Unilever's emerging markets outlook makes Indian investors jittery

Share price of the Indian unit fell today amid growth concerns

Anglo-Dutch major Unilever in its just-released annual report for 2012 said there was a risk of a modest slowdown in countries such as India, China and Brazil triggering a sharp reaction from Indian investors. The stock of Hindustan Unilever (HUL) was down 1.34% on the Bombay Stock Exchange (BSE) to close the day at Rs 471.80 a piece.

 

Unilever, which derives over 52 to 53% of its nearly $70-billion revenues from emerging markets, said it expected economic pressures to continue in the 2013 calendar year. "We expect consumer markets to remain flat to slightly down in developed markets. In emerging markets consumer demand remains robust but there is nonetheless the risk of a modest slowdown in key markets," Unilever said.

The last three quarters have been particularly challenging for the Indian unit of the world's second-largest consumer products company with volume growth steadily coming down from 9-10% in the June 2012 quarter to seven% in the three months ended September 2012 to five% in the three months ended December 2012.

 

Analysts estimate the March quarter to be just as challenging for Hindustan Unilever (HUL) with volume growth likely to be in the 5-6% region. "While HUL may benefit from softening input prices, competitive activity will continue to be high," Amar Ambani, head of research at Mumbai-based brokerage India Infoline said.

 

Brokerage CLSA while putting a sell target on HUL today said that it was factoring in a volume growth of 5.5% in the fourth quarter. "Our channel checks indicate offtakes have been under pressure," it added. 

 

Unilever said, "The competitive environment for our business is likely to remain intense in 2013. Our competitors, both global and local, will continue to shift resources into emerging markets. We expect continued high levels of competitive challenge to our many category leadership positions. Some of this may be price based, but we also expect strong innovation based competition." 

 

Incidentally, growth concerns for Unilever in emerging markets comes at a time when it has raised the rate of royalty in these countries. In India, for instance, HUL signed a new agreement with its parent in January this year, which would see it pay 3.15% of sales as royalty by March 2018 from 1.4%. The increase would happen in a phased manner. The Indian market was the second one after Indonesia to see a royalty hike by Unilever. Beginning 2013, royalty payout by Unilever Indonesia would increase to 5% of sales from 3.5%, the company had said in December 2012.