Consumer firms in India have been reeling under weak market sentiment, aggravated by a slump in demand in rural areas, a liquidity crunch and irregular monsoons in vast swathes of the country.bloomberg
Consumer firms in India have been reeling under weak market sentiment, aggravated by a slump in demand in rural areas, a liquidity crunch and irregular monsoons in vast swathes of the country.bloomberg

Rural slowdown may weigh on HUL’s growth in second quarter

  • Weakness in sentiment, stress in agriculture segment have continued to affect rural demand, say analysts
  • HUL may witness tepid growth in sales volume in Q2 amid subdued demand in the rural markets

Hindustan Unilever Ltd (HUL), India’s largest listed consumer packaged goods company by sales, may witness tepid growth in sales volume in the fiscal second quarter amid continued subdued demand in the rural markets.

Volume growth at HUL, which makes Surf Excel detergents and Ponds personal care items among others, has slowed in the past seven quarters. Sales volume grew 5% in the June quarter even as net profit rose 15% to 1,755 crore.

The company is scheduled to announce its September quarter earnings on Monday.

“As rural growth falls behind urban, volume (growth of HUL) is likely to decelerate to around 4%," SBICap Securities Ltd said in a report.

“Weakness in sentiment and stress in agriculture segment have continued to affect rural offtake," it said.

However, it also pointed out that even though demand remains weak, it is not at “an alarming rate."

According to the report, HUL’s premium portfolio has also seen deceleration but fared relatively better and continues to maintain or grow its share.

Consumer firms in India have been reeling under weak market sentiment, aggravated by a slump in demand in rural areas, a liquidity crunch and irregular monsoons in vast swathes of the country.

“We expect HUL’s revenue to grow 7% on a year-on-year to 9,880 crore, with underlying domestic volume growth of 6% in the second quarter of financial year 2019-2020," said Krishnan Sambamoorthy, vice-president (institutional research and consumer sector), Motilal Oswal Financial Services Ltd in a report.

The report attributed the overall slowdown to the ongoing liquidity concerns, succession of drought and floods during the monsoon season in large parts of the country, and muted initial response to the festive season.

According to analysts, recent incentives by the Union government including capital infusion in state-run banks to tide over the current liquidity issue as well as lowering of corporate tax rates will begin to show a positive impact in the coming quarters.

“We are not assuming any benefits of the corporate tax reduction in 2QFY20 as many companies would have paid advance tax," Sambamoorthy said. Edelweiss Research estimates HUL’s volume growth to slip to 3% in the September quarter. “Second quarter of financial year 2019-2020 is likely to mark the slowest volume growth for consumer goods companies since the first quarter of 2017-2018 which was impacted by GST (goods and consumer tax)-related destocking," Edelweiss said in a report.

Mint reported on 9 October that FMCG firms are expected to record another tepid quarter of volume growth as they continue to face headwinds both in rural and urban markets.

On an average, analysts expect packaged consumer goods firms to register revenue growth between 6.4% and 9.3% while recording volume growth between 3% and 6%, according to estimates by several brokerage firms, the report said.

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