The big boss of India's largest consumer company is worried about stagflation and unprecedented inflation
Hindustan Unilever( HUL) is India’s largest and oldest FMCG brand, with a history prior to the country’s independence.
- In its latest earnings, HUL reported a growth of 10% in sales that was almost entirely driven by price increases and not volumes.
Sanjiv Mehtaoutlined several important aspects in the company’s earnings call – for the Indian economy, the risk of stagflation and more.
AdvertisementHindustan Unilever’s chief Sanjiv Mehta has spent 30 years at the fast-moving consumer goods (FMCG) giant and he’s worried – he said has not seen inflation of this kind before and has a warning for the government.
The maker of
At the company’s March 2022 quarter earnings call, HUL’s chief executive officer and managing director Sanjiv Mehta cautioned the Indian government about the risk of stagflation staring at the Indian economy.
What HUL chief Sanjiv Mehta said on the state of the Indian economy and what needs to be done
1. Tackling inflation, preventing stagflation and front-loading ₹7.5 lakh crore capex
“Inflation is certainly having an impact on consumption, and we must ensure that we do not get entrapped by stagflation. It would be a tightrope walk for the
This is especially important at a time when wholesale inflation has run away to near the same level as it was during the 1991 economic crisis.
Stagflation is a phenomenon in which the inflation is high, economic growth is slow and unemployment is relatively high. Essentially, costs are running high on the one hand and incomes are either stagnating or growing at a slow pace.
“The ₹7.5 lakh crore which the government had earmarked in the budget for the capital expenditure, they should front-load it as much as possible so that it gives impetus to the economy during these tough times,” Mehta further added.
In an interview with Moneycontrol, Mehta said he has “never seen this kind of inflation” – what with prices of edible oils to automobiles and everything else in between going up, the consumer with lesser disposable incomes have to ration their supplies within the limits of their incomes.
This has also reflected in HUL’s earnings – the company posted a 10% increase in sales almost entirely driven by price increases and not volumes. This is still better than the overall FMCG sector which saw an 8% decline in volumes.
2. Indonesia’s palm oil export ban won’t be an issue for India
Indonesia’s palm oil export ban has made a lot of people uneasy, more so in India where edible oil prices have seen a huge runoff in the backdrop of the Russia-Ukraine war.
However, Mehta believes the Indonesia ban is not going to impact India, since the palm oil we use has not been banned. While the price rise is a different matter, Mehta says the availability will not be an issue, at least as of now.
3. People are putting off discretionary spending
One of the major downsides of inflation across the board is that people with lower disposable incomes start reducing discretionary spending. While it was expected that the demand for discretionary items would fall during Covid lockdowns, Mehta says the demand for these items will be under stress for a “few more quarters”.
4. On the learnings from the COVID-19 pandemic
Mehta outlined several learnings from the global pandemic – this includes agility, focus, adaptability to changing situations, and building resilience in the value chain.
For a giant like HUL, some of these things, especially agility, might be a little difficult to achieve, but the company is likely in a better position to build resilience of a few months into its capacities, than its smaller competitors.
5. HUL looking at acquisitions
The downtrend in the economy also throws up new avenues of acquisitions for industry leaders, and that is no different for HUL. Mehta revealed that HUL is also looking at ways to achieve inorganic growth – that is, acquisitions.
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