Image(from left to right): Priyanka Parashar / Mint Via Getty Images; Adnan Abidi / Reuters
Recent quarterly numbers at Hindustan Unilever (HUL) showed why it is so hard to bet against India’s largest consumer goods company. Despite the increased competition from rivals Patanjali Ayurved, Dabur and Marico, the company clocked an 11 percent year-on-year volume growth. The better-than-expected numbers can partly be explained by a 4 percent decline in volumes during the same quarter last year but they were equally the result of an uptick in growth in rural India.
“While it would be fair to say that rural markets have shown better growth, I would like to wait for another two quarters before I can point to a definitive trend,” said Sanjiv Mehta, CEO of Hindustan Unilever during the results press conference. For the company, and the consumer goods sector in general, the scars of two successive bad monsoons in 2015 and 2016 as well as the demand shock brought about by the demonetisation of high-value currency notes are still raw. More recently, the implementation of the goods and services tax also caused some turbulence in their distribution channels.
What surprised analysts was the fact that the company cut expenses marginally by 0.4 percent while at the same time increasing advertising expenses by a whopping 25 percent to ₹1,107 crore. The company said it plans to continue with the increased advertising as the competitive intensity among consumer companies has increased. What they’ve saved in the form of lower GST rates has either been passed on to the consumer through price reductions or increased grammage or ploughed back in the form of advertising. Clearly, HUL is planning to fight tooth and nail rival Patanjali, whose co-founder Baba Ramdev has said that he plans to beat HUL’s topline in the year ending March 2019.