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FMCG & Retail wrap: HUL, ITC report strong Q1 numbers; retail continues to suffer

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Retail sales witnessed a decline of 50 percent in June 2021 in comparison to pre-pandemic levels of June 2019.

FMCG & Retail wrap: HUL, ITC report strong Q1 numbers; retail continues to suffer
Fast Moving Consumer Goods majors Hindustan Unilever and ITC reported a healthy set of numbers for the April-June quarter despite a strong base. The companies have attributed this to a lesser impact of the second wave of and a resilient rural demand despite the pandemic.
HUL, which clocked a 9 percent volume growth and a domestic consumer growth of 12 percent, the FMCG demand was significantly impacted in May. But rebounded in June to March 2021 levels led by rural demand and rural markets are now recovering ahead of urban.
HUL’s management said that all of its key brands grew in the high double digits despite a strong base, especially led by its premium portfolio, with health, hygiene, and nutrition which makes up 85 percent of HUL's business growing at 8 percent.
Another FMCG giant ITC said while localised lockdowns and mobility restrictions impacted the recovery momentum, the situation is improving with the progressive easing of restrictions and increased mobility from mid-June. The company’s revenue from operations was up 36.4 percent year-on-year to Rs 12,959.15 crore, while the profit jumped to Rs 3,013.5 crore.
While HUL said that the second wave didn’t see signs of stocking up like the same quarter last year, ITC said that the second wave triggered an uptick in demand in staples and convenience foods, albeit the stocking up was far less pronounced compared to the lockdown phase last year.
However, both companies flagged inflation concerns, which led to some price hikes during the quarter. HUL’s CFO Ritesh Tiwari said the company continued to see unprecedented inflation in key input materials with some commodity prices being at 20-year highs, due to which the company took calibrated price increases during the quarter in its tea, skin cleansing and laundry products, while also putting in place cost-saving measures.
ITC, too, said there is a sharp escalation in input costs, but was mitigated through judicious pricing and cost-saving actions.
Even as restrictions have eased across the country, HUL and ITC have sounded caution over the possibility of the third wave. While HUL’s CMD Sanjiv Mehta said the company continues to remain cautiously optimistic, ITC, too, has said that it is closely monitoring the situation.
The week also saw the Amazon Vs Future Retail case being heard in the Supreme Court where Amazon argued that the Singapore Emergency Arbitrator (EA) award that barred the Future-Reliance Retail deal is 'valid' and enforceable.
On Thursday, Amazon also argued in the court that Biyanis of the Future Group had negotiated with Amazon to enter into certain agreements and hence are bound by EA award. The matter will be heard again in the Supreme Court on July 27.
Meanwhile, Reuters reported that the Competition Commission of India has accused Amazon.com Inc of concealing facts and making false submissions when it sought approval for a 2019 investment in a Future Group unit and has written to Amazon asking why it shouldn't take action against the company for providing false information.
Amazon has contended that the deal will cause irreparable damage to the company. Future Retail has maintained that if the deal didn't go through, there would be a massive impact on the company, its employees and vendors. This comes in the wake of the retail industry seeing a massive impact over the past year due to store closures amid the COVID pandemic.
In fact, data from a business survey by the Retailers Association of India (RAI) showed that despite unlock in most parts of the country, retail sales continue to suffer in India with retail sales seeing a decline of 50 percent in June 2021 in comparison to pre-pandemic levels of June 2019.
While this decline is still an improvement over retail sales in May 2021, which was down 79 percent, Kumar Rajagopalan, CEO of RAI, said that retail businesses continue to be stressed and are finding it difficult to sustain due to restricted timing of operations and weekend closures. Some states like Maharashtra continue to impose stricter curbs with malls and theatres still being shut in the state and restaurants and non-essential stores having to remain shut on weekends.
The retail industry also saw Arvind Fashion divesting assets of its 'Unlimited' business to V-Mart Retail in an all-cash deal for Rs 150 crore as part of its strategy to focus on growing its high-conviction brands like Arrow, Tommy Hilfiger, Sephora, US Polo Assn, among others.
At a time when the retail industry still stands impacted due to COVID-related curbs, the company’s CEO Shailesh Chaturvedi said that exiting the Unlimited business will also help them focus on the core brands for better profitability.