Packaged foods put HUL, ITC on divergent paths

HUL reported a growth rate of only 2.4 per cent in packaged foods for the quarter ended on March 31

Consumer goods majors Hindustan Unilever (HUL) and ITC are a study in contrast when their packaged food businesses are taken into account. While HUL’s business in the category has witnessed a sharp year-on-year decline, ITC’s likely to grow in double digits in the same period.

HUL on Wednesday reported a growth rate of only 2.4 per cent in packaged foods for the quarter ended on March 31 — its fourth straight quarter of single-digit growth in the segment. However, the company’s full-year numbers indicate where it actually stands vis-a-vis competition.

ITC is yet to announce its results.

HUL’s packaged food business for 2016-17 (FY17) is pegged at Rs 1,124 crore, a decline of nearly 47 per cent over the year-ago period when it was Rs 2,111 crore. HUL is yet to release its FY17 annual report. In FY15, HUL’s packaged food business, which comprises brands like Kissan and Knorr, stood at Rs  1,910 crore, according to its annual report, implying that growth in FY16 over FY15 was nearly 11 per cent.

When discussing the company’s fourth-quarter and full-year results on Wednesday, HUL’s chief financial officer, P B Balaji, said ketchups and jams represented by brand Kissan had done well though Knorr (in soups) looked “optically low”. “Focus, however, continues to be on market development,” he said. 

Analysts say HUL’s packaged foods presence has been restricted to a few categories only, limiting its  prospects of growth for it. On the other hand, ITC, maker of brands Bingo, Aashirwad and Sunfeast, has felt no such growth pangs, owing largely to its more well-rounded and aggressive approach to foods. 

From Rs 6,411 crore in FY15, ITC’s packaged foods business touched Rs 7,100 crore, estimated to touch Rs 9,000 crore in FY17. From nearly 11 per cent in FY16, growth rate, therefore, in FY17 is expected to be around 27 per cent, according to analysts’ estimates. ITC is yet to declare its fourth quarter and full-year numbers for FY17.

In a conversation with Business Standard last month, ITC’s divisional chief executive, foods business, Hemant Malik said he was committed to contributing in a significant way to the goal of achieving Rs 1 lakh crore in annual turnover by 2030, a road map set by ITC’s chairman Y C Deveshwar.

Company officials say the plan is to take the contribution of foods to two-thirds of the Rs 1 lakh crore turnover in 15 years, implying the business, pegged at an estimated FY17 size of Rs 9,000 crore, will have to grow at a compounded annual growth rate of around 14-15 per cent to reach nearly Rs 67,000 crore in a decade and a half.

Analysts say this is an achievable target as ITC has been investing heavily in the business in the 15 years since it began operations in food. “We’re already the third-largest packaged foods company in India (after Nestle and Britannia) and are well-poised to emerge the largest player in the business in a span of two to three years,” Malik said. 

Besides snacks, branded staples, confectionery, spices and biscuits, ITC has stepped into areas such as dairy, high-end chocolates, juices and gourmet coffee in two years.