FMCG major Hindustan Unilever sees stable demand trends in the coming quarters with expectations of a sequential improvement in gross margins, backed by gradual recovery in the urban demand, good monsoon and improving macros, chief financial officer Ritesh Tiwari told Moneycontrol in an exclusive interview.
The country's biggest packaged goods maker expects quarterly EBITDA margins to be at 22 percent to 23 percent, down from earlier range of 23 percent to 24 percent. "With improving consumption climate and the portfolio expansions which we undertook, we expect the first half of this fiscal to be better than the second half of last fiscal. We believe that's the space we will be in, and I don't see there will be acceleration from here. What we expect is that this gradual recovery will be sustained going forward," Tiwari told Moneycontrol.
The comments come as HUL reported a 6 percent year-on-year (YoY) rise in consolidated net profit in the June quarter but gross margins dipped 1.9 percent YoY, as the company remained competitive to maintain a volume-led growth even as volatility in commodity prices hurt its margins.
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Hindustan Unilever absorbed most of the price inflation in tea, keeping the product affordable and thereby supporting volume gains. However, the company now sees price vs cost gap to narrow in the coming quarters.
"The transitory cost versus price impact due to actions taken in the tea, homecare and core categories like Horlicks will reverse to some extent, going forward. After the June quarter, we expect gross margins to improve. But we are also clear that this improvement of sequential gross margin from the June quarter, will be deployed back and we'll invest back in the business across different lines of the P&L," Tiwari added.
The company is looking to step up investments in advertising and promotional (A&P) activties to shore up presence. It spent Rs 150 crore more in the quarter for A&P, with major chunk invested towards digital media.
"With better disposable income, improving sentiment, and supportive macro conditions, we believe that from the June quarter onwards, we would start seeing a consumption uptick — and the industry has, in fact, been gradually recovering. We do believe that this gradual recovery which has happened, should be sustained.," he added.
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