HUL CEO had hoped for a V-shaped economic recovery from COVID-19 crisis ⁠— but investors fear a lot worse

BCCL

  • Sanjiv Mehta, CEO of Hindustan Unilever is hoping that the country’s economic growth will rebound with a ‘V-shaped’ recovery.
  • “Economists generally sketch the recovery in three broad scenarios — V, U or an L. In the V shape, the output is displaced, but the growth eventually rebounds,” he explained.
  • The shares of India’s largest fast-moving consumer goods major have slumped by 16% since April 8.
  • The shutting down of factories and closed borders have disrupted global supply chains, affecting the overall revenue of companies in India.
Sanjiv Mehta, CEO of Hindustan Unilever, India’s largest consumer staples company, is hoping that the country’s economic growth will rebound sharply as the COVID-19 crisis abates i.e. a ‘V-shaped’ recovery.

However, the share price chart looks a lot different. The shares of India’s largest fast-moving consumer goods major slumped by 16% in the last month — since April 8. A lot of it has to do with a 7% decline in sales volume between Jan-March 2020 and that came as a shocker for investors.


Advertisement

A few days before the earnings, in a webinar with edtech startup upGrad, Mehta cited the heuristic data from the previous pandemics, including SARS in China, Hong Kong Flu, Asian flu and Spanish Flu were more like V shape. “It doesn’t happen in an L-shaped recession but it is more like a V.”

However, when the numbers came out, he projected “some adverse impact on discretionary categories and out of home channels.”.

India only shut down its economy on March 25; shops were open for nearly the entire quarter except for the last week. Even after that, people were hoarding, panic buying essentials every few days as the lockdown continued to extend, and is now scheduled to end on May 17.

Advertisement

If one week's lockdown could cause a 7% fall in volume growth, investors fear about what six weeks can do. Investors in HUL lost over $3.5 billion the stock slumped over 5% on May 4 and 5.

See also:
When Warren Buffett feels 'fear', global markets quake

SBI, India's largest bank, is only worth a third of HDFC Bank — and the COVID-19 lockdown is making it bleed even more
Advertisement

{{}}