The COVID-19 has hit Hindustan Unilever’s discretionary portfolio of skincare, deodorants and colour cosmetics contracted 15 percent in FY21, while out-of-home products such as Hice creams shrank 26 percent but the much bigger business of health, hygiene and nutrition grew 12 percent .
India’s biggest consumer goods maker attributed the decline in the discretionary portfolio of brands such as Lakme, Rexona, Ponds, Axe and Glow & Lovely (earlier Fair & Lovely), which brings 15 percent of its business, to pressure on household budgets and limited mobility because of the pandemic and lockdowns.
The company faced a bigger fall of 26 percent in its out-of-home categories such as ice cream and the food solutions business that caters to institutional buyers like hotels and office catering, which suffered because of lockdowns. Out-of-home categories, which include ice cream brands Magnum, Cornetto and Kwality Wall’s, account for 5 percent of the turnover.
However, its health, hygiene and nutrition, which account for 80 percent of the company’s business reported a strong 12 percent growth as consumers stepped up spending on essentials.
The company’s turnover in 2020-21 rose18.38 percent to Rs 45,311 crore, while profit rose 18 percent to Rs 7,954 crore. In the fourth quarter of the fiscal year, its consolidated net profit rose 44.8 percent to Rs 2,190 crore while revenue grew 35 percent to Rs 12,433 crore.
Navigating the pandemic
The company said its beauty and personal care division grew by 4 percent during the year, led by robust double-digit growth in skin cleansing, oral care and hair care.
“Home care grew by 2 percent led by double-digit growth in household care and a marginal growth in fabric wash due to slowdown in laundry consumption owing to limited mobility,” it said in the report.
HUL’s foods and refreshments segment expanded 17 percent, helped by strong performance of tea brands such as Taaza, Brooke Bond Red Label and Taj Mahal. Malt-based Boost and Horlicks also performed well, it said.
The company saw a good demand for skin cleansing and hygiene portfolio, which includes brands such as Lux and Dove, as bar of soap became the first line of defence against the COVID-19 pandemic.
The company said it faced margin pressure as palm oil and tea soared to multi-year highs but it took “judicious pricing actions” to deal with the situation. It raised the price of Brooke Bond and Lipton tea brands by 4-5 percent during the year, while Lifebuoy and Lux soaps were up 6-7 percent, according to estimates.
In the face of several supply-chain disruptions, which impacted sales in the first quarter of FY21, HUL built alternative distribution channels.
“The company’s initiative such as onboarding more retailers on its B2B app Shikhar app, which now reaches out 0.5 million retailers, creating a rural distribution network of 136,000 women micro-entrepreneurs under Project Shakti helped them clock growth during the year,” said Himanshu Nayyar, Lead Analyst - Institutional Equities, Yes Securities.
He said other initiatives such as a slew of launches in health and hygiene category, pan-India launch of Boost and introduction of low pack units (Rs 5 and Rs 10) of Horlicks also helped it tide over this crisis period.
While its margins have been under the pressure due to the price, Nayyar believes, it will ease out as demand improves with the re-opening of the economy.
The Way Ahead
Sharing an outlook for the year ahead, the company in its annual report indicated that the pandemic remains a challenge.
“Notwithstanding these encouraging developments, the COVID-19 pandemic is far from over. The trajectory of the pandemic still remains unpredictable to a very large extent, with country already witnessing a second wave of COVID-19,” it said.
However despite the unpredictable situation, the company is confident of the medium to long-term growth prospects of the FMCG sector.
Going ahead, the company will keep strengthening its core brands.
“Focus is to make our bigger brands better by capturing emerging trends,” it said.
In April, while reporting its quarter results, Sanjiv Mehta, CMD, HUL had indicated that given the company’s strong presence in the health, hygiene, and nutrition categories, which have been listed as ‘essentials’ by most states in the recent COVID-induces curbs, the company expects to see a minimal impact.“The rural growth has till held on and in the first two weeks of April we have seen the same momentum as we had witnessed in the March quarter,” said Sanjiv Mehta, Chairman and Managing Director of HUL, in a press conference after announcing the results for the quarter ended March.