HUL Q3 Results: Profit up 1%, subdued rural demand hurts revenue growth.
CEO Rohit Jawa And CFO Ritesh Tiwari in conversation with Sesa Sen.
Read: https://bit.ly/3U1AGMM
CEO Rohit Jawa And CFO Ritesh Tiwari in conversation with Sesa Sen.
Read: https://bit.ly/3U1AGMM
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TVTranscript
00:00 Now, some of the material inflation, I do understand that there has been inflation and you did mention about that.
00:05 But given that food and refreshment is a category and that in a festive quarter, we have seen a low single digit volume growth.
00:11 Would you quantify what is the material inflation that we have seen in Q3?
00:16 And also, is it some kind of a structural slowdown that we are seeing?
00:20 So on inflation, within foods and commodities, what really impacted us was a fresh milk,
00:27 which impacts the impact on Horlicks, both skim milk powder over a long period and fresh milk,
00:32 because when you consume a cup of Horlicks, apart from putting Horlicks, you also put a cup of milk into it.
00:37 Within food commodities, coffee and sugar have seen inflation.
00:41 In fact, coffee, when you look at last two years, cumulatively is a 70 percent inflation.
00:45 And which is why, as we have taken price increases, not to the peak of inflation,
00:49 but we have taken price increases to respond to this high inflation.
00:53 We have seen growth in terms of business.
00:55 So a coffee business grows in double digit, but it has led to impacting of volumes and volumes have declined.
01:01 Similar has been the impact on HFD as well, where we have seen growth, but volumes have declined.
01:07 That is the overall impact of commodity, which I spoke about in terms of F&R business for us.
01:13 Now, skim milk powder has started to moderate compared to where it was.
01:17 And now we see, in fact, small decrease.
01:20 Tea commodity overall, we had spoken earlier, has moderated for the last two years.
01:24 In fact, we've seen deflation in tea commodity, but there the market is downgrading to a planer teas, to the loose teas.
01:32 So there's a mix of commodity inflation and downgradation, which has impacted.
01:36 Now, as we move forward, the point I was making earlier, inflation has moderated in food commodity as well now.
01:42 And hence, going forward, if at all this situation continues of commodity, this moderation will help volume recovery.
01:48 The way we have seen it, three quarters of the business, home care and beauty and personal care,
01:53 that we are now seeing in our business, mid single digit volume recovery,
01:56 because there's a meaningful correction, which happened in commodity cost.
02:00 That has helped us to take prices down.
02:01 And we have seen volume recovery that should also happen in times to come for the food and refreshment business as well.
02:07 Right. So how many more months before we can see material uptake and volumes?
02:12 Is there a projection that you would like to put out?
02:16 No, I mentioned that overall, apart from commodity impact, the point that Rohit and me mentioned earlier,
02:21 the pace of recovery will depend upon rural income growth.
02:25 It will depend upon how the yields from the winter crop comes out.
02:29 Those are factors which will end up determining the pace of recovery.
02:32 But we know that the point Rohit was mentioning earlier, the premium portfolio, the investments that we are leaning in,
02:37 the increased government spending, the better recovery which has happened with the winter crop swing.
02:42 There are those factors which should help overall environment, operating environment to keep you growing.
02:47 Right. While you did speak about the macro part of it, but I would also like to know,
02:51 there are a lot of issues with the general trade, right?
02:55 There has been a slowdown in the general trade and you did take a lot of action in terms of revising your margin structure.
03:02 So can you tell us that? How is it going?
03:05 What kind of initiative you are taking to improve your general trade business?
03:10 So let me take that question specifically on general trade.
03:14 Let's first start by saying that the general trade or traditional trade or distributed trade,
03:18 as we call it, is a very, very important part of our business.
03:22 We've had long standing strengths in that business.
03:25 It's under 70 percent of our sales and we consider it extremely important.
03:30 We've been investing in our general trade capability for many, many years.
03:34 We have investment technology capability processes.
03:38 We have a distributive inclusive model and a distributive progressive model.
03:43 And we have always been working on making sure our distribution system and our distributors are contemporary in our future fit,
03:50 because we believe this is absolutely an important core of how the Sun Unilever operates.
03:55 It's a competitive mode. As a consequence of that, we have been wanting to, in 30 larger cities,
04:02 have a system that incentivizes for higher earning distributors to sell to more stores,
04:08 deliver the next day, make sure that they sell market development assortment,
04:13 things that consumers are not willing to buy and make sure they don't get compromised in the in the selling systems.
04:18 And all of this was wrapped up in this very progressive future ready model that was tested for almost an entire year.
04:24 And then given the fact that we found a very favorable response,
04:28 we also know that distributors actually increased the level of earnings.
04:32 We then extended that to the top 100 cities where it's been three months in operation.
04:38 We have we have good science. It's just a very positive win win for our distributors.
04:45 It's a very positive win win for our customers, the Kirana merchants who are a bedrock of our economy.
04:50 And it's also very important win win for the company because this way we get more growth.
04:55 So all in all, I feel it's the right thing to do and it should be virtuous and healthy for all people concerned in this particular value.
05:02 So that's really my comment on the margin structure, if it helps clarify where we are coming from.
05:09 Thank you.
05:10 Thank you.
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