FMCG major Hindustan Unilever Limited (HUL), which on April 24 reported a 6 percent fall in standalone net profit for the March quarter, said that urban markets and premium products are continuing to drive growth for FMCG players, even as rural demand has seen gradual recovery.
“Rural markets have recovered on a quarter-on-quarter basis continuously for the last four quarters,” said Ritesh Tiwari, CFO, HUL.
HUL on April 24 reported six percent fall in standalone net profit at Rs 2,406 crore for the fiscal fourth quarter as against Rs 2,552 crore in the year-ago period.
The FMCG giant’s sales rose only marginally to Rs 14,693 crore in the fourth quarter, with revenue in a key segment, beauty, and personal care, declining 2.7 percent.
Analysts had projected a profit of Rs 2,435 crore on revenue of Rs 14,913 crore, the number being an average of nine brokerage estimates.
Normal monsoon
Tiwari said that with the monsoon expected to be normal and an improving macro-situation, rural recovery should continue going forward.
However, the rural segment has still not outpaced urban, the management noted.
Hindustan Unilever’s CEO Rohit Jawa added that growth for the FMCG major is being driven by urban markets, modern trade and e-commerce and its premium products portfolio.
Commenting on the outlook for the FMCG sector, the HUL management said that it sees FMCG demand to continue improving gradually.
However, they expect price growth to be low-single digit negative in the near term if commodity prices remain where they are.
The management said that it is focused on driving what it termed as competitive volume led growth and is stepping up investments behind its brands and long-term strategic priorities.
HUL announced a final dividend of Rs 24 per share for FY24 on equity shares of face value of Re 1. The company had earlier paid an interim dividend of Rs 18 per share on November 16, 2023. The total dividend for FY24 amounts to Rs 42 per equity share of face value of Re 1 each.
On April 24, HUL's shares on BSE closed trading marginally lower at Rs 2,260.05 apiece.
HUL clawing back market share in detergent and skin cleansing
The HUL management said that its market share in the detergent bar and the mass end of the skin cleansing segment is rebounding after a period of decline due to corrective pricing strategies.
The company saw the most significant market share reduction in these two categories over the past two years.
The management said that during times of relatively high inflation, commodity scarcity, and supply chain constraints, larger players tend to benefit while smaller ones often exit the market. Conversely, during periods of deflation, the situation reverses, with some market share returning to smaller players.
In the previous earnings call, Jawa had said in the quarter ended 31 December 2023, the trend of local players re-entering the market has largely subsided. Following a period of commodity inflation relief, the fast-moving consumer goods company encountered competition from smaller regional competitors, particularly notable in the tea sector, where consumers were opting for lower-priced alternatives.
The company has still been able to hold onto their market share. “If you look at our performance over the last two years, which includes the inflation and deflation cycle, we have added 200 basis points of market share, which we are broadly holding onto.” said Jawa at the earnings conference on April 24. “There is some erosion but only slight.” he added.
Tiwari added that prices of top three commodities for the company, crude oil, palm oil, and tea are in the range-bound position and benign currently and will not affect volume growth in the coming quarters.
Rising A&P spends
More of the company’s advertising spends are currently focused on digital media, said Jawa. HUL is focusing more on targeted digital advertising like social media and influencer media. He also said spends on traditional media advertising like television is reducing while digital advertising spends are increasing as a proportion of total Advertising & Promotion (A&P) spends.
A&P spends for HUL increased by 200 basis points YoY during the January-to-March quarter. The increase in A&P spends was led by a 60 percent increase in digital spends said the company said in its investor presentation.
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