Resilient rural market leads recovery from impact of Covid second wave: HUL

A resilient rural market is leading the recovery from the impact of the COVID-19 second wave, with the industry's business reaching March 2021 levels, FMCG major HUL said on Thursday.

The company has also doubled its e-commerce channel and is prepared to meet demand even if a third wave hits.

"Rural has been a good engine for FMCG for the last few quarters, and it continues to be resilient. Hopefully, we see a good monsoon and this will augur well for the rural economy, HUL CFO Ritesh Tiwari said while talking to media virtually post Q1 results.

After June, the COVID-19 infection rates have substantially gone down and from July onwards we are seeing our business levels, in terms of industry FMCG growth and market levels similar to very close in March 2021", he added.

 

"The rebound that we have seen in the month of June and early July is led by rural. So, the good news is that rural is resilient, and it has started to come back, strongly ahead of urban," Tiwari noted.

Urban has been impacted because of lesser footfall and the mobility issue, he added.

HUL is confident that with the strong monsoon and current sowing, it will see stronger growth in the rural economy, which will ultimately help companies in the sector.

While HUL also raised concerns over the growing commodity prices such as palm oil, tea and crude oil, which are impacting its three large categories.

"Three of our key categories - skin cleansing, tea and laundry are exposed to crude and palm oil," he said.

According to HUL, it would go for a "judicious and calibrated" price increase and in Q1, all three key categories have already witnessed a price hike.

When asked about the demand growth in the context of a possible third wave, Tiwary said, "As part of the overall outlook, we are cautiously optimistic at this point in time".

According to the company, during the April-June quarter e-commerce and general trade saw demand picking up.

"We have a very strong focus on e-commerce, be it B2B or B2C. We have a strong presence, partnership and strong growth. Our overall business has doubled with strong growth in e-commerce," said Tiwari said.

Now, more than 10 per cent of HUL's sales are sold in a digitised manner through future-ready platforms like the Sikhar app, which is installed at half a million stores.

"This gives us a unique opportunity to drive demand for demand generation," he said, adding "this is how we are looking into channel transformation and leading disruptive way using technology".

When asked about the future acquisitions by the company, HUL CMD Sanjiv Mehta said: "We look at growth opportunities - organic and inorganic. We are always looking out which is a strategic fit for us".

Mehta also said he is confident of being able to navigate if there is a third wave.

According to him, in comparison to the previous nationwide lockdown, the government this time opted for localised lockdowns, which allowed supply chain functioning and retail stores operating with limited hours and going forward this would be the model replicated if another wave hits.

" If we are able to ramp up from the current run rate of 4-5 million and go up to the 7- 8 million daily vaccination, then the picture will become significantly better in the next few months, that even if the third wave happens, the impact will be lesser and the severity would be much lower," he said.

That gives us optimism that things should turn out better as the year unfolds, Mehta added.

However, he also added that there are many variables and mutation and to what extent it will spread.

"That is the reason we talk about cautious optimism. We understand the challenges but remain confident that we should be able to navigate if there is a third wave," he added.