Hindustan Unilever, Reliance Retail on opposite sides of the rural debate

FMCG firm says rural slowdown sharp; RIL arm claims growth continues

India largest retailer Reliance Retail and the country’s largest consumer goods company Hindustan Unilever (HUL) have contrasting views on rural growth. While HUL has said the rural slowdown has been sharp in July-September (Q2), sliding to half the urban growth rate during the period, Reliance Retail has claimed it continues to grow across geographies and consumption baskets.

“Two-thirds of our stores are in Bharat and we continue to add outlets in Tier-II, -III, and -IV markets. We continue to seize the large market opportunity in India by expanding presence,” Reliance Industries’ (RIL’s) Chairman Mukesh Ambani said on Friday.

Reliance Retail crossed the Rs 40,000-crore top line mark in Q2, ahead of players such as Future group, whose consolidated annual top line is Rs 35,000 crore. Analysts expect Future group to clock a consolidated top line of around Rs 9,000 crore in Q2, which is lower than a fourth of Reliance Retail’s Q2 turnover.

Reliance Retail also reported a 67 per cent year-on-year (YoY) jump in earnings before interest tax depreciation, and amortisation (Ebitda), aided by operations in grocery, fashion, and consumer electronics.

HUL, on the other hand, reported a 16 per cent comparable YoY growth in Ebitda for Q2 and 7 per cent YoY growth in profit before tax even as top line for the period increased 6.7 per cent to Rs 9,852 crore. Volume growth remained flat in Q2, coming in at 5 per cent, which was the same number reported in April-June quarter.

 

Sanjiv Mehta, chairman and managing director of HUL, said: “The past three months (Q2) has seen a sharp deceleration in the fast-moving consumer goods (FMCG) market growth rate, led by a  slowdown in rural areas. Though the government has taken policy initiatives in the past few months to spur demand, income transfer to rural areas would be a key monitorable.”  

While 40 per cent of Reliance Retail's revenue contribution comes from petro retail and Jio sales points, top line contribution from core retail operations in food, apparels, and electronics has moved to 60 per cent (in Q2) from 55 per cent earlier, sector analysts said. Ebitda contribution from these businesses stands at 86 per cent, analysts said, a number that has been steadily growing over the past few quarters.

“Core retail margin performance has improved to 8.8 per cent in Q2 versus 7 per cent a year ago. Reliance Retail has not only focused on customer-centric initiatives, which aided top line and margins, but has also gained from scale and operational efficiencies in sourcing and supply chain,” said Avishek Datta, research analyst at brokerage Prabhudas Liladhar.

Reliance Retail added 337 stores in Q2, taking its total outlet count to 10,901 in 6,700 towns. This is five times the number that Future group operates, which is 2,000 stores in 400 cities, including the flagship ‘Big Bazaar’ outlets.

Abneesh Roy, executive vice-president of research (institutional equities) at Edelweiss, said sales growth in Q2 for Reliance Retail was led by existing as well as new stores. “Apart from an aggressive store expansion policy, Reliance Retail also has a strong catchment-focused assortment strategy. The company also has impactful consumer activations and a wide portfolio of store brands,” he said.