Recovery in rural demand may help firm sustain sales in a weak economy
The local unit of Unilever saw strong demand for its packaged foods and hygiene products as covid spread
Hindustan Unilever Ltd reported a 4.4% revenue growth in the June quarter, beating analysts’ estimates, as people stocked up on ready-to-eat foods and personal hygiene products during the nationwide lockdown to contain the coronavirus pandemic.
The net profit of India’s largest household goods maker rose 7.1% to ₹1,881 crore in the three months ended 30 June from ₹1,755 crore in the year-ago period. Revenue from operations rose to ₹10,560 crore from ₹10,114 crore in the year earlier, the company said on Tuesday. Excluding the impact of the merger with GlaxoSmithKline Consumer Healthcare Ltd, domestic consumer growth fell 7%. GSK’s consumer business was merged into Hindustan Unilever on 1 April.
A Bloomberg survey of analysts expected the company’s quarterly revenue at ₹9,979.90 crore and profit at ₹1,721.60 crore.
The local unit of Unilever saw strong demand for its packaged food and hygiene products as the pandemic spread rapidly across India. A revival in rural demand and the easing of one of the world’s strictest lockdowns are likely to help the maker of Lux soaps, Surf detergents and Lipton tea, to sustain sales even as the economy is headed for the worst recession since Independence.
The company’s food and refreshment business saw revenue grow 52%, boosted by the integration of GSK’s popular brands such as Horlicks and Boost.
“Riding on the ‘In-home, wellness and immunity’ trends, foods, tea and coffee delivered strong performance with double-digit growths," the company said.
The virus outbreak in India and the subsequent lockdown prompted consumers to spend disproportionally on categories such as health, packaged food and hygiene goods while postponing beauty and personal care spends, the June quarter earnings showed.
The protracted shutdown also disrupted the operations of companies.
Sales of the company’s detergents, soaps, packaged tea and shampoos that reach millions of households help analysts gauge consumer demand.
Sanjiv Mehta, chairman and managing director of HUL, said a clearer picture of the demand situation will likely emerge in the September quarter.
Mehta expects the covid-related purchase behaviour with heightened consumer interest in health and hygiene to continue—albeit at different levels—till a vaccine is found and consumers gain confidence. He, however, warned of a couple of “turbulent" quarters.
“A lot will depend on when the curve starts going southwards when people have confidence that the vaccine is not very far away and, very importantly, the economy of the country starts humming again. That’s when we will see it very clearly. And there will be a couple of quarters of turbulence, definitely, and our objective is to navigate this turbulence in the most agile manner," he said.
The company’s management said rural markets grew ahead of urban, reversing the pre-covid trend when the growth rate in the hinterland, which accounts for 40% of the company’s sales, was slower.
“If you recall, we always used to say that the rural growth in the quarters preceding the crisis had come down below the urban growth rate. And I think, too early to pick up a discerning trend, but if I were to look at the last three months that have gone by, there is clearly a bounce-back as far as the rural growth is concerned. Not in absolute terms, but certainly vis-vis the urban growth," Mehta said on Tuesday.
Government interventions in rural India aided by a good winter crop harvest have helped rural sales, Mehta said.
Interestingly, the company did see shoppers return to non-essential categories such as personal and skincare in the second half of the June quarter.
“What we have seen in the latter half of the quarter is that the demand for skincare has definitely been moving up as the availability goes up, said Mehta. The company sells Lakme, Pond’s and Glow & Lovely brands of skin care products.