HUL and some other FMCG firms weather slowdown

While HUL posts 6% volume growth, Dabur and Asian Paints bucked slowdown trend with 8.3% and 11-12% growth respectively in Q1

Hindustan Unilever (HUL), India’s largest fast-moving consumer goods company (FMCG), beat Street estimates on key parameters in the first quarter of the current financial year. HUL’s net profit for the three months ended June 30, 2014 was up 3.4 per cent, while volume growth was six per cent, higher than the three per cent growth reported in the March 2014 quarter . A year ago, volume growth posted by HUL was four per cent.

Interestingly, the company’s six per cent volume growth comes at a time the Rs 2.5-lakh crore FMCG market continues to slow. As P B Balaji, chief financial officer, HUL, put it: “Both in value and volume terms, there has been further slowdown in the overall (FMCG) market. Premium and discretionary categories are still soft.”

Specifically, overall FMCG value and volume growth is down to four per cent and two per cent in the June quarter. In the March 2014 quarter, overall FMCG value growth was six per cent, while volume growth was nil. A year ago, FMCG value growth was 15-16 per cent and volume growth was six to seven per cent.

Clearly, Balaji is not wrong when he says the overall market has slipped. Yet, HUL was not the only company to report better numbers for the June quarter. Dabur as well as Asian Paints bucked the slowdown trend with an 8.3 per cent and 11 per cent volume growth, respectively, for the first quarter.

In contrast, Colgate and Godrej Consumer saw volume growth take a hit in the June quarter. Colgate’s overall volume growth was five to six per cent, lower than the 9-10 per cent it has been reporting for the past few quarters. More importantly, toothpaste volume growth declined to levels of four per cent in the June quarter from roughly seven per cent to 11 per cent that it has seen in the past few quarters.

Godrej Consumer, on the other hand, saw its domestic business, contributing to 52 per cent of its revenues, report a three per cent volume growth thanks to a persistent slowdown in home and personal care, according to the company’s managing director Vivek Gambhir.

Tata Global, meanwhile, reported a five per cent growth in top line, while net profit declined 13 per cent. So what are HUL, Dabur, and Asian Paints doing to sustain sales momentum at a time when peers are clearly finding it tough to do so?

HUL has begun pruning under-performing stock-keeping units across categories and price points in a bid to stay fit. Sanjiv Mehta, HUL’s managing director, said the company had pruned 20-25 per cent of its portfolio in the past few months and could continue doing so in its endeavour to drive higher sales throughput. Dabur chief executive officer Sunil Duggal said the company would continue to manage its business dynamically through a combination of calibrated price increases, pushing growth in key categories and a greater focus on cost efficiencies. Asian Paints, meanwhile, is expected to step up its marketing and distribution push as the festive season nears.

Are the laggards far behind?

Gambhir of Godrej Consumer said the company would continue to drive innovative products across mass and premium segments as more than 35 per cent of incremental growth in the past few months came from these products alone. Colgate is expected to protect market share with new oral care products every few months as competition from rivals such as HUL, Dabur, Procter & Gamble, and GlaxoSmithKline Consumer grows.