The worst seems to be over for the fast-moving consumer goods (FMCG) companies from the regulatory perspective, but the industry still faces challenges with regards to macro-economic factors and consumer confidence.
That's the word coming in from Sanjiv Mehta, chairman and managing director of Hindustan Unilever Ltd (HUL).
"The worst is behind for us with respect to disruptions on the regulatory front," Mehta told CNBC-TV18, but added that the consumer-driven industry faces macro-economic challenges.
Nearly 65 percent of India's population lives in villages and small towns, and this demographic forms the biggest market for the country's consumer companies. The macroeconomic indicators have been sluggish as rural wages are still growing at a slow pace and farmers are still distressed about crop prices.
But India’s largest household goods company reported
a 10 percent volume growth in the three months ended December 31, indicating stable consumer demand.
"Focus on the long-term has helped the business. We have had double digit volume growth in the last five quarters," Mehta said.
While demand is expected to be stable in the near term, the company said that it is watchful of the macro economic environment going forward.
Union Budget And The Elections
Two major macro economic events — the Union budget and the general elections will be closely watched by the FMCG industry.
"The FMCG industry faces challenges with respect to macro-economic factors as well as consumer confidence. A stable government and optimism will help consumer confidence go up," said Mehta.
Sops for farmers, higher rural allocation announced during the budget are some of the things that have an impact on overall rural spending.Rural growth for HUL is 1.3 times that of urban growth at present. However, Mehta believes that rural should be growing at a much faster pace than 1.3x.
"Consistency of policy and real reforms will help unlock the potential of rural India. Can’t predict demand in rural areas in the next two quarters.. it depends on quantum of money and who it reaches," said Mehta.
The other key challenge that the FMCG industry faces is volatility in currency and input costs (crude). Will this have an impact on product pricing?
"There is no correspondence between input price and the final product price. We take judicious price increases and try to protect price point packs. We play the portfolio game to ensure price-value equation is intact," said Mehta.
HUL And GSK Consumer
HUL is currently focused on integration with GSK Consumer Healthcare, which the former acquired in an all-stock offer to bring home iconic brands such as Horlicks and Boost.
The company is in the process of seeking approvals from stock exchanges and the Competition Commission of India. The management said it would apportion costs of the acquisition over the next couple of quarters.
"The deal is like a marriage made in heaven, strategic and transformative. The first focus is on getting regulatory and statutory approvals. We expect that deal should be consummated before end of 2019," said Mehta.
Along with the Foods and Refreshments, another category that continues to be a huge focus for HUL is the highly competitive 'naturals' space.
"We are not worried about competitive intensity. We have invested a lot in the naturals portfolio. The entire Naturals portfolio has been growing at 2-2.5x the average rate of growth of the company.Naturals will continue to be a secular trend, will keep strengthening our position," he said.
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