HUL sees volume growth across all categories

D Sundaram, Vice Chairman, Hindustan Unilever, said the company has invested in water and processed food business.

According to him, the company has managed its cost pressure via pricing, cost management, and favourable mix. "We have seen underlying volume growth across all categories."

Nitin Paranjpe, CEO, Hindustan Unilever, said the markets have been growing over this period at rates that are well in excess of the market. "If you look at the market share for the June quarter, you will find that across a majority of categories our share has increased."

Harish Manwani, Non-Executive Chairman, Hindustan Unilever, said the biggest opportunity for the company is to be able to expand the pie. "One of the biggest jobs that this company does brilliantly is to do market development. We still enjoy very large market shares in categories where we have pioneered market building to grow these categories."

Excerpts from the press conference:

Q: In the next three months, how do you see cost pressure panning out for the company, given that you managed to offset a whole lot of cost through price hikes?

Sundaram: We managed cost pressures not only through pricing, but also through a slew of measures like pricing, cost management and efficiencies, and also favourable mix. We do not give any guidance. We will continue to use all levers to drive the business and manage it dynamically. That would include aggressive cost savings and cost effectiveness. It would also include judicious and sensible pricing. We will continue to drive for mix currently as the independent numbers suggest that FMCG markets in value terms are holding both in rural and urban areas.

Q: In terms of pricing, how effectively were you able to push through higher prices this quarter because out of the 21%, 13% has come from pricing and 8% from volumes?

Sundaram: We saw FMCG growth of 18.8% and not 21.1% because this is with reference to that. The rest is with various other businesses and so on. 8.3% is the underlying volume growth and about 9.7% is the underlying price growth. So, there is an underlying volume growth, and this is something that we are really seeing across all categories.

Q: In the price hike that you have highlighted through direct price rise and package resizing that has been done, are those being absorbed in the market? What is the sense you are getting?

Sundaram: If one really go by June quarter results and how the market is, one can really see overall volume growth as well, because of the price growth. So, there is a volume growth, and that volume growth is across categories.

Q: In the soaps and toiletries segment, one could see some slowdown in terms of volumes, especially because of pricing and competition in that segment. Have you seen some kind of slowdown happening in the soaps and toiletries segment?

Sundaram: We have seen volume growth in all our categories. But it is true that in the overall FMCG market, AC Nielsen have indicated value growth across all categories, but some flattish growth in soaps and detergents, but not in other categories. They have reported some flattish volume growth in these two categories.

Q: Do you see cost pressure rising or do you see them stabilizing at these levels or are you expecting input cost to go up in the next few quarters?

Sundaram: As of now, it is very difficult to predict how many of these costs will move. Material cost will be dictated by major material cost movement and some or quite a lot of that would be dictated by how oil prices behave. Predicting petroleum prices has not been very easy for anyone.

Q: There are some cost effective measures that you have taken. Could you elaborate a little about that?

Sundaram: We have a culture, history, and track record of looking for the cost-efficiencies across the board. That covers materials, buying efficiencies, logistics, better buying of non-production materials, better capacity utilization, and factory efficiencies among others. We continue to use more and more rail transport compared to road transport because we are able to move material, save freight, and distribution cost. The business collectively takes this always as a challenge. We will continue to do that with varying measures of success.

Q: Do you think the 21% sales growth that you have clocked in Q2 is sustainable, especially when you are talking about some slowdown in the economy and demand slowdown happening across the board? Is it sustainable because you are in the FMCG business, which will be directly impacted by this slowdown? We are also looking at the monsoon that are insufficient in some parts of the country. Is it a one-off or do you think you can sustain it at 21%?

Sundaram: We need to look at it based on current facts. The current facts are clearly indicating, which is an independent number by AC Nielsen that the value has held in the FMCG markets and continues to hold, both in rural and urban areas. Therefore, we need to say that we don’t see any slowdown at all because that is what the facts are very clearly indicating and it is an independent objective measure.

As far as the monsoon is concerned, reports say that monsoons are expected to revive. July and August are very important months. Therefore, we really need to see how the monsoon will revive. We shouldn’t come at too early a conclusion, as that will be hypothetical.

Q: Why has growth not been reflecting in personal care products where your market share has not been growing as fast as one would expect?

Paranjpe: The first thing to recognise is that we have been growing over this period at rates that are well in excess of the market. So if you look at the market share for the June quarter that we have just reported and take a whole range of categories, you will find that across a majority of our categories our shares have increased.

If you take laundry, household cleaning, tea, coffee, hair, other than face and skin cleansing, almost in every other category you would see an increase in market share that has taken place, and we have always said that we want competitive growth, which means that we have to grow faster than the market.
But you have to recognise that in a period of a quarter there would be some categories that would move in one direction and some of them would move in the other direction. On an aggregate, over a period of time we continue to grow faster than the market.

Manwani: The thing to recognise is one of the advantages that we have is that we have a portfolio of categories, portfolio of brands within categories and we must leverage that and we do indeed leverage that. In other words there are quarters where we invest more in one place and there are quarters where we invest more in some other depending on our innovation phasing and so on.

Your specific point about personal care and market share, you also have to recognise the opportunity of market growth versus market share particularly for players like us. We have for example 55% market share in skin care. Where is the biggest opportunity for us? The biggest opportunity is not going from 55% to 56%, but the biggest opportunity for us is to be able to expand the pie and one of the biggest jobs that this company does brilliantly is to do market development, which is what I call competing for non-consumption.

How do we actually make people who don’t use our brands get into the category? That is a very big job to be done. So, if you look at our market share, I am pleased to say that we still enjoy very large market shares in categories where we have pioneered market building to grow these categories.

Q: Are you able to pass on the increases in rural markets as well where as you are able to do it in the urban markets?

Paranjpe: We always looked as managing the business as a portfolio and have strategies which are appropriate for the portfolio, we look at pricing, we look at cost and we look at it. That’s the advantage that we have as the large business. It is by managing this sensibly that we are able to produce results which we are pleased to say in this quarter that we have delivered growth in our EBDITA margins which are in line with the topline despite the cost increases which we talked about, despite the investment which we have made behind our brands to strengthen them and the investments which we have made in our future.

Q: Your advertising and promotion spend in this quarter has been significantly growing but can we say that the same amount will be there in the next quarter as well?

Paranjpe: We always say that this expenditure shouldn’t be looked at from on a quarter to quarter basis as a standalone because, the A&P expenditure which we have is a function of the activities which are planned in that quarter and these are not and activities are not phased out equally across quarters.

While it is higher as a percentage that’s the function of the comparable period as well. If you look at the percentage of spend, it’s about 10.4% and that’s not materially different from the previous quarters which we have had. We are committed to making sure that our spends are competitive, which means we will spend as required by our brands in the context of the environment in which we operate.