HUL ’s food business segment and rural sector volumes fell during the quarter, and remains cautiously optimistic ahead.ITC ’s Q2 revenues growth was driven by staples, notebooks & pens, personal wash and agarbatti.- Nestle which is working on its out-of-home business and Rurban strategy to increase penetration has a good run ahead, opine analysts.
The company that saw the biggest hit amongst them all is FMCG major Hindustan Unilever. Not only did its profit and revenues grow at 4%, its volumes grew by 2%. Also its rural volumes fell by 1% in the second quarter.
Operating performance gets tougher for HUL
Its foods business saw volumes fall by 7% during the quarter, which has disappointed the street. “To remain relevant and retain consumer confidence HUL may need to provide superior value and invest more in consumer promotions and ad-spends,” said a report by Centrum Broking.
Added to that, in tea and detergent bars segments, smaller players are growing market value significantly. Soaps also saw decline in revenues due to price cuts. Going ahead, it indicated that price-led growth could be negative if commodity prices remain where they are. For the quarter, pricing growth was flat.
The volume recovery might also take longer from hereon considering it expects ‘gradual’ recovery in rural demand.
“HUL experienced a decline in performance of the skin cleansing portfolio due to price cuts. Tea witnessed modest growth, likely due to consumers downgrading their choices within this category,” said a report by Nuvama Institutional Equities.
Rohit Jawa, the MD and CEO of the company said that he is cautiously optimistic. “FMCG demand is likely to continue a gradual recovery with tailwinds from the upcoming festive season, sustained buoyancy of services and government’s thrust on capex,” he added.
*Only segment revenue was taken for ITC which has other businesses
ITC tracks well say analysts
ITC too saw rising competition especially in its key segments like biscuits, snacks, noodles, and popular soaps. Revenues growth was driven by staples, notebooks & pens, personal wash & agarbatti amidst relatively subdued consumer demand environment.
The company which also has presence in frozen foods, fresh dairy and more said that it launched new products in atta, biscuits and more.
“Margin expansion driven by multi-pronged interventions viz. premiumisation, supply chain agility, judicious pricing actions, digital initiatives and strategic cost management,” the company said. Its earnings before interest tax depreciation and amortization (EBIDTA) expanded 150 basis points YoY.
While HUL also saw a healthy margin expansion of 130 basis during the quarter, it was driven by fall in the prices of top 4 commodities. FMCG business tracking well on both growth and margins, said Systematix Institutional Equities.
“FMCG growth was tad softer than desired, which likely had some impact on operating leverage and margin; ITC’s FMCG growth is, however, still better vs most staples peers barring Nestle, Tata Consumer. Profit progression remained strong, though we reckon that there were some offset from the step-up in marketing investments,” said a report by J M Financial.
Nestle grows as expected
The maker of Maggi and Nescafe, which is working to deliver its ‘Rurban’ strategy and improve penetration in small towns and large villages – saw little of the disruption seen by its competitors.
It has reported strong growth across all its segments — prepared dishes and cooking aids, milk products, confectionery as well as beverages. While other FMCG companies are worried about demand troubles from uneven rainfall, the company’s only worry seems to be its effect on commodity prices.
“Uneven rain and rain deficit is expected to impact production of maize, sugar, oilseeds and spices that may have an adverse impact on pricing,” Nestle said in its outlook ahead.
Analysts have said that there is little change in estimates due to the Q2 earnings report. The company’s focus on expanding out-of-home consumption and reaching rural markets, driving sustained double-digit earnings growth, said a report by Motilal Oswal.
“Nestle has a strong position in the domestic food market with an innovative product portfolio. It is well-positioned to capitalize on the vast opportunities in India's packaged foods segment, ensuring promising long-term revenue and earnings prospects,” said the brokerage report added.