We’ll hit pre-GST levels by Dec: Sanjiv Mehta

The rollout of goods and services tax (GST) impacted the fast-moving consumer goods (FMCG) industry initially but things are slowly getting back to normalcy. Sanjiv Mehta, chief executive officer and managing director, Hindustan Unilever Ltd (HUL), said that while the trade pipeline did witness turbulence, the consumer off-take was not impacted. He also spoke on various aspects related to the HUL’s business and overall FMCG industry in general. Ashish K Tiwari reports.

When can the overall FMCG industry expect the market scenario to return to normalcy?

If you look at the start and end of the September 2017 quarter, I would believe by end of December there should be a near normalcy. There would be some element of channel reset because modern retail is growing at a much faster pace, which is understandable. The wholesale channel, which is a route to the market as you all know, when that slows down, then there is a very clear impact on retail as well as on modern trade.

You spoke about an expected uptick in rural. Are there any specific indicators?

Right now, with the kind of turbulence that has taken place, it is very difficult to look at granular trends. But what we see is that off-take wasn’t much impacted with GST. There are clear signs in terms of input measures that are going in viz., waiver of farm loans, minimum support price (MSP) if it goes up, monsoon has been good in many districts in the country. All this should start impacting the rural demand. While rural off-take is picking up, we don’t have enough data points at this stage due to turbulence in the pipeline. We will have to wait and see how is the trend really taking shape before we can say confidently that there is an uptick.

The micro, small and medium enterprise (MSME) space has suffered significantly due to GST and jobs have been lost as a lot of those businesses across the country had to shut down. In such a scenario, how is rural off-take really picking up?

That’s the reason we said it’s very difficult to fathom at this stage and come to a conclusive point of view as to what has happened to the consuming off-take. If you look at the turbulence, it has many factors and all packed in the next few quarters. If you look at the December quarter and if you see the volumes go up, I would like you to be circumspect because the same quarter in the previous fiscal had demonetization. So the impacts have been several and we’d really like to wait and see what are the trends emerging.

Any updates you can share on the logistics and warehousing rationalisation aspects as a result of GST rollout? Are you seeing any signs of how this will play out?

First of all, the time taken to transport the goods has come down as trucks don’t have to wait at several check points anymore. But rationalisation of distributions centres, that will play out over the next 12 to 18 months. First, we have to stabilise, ensure all the systems are operating/functioning well, get the blueprint ready and then we will start work on reducing the number of distribution points. Inventory management at the trade and factory level will also need to be re-looked at considering there are cash flow issues already with the trader fraternity. Again, I’d like to say that it’s very difficult to fathom at this stage. What happened is, pre-GST, if you go back a few weeks, there was a lot of push happening. We did not engage in that push to the trade. Then there was this scenario of inventory destocking followed by things coming back to normal levels. But when there is a destocking, they don’t always go back to the old levels. There is often a new norm. So we have to wait and see how much is the change that is happening is because of the pipeline change and how much is due to off-take change. We will have to analyse a couple of more quarters to see the emerging trend lines. As for production at factory-level, our planning cycles have already come down and we have become a far more flexible and agile. That is one of the reasons also why we have been able to navigate the GST change reasonably well.

Input costs, in your view, are starting to inch up all over again. Does that mean you are likely to increase prices going forward?

The net benefit (of output and input tax) of 3-4% has been passed on already to customers. Now we have re-based the GST impact and from hereon it is business as usual and we will run the business more dynamically as we were before. If commodity costs go up, our effort will always be to make sure that we can make some savings in our business to partly off-set it. And if commodity costs come down, we’d like to make sure that we are not uncompetitive in the market and we are passing it on.

How’s the oral care portfolio performing? Is the category still under pressure or has recovered?

In oral care, the market has shifted dramatically to natural care. Close-Up has a very distinct positioning and it’s a fabulous brand. Certainly, looking at our growth rates, there have been gradual improvements in our sales rate and we are very confident that fiscal 2018 will be a much better year for our oral care portfolio. And we are also very committed to the category.