FMCG – HUL SPELLS OUT THE TRAJECTORY

During this entire crisis on Corona, it is the FMCG stocks, along with pharma which have been holding their steed. Buying of essentials included groceries and foodstuff and people have been buying more than needed. Thus the perception is that come what may, these FMCGs are the winners in this pandemic and they will emerge pretty much unscathed.

But Hindustan Unilever Ltd (HUL) put out a short note on Tuesday, spelling out the Covid days and days ahead. In many ways, its an eye opener because it gives us an insight into how these FMCGs will do in the coming months; we can draw inference from this market leader to understand the growth trajectory of the sector.

Listed below are the pointers from HUL, which we feel is a harbinger of things to come for the sector as a whole.

1) HUL’s operations were at a standstill in the immediate days to the lockdown but in April, ramped up capacity utilization to 70% in April and then to 80-90% currently.

2) Almost all factories, warehouses and suppliers across the country are now operational

3) Heightened consumer focus on health, hygiene, and nutritional needs – in big demand are products like handwash, sanitizers, floor cleaners.

4) Lockdown of retail spaces and fear of loss of income, the impact on discretionary categories like hair care, skin care and colour cosmetics is more accentuated

5) Businesses comprising of ice creams and foods solutions and our consumer durables business of water have been most severely impacted by the lockdown

6) B2B sales ordering app Shikar and our hyperlocal ordering platform of Humara Shop have witnessed increased adoption and usage by trade and consumers under the lockdown

7) The future impact on the business operations is difficult to assess at this point, as the situation is unravelling at a fast pace

8) The pandemic has imposed incremental operating costs on the business and there will be some impact on profitability in the short term

9) Reviewing all areas of cash generation, usage and relooking at all costs in the current volatile situation

This is probably what majority of those in the FMCG sector will say today and the stronger ones, all of them, are placed good enough financially to tide over the Q1.

If the pandemic starts ebbing and we learn to live a new-normal life alongside the virus then we could see improvement from Q2 onwards. But yes, lets all brace for a very stormy and one of the worst Q1 earnings season in the history of India Inc, not just for FMCG but all across the board. Look at it the other way - FMCG coud be one of the better performers in Q1 among the worst....