Coronavirus fallout: HUL 'extremely uncertain' about near-term outlook for FMCG sector

India's largest consumer goods maker Hindustan Unilever Limited (HUL) said on Saturday that the short-term prospects for the FMCG market are "extremely uncertain" due to COVID-19 outbreak. The company added that coronavirus had a "terrible impact" on the sector and the situation continues to be unstable.

Although the present circumstances as "much more uncertain than normal", HUL expressed confidence about its ability to deal with the immediate crisis situation in the wake COVID-19-induced lockdown.

Addressing company shareholders in its FY20 annual report, HUL Chairman and Managing Director Sanjiv Mehta highlighted, "The situation remains volatile with the trajectory of the virus undetermined, evolving hot spot geographies, the success of containment measures uncertain, the severity and duration of resulting economic crisis and the extent of structural damage unknown." He added that the near-term outlook is extremely uncertain since "there are many unknowns today."

Also read: Coronavirus crisis: FMCG sector clocks lowest growth in eastern region during Jan-Mar

Though the coronavirus and containment efforts have resulted in supply and demand disruptions, leading to a sharper growth deceleration, HUL is confident about medium to long-term growth prospects for the sector.

"Despite the near-term ambiguity, we remain confident of the medium to long-term growth prospects of the FMCG sector," HUL said, adding that its strong portfolio of trusted brands and capable teams is built to survive times like these.

According to the company, despite being one of the fastest-growing markets globally for FMCG products, the per capita FMCG consumption in India is still amongst the lowest in the world, giving the industry a long runway for growth.

"The complexity and volatility continue to rise. In the  last quarter of the financial year 2019-20, we have seen an unprecedented global breakout of the COVID-19 pandemic leading to a humanitarian crisis, lockdown across many countries and a significant economic fallout," it said, adding, "In India, the economic impact of COVID-19 is trickling in on the backdrop of an already challenging macro-economic environment."

Mehta said various containment measures and a nationwide lockdown starting March 25 caused disruptions across the company's value chain.

Also Read: Coronavirus: Is Indian FMCG, retail industry heading towards a supply-chain reinvention?

"We continue to work closely with the government at different levels, prioritise key SKUs, make planning cycles more agile, and create flexible alternatives. This is helping us reboot our supply lines to a large extent," he added.

Mehta said 2019-20 witnessed a challenging business environment with lower GDP growth and a slowdown in consumption, which resulted in a weakening consumer sentiment and lower demand for the categories in which HUL operates.

For FY20, HUL's net profit was up 11.48 per cent at Rs 6,756 crore, compared to Rs 6,060 crore in the previous year. Sales stood at Rs 39,136 crore, marginally up 1.44 per cent.

HUL, which owns popular brands like Lux, Lifebuoy, Surf Excel, Rin, Ponds, Vaseline, Lakme, Dove, and Brooke Bond, added that the pandemic has also impacted consumer behaviour and demand patterns.

"Health and hygiene essentials have seen an upswing with household stocking and increased awareness. Consumption trends in other essentials such as fabric solutions, coffee, and oral care are fairly neutral," Mehta said.

"We are enhancing the capacities of home and hygiene products, which are extremely critical for our consumers in these times," he added. HUL is also "re-purposing" its core brands and tailoring communication in light of the current environment.

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"The Out-of-Home channel is closed, resulting in near cessation of consumption in food services, ice creams, and life essentials. The impact on discretionary categories is further accentuated as it comes against the backdrop of slowing market growth," Mehta added. HUL said it is staying close to its consumers to adapt to the "emerging demand patterns in the short term and prepare for any lasting changes in consumer behaviour."

"Many of our categories and brands have moved quickly to re-plan their innovations, adjust to consumers buying in different channels, and re-work brand communication to make sure that it remains consumer-relevant," it said.