Demonetisation to hit HUL's near-term performance

Hindustan Unilever (HUL), India’s largest consumer goods company, said on Monday its near-term performance was under pressure due to the government’s decision to demonetise high-value currency notes. It, however, did not give any figures. Analysts say HUL’s third-quarter volume growth will be muted because of demonetisation.

“Consumers have been impacted by lower cash in hand,” HUL said in its presentation on Monday. “They are cautious with their spend and will initially stick to basic necessities. There is trade down-stocking due to a liquidity squeeze and wholesale has been impacted the most. Logistics has been particularly impacted in long-distance routes and media heat is likely to be lower,” it noted.

HUL, the Indian unit of Unilever, also said that the market growth of fast-moving consumer goods (FMCG) in the country would be adversely impacted for a few months owing to demonetisation.

“The speed of recovery will be dependent on liquidity build-up across the chain. However, gradual improvement is expected led by urban.”

In a report last week, market research agency Nielsen had said that categories such as biscuits, salty snacks, toilet soap, shampoo, washing powder and skin creams were reporting a sharp decline in sales due to demonetisation. Almost 62 per cent of dealers contacted by Nielsen reported a dip in business, the agency said, with the trade extending credit to consumers in urban and rural areas, though it was sharper in the hinterlands.

Specifically, HUL said the central and northern parts of India were affected the most by demonetisation, while the impact in the south was lower due to greater banking density.

Modern trade, which constitutes 8-10 per cent of overall FMCG sales in the country, was least impacted by demonetisation. As much as 92 per cent of sales in India’s Rs 3.2 lakh crore FMCG market continues to come from traditional trade, which depends mainly on cash transactions.

Although demonetisation has compelled wholesalers and retailers to look at digital payments closely, adoption remains poor, said Nielsen. Less than one per cent of the 3,200 traditional trade stores that Nielsen contacted in the weeks following demonetisation had card machines, digital wallets or coupons, indicating sales would continue to be muted for some time.