The rural economy is in slowdown mode and reversing it would require putting more cash in the hands of the consumer, Hindustan Unilever Ltd (HUL) chairman and managing director Sanjiv Mehta told reporters in a post-earnings virtual call on Thursday.
“Clearly, we are now seeing a slowdown happening in rural areas from a volume and value perspective,” Mehta said. Hindustan Unilever reported a 2 percent year-on-year growth in volumes for the quarter ended December, which was lower than the 4 percent growth seen in the previous quarter.
Analysts had highlighted that fast-moving consumer goods (FMCG) companies will face a slowdown in rural demand in the December quarter due to the impact of high inflation on consumer wallets, delays in Kharif crop harvesting caused by unseasonal rains, and the impact of the second wave of the COVID-19 pandemic.
“I would believe that the steps that government took in the last two years (to support the rural economy), many of those steps will have to continue,” Mehta said when asked what could help provide relief to the rural economy.
The HUL chief suggested that the government should not only continue the current outlay on the Mahatma Gandhi National Rural Employment Guarantee Scheme, which provides guaranteed 100 days of employment in rural areas but perhaps look at increasing it.
“At the end of the day, a large section of the population lives in rural areas and many of the FMCG products are basic necessities,” Mehta said.
The government will announce its Union Budget for 2022-23 on February 1.
Even though the company highlighted the slowdown in the rural economy, it managed to gain market share from its rivals during the quarter. “Growth is extremely competitive with market share gains being highest in more than a decade,” Abneesh Roy of Edelweiss Securities said in a note.
On the ongoing inflation in commodities, the soap-to-shampoo maker warned that raw material costs will firm up further in the March quarter but it expects to maintain its operating margins in a healthy range. HUL reported a 100-basis-point on-year expansion in operating margin to 25.4 percent in the reported quarter despite inflationary headwinds as it was aided by price hikes taken across products.
“Our first port of call is to drive very hard savings and then to take calibrated price hikes,” Ritesh Tiwari, chief financial officer at HUL said during the call, suggesting that the company could undertake more price hikes in the current quarter.
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