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Hind Unilever Q1 net jump points to smooth GST rollout

Firm says unlike note ban, everything from footfalls to off-take remained normal

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Hindustan Unilever Ltd (HUL), the barometer of India's consumer demand, on Tuesday delivered a profitable growth in April-June quarter despite volatile market conditions in the run-up to the implementation of Goods and Services Tax (GST).

Net profit rose 9.4% to Rs 1,280 crore in the three months ended June, the company said. Earnings exceeded the highest estimate of Rs 1,250 crore and the mean of 12 analyst estimates of Rs 1,190 crore. Sales rose 4.8% to Rs 9340 crore, also surpassing expectations.

While domestic consumer business witnessed a 6% growth, the underlying volume growth remained flat.

P B Balaji, chief financial officer, HUL, said unlike demonetization (where consumer demand was impacted) everything from footfalls to off-take remained normal in GST rollout and nothing untoward happened.

"However, we need to be cautious as the trade pipelines are very thin and if these do not get replenished it's likely that off-take may be lost owing to out-of-stock situation in the market. Restoring this trade pipeline is our priority now," he said.

In the run up to GST, it said, sentiments were cautious and even high promotional intensity wasn't able to change it.

In terms of overall impact of GST on HUL's business, Sanjiv Mehta, CEO and managing director, HUL, said the trade pipelines had shrunk to the GST run-up.

"Certain big customers also did not buy for a couple of weeks (post-GST). So this did impact topline a bit and had the consequential impact to the bottomline," he said, without sharing any numbers.

On trade side challenges, HUL said that sections of the trade particularly wholesalers and small retailers were still unclear about the rules.

"They are still going by some of the wrong advice coming from their advisors, which is delaying the return to normalcy otherwise we could have moved much faster compared to where we are today," said Balaji.

On its part, HUL is stepping up communication to the trade as well as their advisors to be able to clearly focus on the "work that needs to be done rather than having conversations".

"We have a task on hand as an industry body as well as an association to take the trade along and also help them understand the challenges. They have some very basic doubts like, can I sell to an unregistered dealer? Of course, they can, as long as the dealer's turnover is below Rs 20 lakh.

"One of our important trade partners, CSDs (canteen store departments) haven't bought for almost 45 days now and have just started buying 2-3 days ago. We will work very closely with them to ensure they come up to speed, their trucks are prioritised etc," said Balaji, adding that CSDs contribute roughly 2% to the company's overall volume growth.

On the pricing front post-GST, the company said it will pass on the net benefits witnessed at the company level as input tax credits are available at the company level and not stock keeping unit (SKU) level. According to Balaji, there are four categories – detergent bars, skin cleansing, tooth paste and hair oil – wherein tax rates have gone down. However, categories like detergent powder, hair care, skin creams, colour cosmetics and instant coffee saw the rates go up.

"Since we have been planning this for a while now, our pricing started landing from day one wherein we had a price decrease (grammage increase by 33%) for Dove, Pears, Lifebuoy etc followed by detergent bars price cuts. Further changes will happen in the normal course of time during the current month," said Balaji, adding a lot of action is happening on the pricing front for now.

As for new developments on the products side, HUL has been methodically building its 'naturals' portfolio and has added new variants across its existing product categories. "We have launched 12 SKUs in the face segment under the 'Citra' brand. We are continuing to build the 'Ayush' master brand and is set to go national within this week with a range of products across skin, body lotion, hand wash, hair care, soaps etc," said Balaji.

...& ANALYSIS

  • While domestic consumer business witnessed a 6% growth, the underlying volume growth remained flat
     
  • But, it said that sections of the trade—wholesalers,  small retailers—were still unclear about the rules
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