Liquidity crunch, low food inflation contributed to rural slowdown: HUL CMD

Sanjiv Mehta, Chairman and Managing Director, HUL. Photo: Kamlesh Pednekar
Hindustan Unilever (HUL) navigated a challenging March quarter as the sector witnessed a slowdown. In a press conference, Chairman and Managing Director Sanjiv Mehta responded to questions from Viveat Susan Pinto on what lies ahead for the company. Excerpts:

How long do you see the slowdown lasting? Nielsen has given a lower forecast for CY19 versus CY18. What are your thoughts on this?

I see the market bouncing back in the near term. Yes, factors such as a stable government at the Centre and a good monsoon will be key, but I remain optimistic. The market has a seen a reversal after a few quarters of robust growth, but I am not giving up. The new government that comes to power will make an effort to kick-start the economy. This should improve sentiment and demand.


Apart from rural areas, where else is there a slowdown?

In terms of distribution channels, general trade and wholesale have slowed down in the March quarter. However, this is linked to the moderation in rural demand. Rural growth is now in line with urban growth, which wasn’t the case earlier. Rural growth was 1.3 times that of urban growth, a few quarters ago.

But factors such as liquidity crunch and food inflation being on the lower side (which has impacted farm income), have contributed to the slowdown in rural areas. Wages have also not grown significantly, impacting consumer confidence. Having said that, I believe the tide will turn. FMCG growth rates have not vanished. So, there is no panic situation here.


What kind of an impact do you see on your business, with India witnessing an extremely severe cyclonic storm in the east?

There will be an impact, but it is difficult to make an assessment right now. Odisha is a huge market but we will have to wait.
Will price growth return to the market or will you continue to depend on volume growth, which is now slowing?

Price growth happens when there are reasons such as input cost pressures rising, or when you put a compelling proposition in terms of a product in the marketplace. Today, we are happy with where the price-led growth is, and will work on pricing as and when the situation demands.

What explains the 90 bps improvement in operating margins in the Q4? What strategy do you have in place to improve margins?

There is no big differentiator. What we are focusing on is our product mix. We are managing our costs efficiently and looking to drive savings. We will continue to look at 7 per cent of cost savings as an engine for margin improvement and growth.

In fact, the operating margin of 23 per cent (in Q4) is the highest-ever for us. We also delivered margin expansion in 30 out of 31 quarters, which is significant.

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