Even the European parent of Hindustan Unilever is now worried about slow growth and Patanjali

Quartz india
Quartz india

Hindustan Unilever (HUL), India’s largest consumer goods company, is staring at a slump.

In its third-quarter earnings call on Oct. 13, Unilever Plc, HUL’s British-Dutch mothership, sent out a terse warning: “market conditions have softened in India.” HUL is yet to announce its second-quarter results, but its parent firm’s outlook is bad news.

HUL’s earnings are usually the bellwether for India’s fast moving consumer goods companies, which are set to announce second-quarter results later this month. The company, which owns brands such as Sunsilk, Fair&Lovely, Surf Excel, and Brooke Bond, has been struggling with lower-than-expected growth as two consecutive drought years have suppressed rural demand. Urban consumption isn’t encouraging either.

Here is what the top management said during the earnings call:

On growth

  • “Our market conditions have softened in India…”, the company said. Executives at the company added that rising input costs pushed HUL to hike prices at a time when it is facing stiff competition. “…Volumes in skin cleansing have suffered from price increases to recover rising commodity costs there.”
  • HUL, which gets the bulk of its business from India’s rural market, also reported dull performance in the hinterlands. “Indian markets remain quite subdued and rural remains under pressure… Volume growth is slowing,” company brass said.

On competition

  • Even the European parent of the company is feeling the heat from the rapid rise of Patanjali Ayurved, the Rs5,000-crore consumer goods firm promoted by yoga guru Ramdev. “…In India with Patanjali which everybody is looking forward (to) with a lot of interest and (a) credible brand being created there.” The company also called out to competition from Bengaluru-based Himalaya Herbals in the natural segment.
  • To edge out Patanjali, HUL bought ayurvedic hair oil brand Indulekha for Rs330 crore in Dec. 2015, while also revamping its existing brands. “What we are doing there, incidentally, is launching several brands. We bought Indulekha, which (has) a natural positioning in hair oil. Ayush, which is a brand we’ve had for a long time but (is) very strong in naturals (and ayurveda)… and Fair & Lovely has got an ayurvedic offering in the portfolio now.”

It hasn’t been a great year for HUL so far. For the first quarter (April-June), HUL reported a disappointing set of numbers. Volumes grew by just 4% even as profit rose 9.8% “against the backdrop of a challenging environment where market growth further slowed down in both volume and value terms,” the company said in an earnings call on July 18 (pdf).

Even the top boss took note. Paul Polman, Unilever’s CEO and executive director, expressed concerns over the “terrible rural performance” and pointed to a “mixed micro-environment” in the country. “It is a market that is probably not as buoyant as it was a year ago if we would have had the same discussion,” Polman said during Unilever’s second quarter earnings call in July this year.

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