Packaged consumer goods maker Hindustan Unilever Ltd (HUL) said
that the second wave of the COVID-19 pandemic won’t hurt the company and the
overall FMCG market as much as it did a year ago thanks to rural growth holding
up and better preparedness on part of companies.
“The rural growth has still held on and in the first two weeks of
April we have seen the same momentum as we had witnessed in the March quarter,”
said Sanjiv Mehta, Chairman and Managing Director of HUL, in a press conference
after announcing the results for the quarter ended March. In the fourth quarter
of FY21, HUL reported consolidated net profit growth of 44.8 percent from a
year ago.
Rural growth was strong throughout the last fiscal year as
initially the virus spread was mostly in large cities. Despite the farmer
protests, India is eyeing a record Rabi wheat output of 108 million tonnes,
Reuters reported on Thursday. Still, there are some concerns that the pandemic
spreading to rural India could derail growth.
According to Mehta, while there has been some turbulence in the
market in the last two weeks, it is nowhere close to the disruption the FMCG
industry saw last year after the government had announced a nationwide lockdown
to check the spread of the pandemic.
“Though there might be some impact on demand due to the mobility
issues, our factories are running and the supply chain is still operating. At
this stage, I firmly believe that it is not going to be as bad as what happened
in the June quarter of the last year,” Mehta added.
The surge in growth continued in the January-March quarter as seen
from HUL’s performance. It reported volume growth of 16 percent over a year ago
during this period.
The domestic consumer business grew 21 percent year-on-year
(excluding the impact of the merger of GSK Consumer Healthcare and acquisition
of 'VWash').
Consequently, HUL reported a revenue growth of 35 percent to Rs
12,433 crore. Consolidated net profit rose 44.8 percent from a year ago to Rs
2190 crore.
Growth was broad-based. All major verticals – health, hygiene and
nutrition – grew in double digits for a third quarter in a row, while
discretionary and out-of-home categories improved sequentially, said Abneesh
Roy, Executive Vice President for Institutional Equities at Edelweiss
Securities.
What gives credence to Mehta’s assertion is that 80 percent of
HUL’s products are in the health, hygiene, and nutrition categories. These are
listed as ‘essentials’ by most states and therefore expected to be minimally
impacted by the lockdowns.
“HUL's categories represent need-based consumption and these have
not been impacted due to the lockdown as the states have not imposed any
restrictions on the movement or sale of these categories,” said Ankur Bisen,
senior vice president of retail and consumer products, Technopak.
“Going ahead it is expected that these products will not face
disruption due to the lockdown,” he added.
Future preparedness
Several state governments including Delhi, Maharashtra, Karnataka,
and Chhattisgarh have imposed lockdowns to contain the rapid spread of the
Covid-19 pandemic. As the restrictions are not nationwide and localised in
nature, several logistics companies are facing it challenging to deliver goods.
On the other hand, companies are also facing labour and manpower shortage due
to their employees falling sick.
Mehta said this was not a concern at the moment.
“We have built capacity for the long term and even if there is a
fluctuation in demand, we are going to pull it back,” he said.
In a presentation to investors, the company said that its capacity
is now 1.3 times that of pre-COVID levels and it has adopted different models
such as giving liquidity support to distributors to ensure continuity of
supplies.
According to Mehta, the company’s efforts such as Project Shakti,
and its B2B app Shikhar will also help them tide over difficult times, if any,
ahead. Under its Shakti Project, HUL claims it has created a rural distribution
network of 136,000 women micro-entrepreneurs.
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