A continuous rise in COVID-19 cases, coupled with lockdowns in several parts of the country, continue to impact demand and supply of fast-moving consumer goods, especially in the discretionary category. However, a rebound in rural markets, compared with their urban counterparts, is likely to come as a big relief for FMCG companies.
Rural growth had clearly lagged behind that of urban areas before the pandemic hit. However, Hindustan Unilever, the largest FMCG company in the country, on Tuesday said that there had been a revival in rural growth in the last few months, compared to urban regions.
“At the end of the day, two-thirds of countrymen live in rural areas. So, it's very important for us that rural prospers. We used to say rural growth in the quarters preceding the crisis had come down below the urban growth rate. Its too early to pick up a discerning trend, but if I were to look at the last three months gone by, there is clearly a bounceback as far as rural growth is concerned vis-a-vis the urban growth,” Sanjiv Mehta, chairman of HUL, told reporters in a conference call.
He attributed the rural revival to good winter harvest, and the various steps the government has taken, like increased outlay towards the rural employment guarantee scheme, the direct transfer of money to the accounts of beneficiaries and supply of free foodgrains to the poor.
Overall, though officials warned that the near-term was likely to remain turbulent and consumer sentiment was likely to dramatically improve only once COVID cases started to fall and a vaccine for the virus was found.
“A lot will depend on when the infection curve starts going southwards, when the people have confidence that a vaccine is not far away and very importantly, the economy of the country starts humming again. There will be a couple of quarters of turbulence, definitely,” said Mehta.
If there aren’t too many supply-led disruptions in the September quarter, it would be a better indicator of the underlying demand than the June quarter, he added.
The maker of Red Label tea and Surf detergent reported a 7 per cent year-on-year rise in first-quarter net profit at Rs 1,881 crore, while revenue in April-June rose 4.4 per cent to Rs 10,716 crore.
HUL’s earnings were boosted by the merger of GSK Consumer’s nutrition portfolio, including Horlicks and Boost health-food drinks and demand for its health and hygiene products as well as packaged food portfolio.
Excluding, the impact of the merger of GSK’s nutrition business, domestic consumer growth declined 7 per cent, it said.
“Health, hygiene and nutrition, about 80 per cent of our business has actually grown 6 per cent. In the space of beauty and personal care, where we didn’t have permissions, because they were not essentials, to commence production in April and parts of May, to an extent they have got impacted as there was no supply and in some cases, there is a little bit of demand constraint too. So, about 15 per cent of our business has delivered negative 45 per cent. The segment, which is only about 5 per cent – water, ice-creams or food solutions, which cater to restaurants, got significantly impacted and had almost 70 per cent negative growth,” noted Srinivas Phatak, CFO of HUL.
Meanwhile, HUL has announced a special interim dividend of Rs 9.50 per share, for the financial year ending March 2021, this will result in a total dividend payout of Rs 2,232 crore.
The dividend has been declared in pursuance of the August 30, 2018 order of the National Company Law Tribunal, which had approved the scheme of arrangement for transfer of Rs 2,187.33 crore standing to the credit of general reserve to the profit and loss account.
When quizzed about the timing of the special dividend, given the pandemic, Phatak said that the company still had close to Rs 6,500 crore of cash on its book and its operations remained well funded.
“When we look at our business operations, when we look at our needs, clearly we have a very sound business model. Therefore, it's only fair that where shareholders have given the approval in 2016 and we got the NCLT approvals in 2018, we should distribute the money. We couldn’t do it earlier, because we were in the middle of the completion of the GSK merger, which puts some restrictions. Now, that having completed, its only appropriate to give the cashback to shareholders,” Phatak said.
