Hindustan Unilever's numbers disappoint, point to lack of revival in demand for the consumer sector

HUL’s performance points to a lack of revival in demand and points to weak numbers by consumer companies particularly those catering to rural India like Dabur and Emami. Image: REUTERS

Results from India’s largest consumer goods company Hindustan Unilever usually act as a weathervane for consumer demand in India. Industry watchers keenly watch its numbers to decode the mind of the average consumer that spends in small ticket sizes.  HUL’s latest quarterly numbers released on July 20 point to a tightfisted consumer that is yet to loosen their purse strings.

Growth in HUL’s topline and bottomline numbers was dragged by poor volume growth, rising advertising and promotion spends and higher royalty payments to its parent company Unilever. Sales were up 7 percent to Rs 14,931 crore and net profit up 8 percent to Rs2,742 crore. These was the first quarterly results announced after new chief executive Rohit Jawa took over in April.

HUL’s performance points to a lack of revival in demand and points to weak numbers by consumer companies particularly those catering to rural India like Dabur and Emami. The company has to contend with two issues. Slowing volume growth and lack of price growth on account of falling commodity prices.

Volume growth at 3 percent came in below the consensus 5 percent that analysts had estimated. “Various managements have been saying for the past 5-6 quarters that rural demand is reviving but we are not seeing this on the ground,” said Sachin Bobade, vice president at Dolat Capital. According to him channel checks don’t show consumer sentiment recovering. Rural demand had revived during Covid but in hindsight that was a lot of spending that had shifted from urban India on account of workers returning to their hometowns. Now, migrant workers are back in urban India and high inflation levels have meant they have less money to send back home. This has affected demand adversely.

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This was a sentiment echoed by the company in the conference call. “Rural market growth has just turned positive in the quarter (gone by). However, we need to be cognizant of the soft base that the market is lapping. On a two-year basis total market volumes are flat and rural market volume has declined,” said Rohit Jawa, chief executive at HUL.

Topline growth in consumer companies is a result of volume growth and price growth. A fall in commodity prices has resulted in companies maintaining prices and increasing grammage or reducing prices. Either way topline growth stays muted and this is a problem that HUL and consumer goods companies are likely to suffer from in the quarters ahead.

There wasn’t good news on the margin front either as cost savings were ploughed back into higher advertising and promotion spends. HUL’s A&P spends were up 12.8 percent to Rs 1,505 crore compared to Rs 1,334 crore in the same quarter last year. The management indicated that it was looking to plough back money saved on account of lower commodity prices into higher advertising spends. It also aims to get these back to pre-Covid levels. Lastly, higher royalty spends resulted in other expenses rising sharply.

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The markets gave a resounding thumbs down to HUL’s performance. Through the day the stock traded below and ended the day down 3.67 percent at Rs 2,604. The company’s market cap stands at Rs 6,11,833 crore. The stock is up 4 percent in the last year compared to a CAGR of 14 percent over the last decade.