Moderation in FMCG growth rates is due to slowdown in rural areas: HUL CMD

The volatility in crude oil and currency are key monitorables for us, said Mehta

Hindustan Unilever (HUL) reported flat volume growth for the three months ended September 30 amid a challenging market environment. In a post-results press conference, HUL’s Chairman and Managing Director Sanjiv Mehta talks about the way ahead. Edited excerpts: 

What was the fast-moving consumer goods (FMCG) market growth in the second quarter (Q2)?

We have not seen demand pick-up yet. While value growth, in terms of moving annual total, for the FMCG market was 9 per cent, the last three months (July to September) have seen sharp deceleration, touching 5 per cent (in terms of value growth). Similarly, volume growth for the FMCG market has also reduced in Q2 to 3 per cent, from 7 per cent (in terms of moving annual total). The reason for this moderation in FMCG growth rates is due to the slowdown in rural areas. It is sharper than in urban areas. While the government has taken key policy initiatives in the past few months to spur demand, income transfer to rural areas would be something to watch out for.  

HUL benefited from the lower corporate tax rate announced last month. How are you likely to use these gains?

In the medium term, these gains will be used to spur investments. This, coupled with the repo rate cuts  by the Reserve Bank of India recently, should improve consumption in the future. In the short term, there are market challenges, including lower consumer confidence and inadequate funds in the hands of the people. But we should keep in mind that the FMCG market continues to grow, albeit at a slower pace. Growth hasn’t vanished altogether. And we remain optimistic about future growth potential.

You have taken price cuts in soaps. What about detergents? Any pricing action there?

Pricing action has been largely in soaps, mainly due to benign commodity prices. In detergents, we haven’t done anything meaningful in terms of price cuts. There have been small corrections in detergents in some places to match what competition there is doing. In soaps, however, we took a price cut of 4-6 per cent in Lux and Lifebuoy. We took that forward to Dove and Pears as well, reducing price of these brands. The total impact in terms of price cuts would be 6 per cent on the soaps portfolio. Some of this pricing action has been taken in the September quarter and some of it will be visible in the December quarter.

What are the key monitorables for HUL as you go ahead with further price cuts?

The volatility in crude oil and currency are key monitorables for us. The swings in crude oil and currency have been sharp in Q2; if this trend continues, we’d be cautious in terms of pricing action in the future. We have to be competitive in terms of our market activity. That’s a clear strategy we have.

India saw a longer monsoon this year, accompanied by flash floods. How much disruption has this caused to demand? Will this delay rural recovery?

Yes, the floods did disrupt demand as well as logistics and supply chain. While this may impact rural growth rates in the near term, from a medium-term perspective I remain optimistic.