. The market saw greater demand for small packs indicating that inflation has dented the consumer’s ability to buy more.
Jawa said macro factors such as high food inflation or real wage growth, which impact urban consumption, are beyond the company’s control. “The government is already doing the right things, and we’ll see what the budget has in store,” Jawa told reporters virtually.
On Wednesday, the HUL board also approved the demerger of the company’s ice-cream business into Kwality Wall’s (India) Limited that is set to be a listed ice-cream company. “Upon demerger and listing of KWIL, the entire shareholding of KWIL will be held directly by shareholders of HUL,” the company said in a filing to the exchanges.
During the quarter, the company also announced the acquisition of Uprising Science Private Limited, the maker of direct-to-consumer personal care brand Minimalist.
HUL will acquire 90.5% stake in the company comprising secondary buyout for a cash consideration of ₹2,670 crore at a pre-money enterprise valuation of ₹2,955 crore and a primary infusion of ₹45 crore, with an eventual acquisition of the remaining 9.5% of Uprising’s shareholding in two years from the completion date.
The acquisition is another step towards HUL expanding its presence in “evolving and higher growth” demand spaces, Jawa said. The company will use its offline distribution muscle to make the brand available in-stores and even sell it in markets overseas.
The current Minimalist team led by Mohit Yadav and Rahul Yadav will continue to operate the business in collaboration with HUL. The transaction is expected to be completed in Q1 of FY26.
The move signals changing consumer behaviour in India where young, urban consumers are ditching tried and tested brands to buy new products.
HUL has outlined plans to grow in emerging demand spaces over the next decade while also growing its core, more mass-market portfolio. In 2022, the company picked up stakes in two digital-first health and wellness companies that sell wellness products under Oziva and Wellbeing Nutrition.
India’s beauty market is estimated at ₹68,000 crore, according to Ritesh Tiwari, CFO of HUL. “Half of that market sits at the affluent and affluent-plus consumer cohort. Minimalist is placed in that attractive beauty segment,” he said.
The company has relaunched its soap brand Lifebuoy to address the declining hygiene segment.
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