Cautiously optimistic on the demand recovery riding on the larger demand from rural areas, Hindustan Unilever’s (HUL) Chairman and Managing Director Sanjiv Mehta believes that "worst is behind us".
In a media concall post Q2 results, Mehta said from a long-term perspective per capita consumption in rural areas is half than that of urban areas, hence, rural will continue to grow at a rate faster than urban.
In line with last three quarters, HUL in the second quarter of FY21 witnessed rural demand ahead of urban.
Giving a rationale behind rural outpacing urban, Mehta said rural has done well especially because of migration of lot of people from metropolitan cities to the rural areas and government incentives.
The migrant labour population employed in metropolitan areas belonging to states such as Uttar Pradesh, Madhya Pradesh, Rajasthan, Bihar, Jharkhand, and West Bengal were worst affected due to the lockdown as they were left stranded and insecure with very meagre savings, forcing them to go back to their home towns.
Generally, rural India contributes 40 percent of overall FMCG spends and has historically been growing around 3 to 5 percentage points faster on account of increasing affordability, availability, and demand.
On the rationale behind growth in rural demand, Mehta said, “In urban areas people are gravitating towards large packs and making infrequent trips and in rural it’s the reverse. In rural areas, people are buying small packs and making frequent trips to the store,” Mehta said.
The FMCG major reported a profit of Rs 2,009 crore in the quarter ended September 2020, rising 8.7 percent compared to Rs 1,848 crore in the same period last year.
Revenue from operations increased 16.1 percent to Rs 11,442 crore in Q2FY21 compared to Rs 9,852 crore in the corresponding period last fiscal.
Underlying domestic consumer business sales (excluding the impact of business combinations) grew by 3 percent in the September quarter, the company said in its BSE filing.
Most in demand products
To a Moneycontrol query on which were the most sold products in the second quarter, Mehta said, “Foods & Refreshment excluding what we have acquired from GSK, which includes products like tea, Knorr soups, ketchups all that combine put together have done well."
HUL sells soups under the brand Knorr, Ketchups under Kissan, and Tea under the brand Red Label, Brooke Bond, and Taj Mahal.
Foods and Refreshment segment registered a 83 percent y-o-y growth in revenue at Rs 3,379 crore with its EBIT rising 90 percent and margin expanding 60 bps y-o-y.
Beauty and personal care division reported a 0.2 percent y-o-y decline in revenue at Rs 4,535 crore, but its EBIT increased 1 percent with margin expansion of 40 bps y-o-y.
HUL showed a 1.6 percent y-o-y decline in Home Care segment revenue at Rs 3,318 crore, but EBIT increased 13.9 percent and margin rose 280 bps compared to the year-ago period.
The company's earnings before interest, tax, depreciation, and amortisation (EBITDA) for the quarter at Rs 2,869 crore grew by 17 percent y-o-y and margin improved by 30 bps compared to the September quarter 2019.
Mehta pointed out that sales growth of out-of-home consumption products, such as ice creams, water, and food solutions fell 25 percent.
Discretionary products, which include skin care, colour, cosmetics, and deodorants, also saw sales growth dropping 25 percent in Q2.
Mehta believes that currently people are confined in their homes, once people start stepping out, the discretionary category would start performing.