HUL Says Near-Term Performance Under Pressure Due To Demonetisation

Hindustan Unilever Ltd. has warned that its near-term performance is under pressure due to demonetisation and added that market growth would be adversely impacted for a few months.

Consumers are cautious with their spending and are buying only necessities due to the cash crunch, the fast-moving consumer goods major said in a statement to the stock exchanges. Traders meanwhile are down-stocking due to the liquidity squeeze, HUL added. The wholesale channel is the worst impacted, according to the company.

The company’s logistics, particularly on long-distance routes, have also been negatively impacted due to the government’s decision to ban the old Rs 500 and Rs 1,000 notes. HUL’s media spends are also likely to be lower.

The Indian arm of the Anglo-Dutch major expects a gradual improvement in demand, led by urban markets. The speed of recovery will depend on how soon liquidity returns to normal across the chain.

Central and north India have been the worst affected, said the management, in a conference call with equity research analysts, whereas demand in the the south has already shown some signs of revival.

The government’s decision to allow chemists to accept old Rs 500 currency notes upto December 15 has provided some relief to the FMCG company, who’s otherwise seen a sharp dip in the wholesale channel.

While the management refused to share any financial numbers it did say that demand for essentials such as food items are the least impacted with consumers opting for smaller packs in order to cut down on their cash spending.

Industry Impact

Demonetisation is expected to have a negative impact on fast-moving consumer goods sector in the short-term, global consumer and media insights firm Nielsen said in its November 17 report. Retailers in rural areas have been extending credit to consumers to boost demand, according to Nielsen.

While modern retail has so far been resilient, general trade, which includes wholesalers and smaller stores, has succumbed to the pressure, Nielsen said in another report released on November 24. Impulse categories like biscuits, salty snacks have suffered the most followed by personal care categories like soaps, shampoos, and detergents.