Hindustan Unilever on Wednesday said it sees a challenging operating environment in the near future with inflation impacting volumes, and growth will predominantly be price-led.
According to Sanjiv Mehta, CEO and Managing Director of Hindustan Unilever, rural demand which started from a high post-pandemic base, saw a negative volume growth and negative value growth as a result of inflation. While Mehta believes that the extent of commodity inflation is hard to forecast at the moment, rising farmer incomes due to a bumper rabi season, good monsoons, cessation of the geopolitical crisis, as well as price premiums due to agri inflation could make the rural demand bounce back in the second half of this calendar year.
Focus on retaining consumer base
At present, however, due to inflationary pressure, the key focus area for HUL is to retain its consumer base, by reducing operational costs using digitisation, evaluating future price hikes, and maintaining a flexible business model in relation to these disruptions.
But despite the headwinds the company announced a 5.3 per cent increase in net profit for the fourth quarter to ₹2,364 crore compared to ₹2,186 crore in the corresponding quarter last year.
Crossed ₹50,000 cr milestone
The FMCG major also saw its total income increase by 10.3 per cent year on year to ₹13,846 crore from ₹12,542 crore. The company also crossed the ₹50,000 crore milestone for the 2021-22 fiscal year, reporting a total income of ₹52,794 for the fiscal year, an 11 per cent bump from the ₹47,438 crore reported for the full 2020-21 fiscal year.
Despite record-high inflations, nearly 4 times the 2020 base, the overall EBITDA margin compressed only by 0.2 per cent to 24.6 per cent of for this quarter. HUL noted in its press note, “During the quarter our turnover grew by 10 per cent with flat underlying volume growth. We continued to grow significantly ahead of the market gaining value and volume market shares.” As per Nielsen estimates for the market growth for the last three months, HUL has far outplaced the market which has seen an overall value growth of 1 per cent and volume growth of –8 per cent.
Mehta noted that for the March quarter, the company took an overall price hike of 10 per cent across its portfolio albeit by reducing the per unit volume of product sold. The HUL financial report notes that sales of the company were up by 10 per cent, however at a flat volume growth.
Furture growth
As the company battles debilitating commodity inflation, especially for palm oil and crude oil and its derivatives, Mehta predicts that the future growth is not going to be volume-led in the near term. Margins will remain tense, and future price hikes could be taken in the form of titrating down the unit volume of each product even lower, should the commodity inflation spurred on especially by the Russia-Ukraine issue persists.
HUL also saw market share gains across 75 per cent of its product portfolios. HUL’s premium portfolio continues to be immune to inflationary pressures and sees growth. Three more brands, Vim, Rin, and Dove joined the Rs 20 billion club. Lastly, HUL now has a digitized demand capture of 20 per cent, with over 800,000 Shikhar outlets and rising e-commere sales. D2C also continues to grow rapidly.
HUL’s stellar results caught the analysts by surprise, Abneesh Roy of Edelweiss Capital said, “Revenue was 5 per cent above estimates with revenue growth of 53 per cent YoY with recovery at 1.6x of Q4FY20. Westside registered LFL growth of 16 per cent and 21 per centvis-à-vis FY20 and FY21 respectively.”
Mehta concluded, “In challenging circumstances, we have grown competitively and protected our business model by maintaining margins in a healthy range. I am also pleased that we have become an Rs. 50,000 crore turnover company in this fiscal. Our consistent performance is reflective of our strategic clarity, the strength of our brands, operational excellence, and dynamic financial management of our business. While there are near-term concerns around significant inflation and slowing market growth, we are confident of the medium to long term prospects of the Indian FMCG sector and remain focused on delivering a Consistent, Competitive, Profitable and Responsible growth.”