Some analysts recently have taken a sell call on Hindustan Unilever (
HUL) on the back of inflation worries, according to media reports. Should, therefore, one start worrying about the fast moving consumer goods, or
FMCG, category in general?
Not really, feels Anand Mour, Vice President, Research (Consumer), India Bulls Securities. "In fact, this quarter has shown the highest growth (compared to the last five quarters) in terms of price realisation by many companies - especially HUL," he says.
Many market observers have already discounted inflationary conditions. The fact that most players have resorted to price increases in categories such as soaps and detergents, surface cleaning, personal care and hygiene, among others, means better realisation even though the volume of growth remains the same or is even marginally lower in some cases.
READ: How the top brass turned around HUL fortunes In situations where players have been unable to tweak the price, they have gone in for volume cuts. "Like most players in the category, we have had to maintain the price, but to fight inflation we are now introducing many innovative packs that allow us offer the product at higher price-points,'' says Sameer Suneja, Managing Director, Perfetti Van Melle India.
But some analysts think that FMCG as a category is really fighting the odds: "My only worry is rainfall. If that turns out to be truant, then there is worry," says Mour. Even companies such as PepsiCo India have discounted inflation and are working to make their operations more efficient.
Interview with ITC chief YC Deveshwar "There are situations where volume tweaks are not possible. Our first priority is to make our operations more efficient and then, if push comes to shove, we will have to consider a price increase," says Kimsuka Narsimhan, Chief Financial Officer, PepsiCo India.
The reason why some analysts are leaning towards downgrading the HUL stock is because its growth has already been discounted by the market - it is trading at a P/E multiple of over 25 times.
Mour, who was one of the first analysts to have nominated the HUL stock on growth/buy rating, back in 2008, has today put it on a 'neutral' rating to indicate a hold position. "I see no reason for panic at the moment. And the category as a whole will witness growth due to rising aspirations. I do not see this as defensive, but a growth sector,'' he adds.
Clearly, companies with diversified portfolios such as ITC, Godrej Consumer, Dabur, Marico and Emami, are being viewed with more optimism.
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