Hindustan Unilever, the country's largest fast moving consumer goods maker, says a bounce back in rural markets, coupled with strong growth in the natural's portfolio, is driving a gradual demand recovery, across segments.
The consumer goods sector got impacted due to the government's move to ban high value currency note in 2016, which hit the wholesale segment badly. Furthermore, the initial hiccups post the rollout of the Goods and Services Tax also hurt. But, the trade conditions have since normalised and there is a volume-led growth across segments, say officials.
"There was a time when we used to talk about rural growing less than urban. Now, in many parts of the country, rural has started growing ahead of urban, in many places it is at par with urban... Pleasing to see rural has bounced back," said Sanjiv Mehta, MD and CEO of HUL.
A broad-based recovery in rural markets is indeed clearly visible, considering the strong demand automobile companies have also seen across tractors and two-wheelers.
Lower GST rates resulting in prices across a few FMCG segments coming down, government's big investment push in rural markets and a good monsoon this year should give a fillip to consumption of consumer goods, added Mehta.
"If I look total FMCG consumption in the country, categories where we operate, its about $29 per capita. But, if you look at rural, its only $16 per capita. So, the headroom to grow in rural is massive and 67-70 per cent of our countrymen live in rural areas. So, that is very critical for the growth of the FMCG sector," he noted.
The FMCG bellwether reported a 14 per cent year-on-year rise in fourth quarter net profit to Rs 1,351 crore, aided by 11 per cent growth in volumes.
Net Sales in the January-March quarter rose 3 per cent to Rs 9,003 crore. It must be noted that sales reported in the year ago quarter were inclusive of excise duty, while the latest quarter figures were net of GST. Comparable consumer sales growth was around 16 per cent.
"Its a volume-led growth across all our segments. Home care, upwards of 20 per cent, personal care at 13 per cent, refreshments at 14 per cent and foods business growth at 10 per cent," pointed Srinivas Phatak, CFO of HUL.
While the company remains bullish on growth, a step up in competitive intensity and rising prices of crude oil-linked inputs, will weigh on the company's earnings.
HUL has already stepped up its advertising and promotion spends in the fourth quarter to Rs 1,070 crore from Rs 853 crore in the year ago quarter.
The company will also focus on keeping costs under check, so price hikes are judicious and where ever necessary.
The naturals or ayurvedic segment within the FMCG industry has exploded in recent years, particularly driven by the aggressive entry of Baba Ramdev's Patanjali. HUL, too has over the last couple of years, strengthened its naturals portfolio, with the relaunch of Lever Ayush and acquisition of Indulekha hair oil brand.
The segment is growing at 2.5 times average HUL growth and will be a key driver, going ahead, say officials.
"It (the naturals portfolio) would expand given its growing at a much faster pace. We have a three pronged naturals strategy, one is our master brand Lever Ayush, second is our specialist brands like Indulekha, which we have now extended from hair oils to shampoos and then there are natural variants in our existing brands," said Mehta.
