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Informist, Wednesday, Oct. 23, 2024

 

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--HUL: Tea, soap categories in FMCG very sensitive to price changes 
--HUL: Growth in e-commerce is higher than traditional trade channel 
--HUL: Packaged food segment has been driving growth for FMCG cos 
--HUL: Changed formulation of soap products to drive growth, be competitive 
--HUL CFO: Have two options for separating ice-cream ops: sell or list 
--CONTEXT: HUL senior mgmt's comments in post-earnings conference call 
--HUL CFO: To decide on future of ice-cream business by end of year 

 

MUMBAI – Hindustan Unilever Ltd. has the option of selling its ice-cream business or listing it separately on the stock exchanges, said Chief Financial Officer Ritesh Tiwari, adding that the company will decide the future of its ice-cream business by the end of the year. The company's board, at a meeting held Wednesday, decided to separate the ice-cream business, following a comprehensive business review and an independent evaluation of the operations. 

 

"Over the course of the next few months, we will see what is the best mode of separation of the business," Tiwari told analysts at a conference call held to discuss Jul-Sept earnings. The ice-cream business accounts for 3% of HUL's turnover, the company said. 

HUL had constituted an independent committee, which considered key aspects such as the fact that parent Unilever Plc. owns the trademarks and the technological know-how, and has recently announced the separation of its ice-cream business, Tiwari said. "Going forward, we would have had to develop local capabilities for this business, which is a high-growth but capital intensive business," he said. 

 

The ice-cream business has limited synergies with other operations, and requires a different operating model, including a cold chain infrastructure, and a distinct trade channel. This portfolio restructuring will enable HUL to sharpen its focus on the core business and also help the ice-cream unit to operate with greater flexibility and focus, the company said.

 

The company refused to share the details of the valuation of its ice-cream business, which houses brands such as Kwality Walls and Magnum, arrived at by the independent assessment. "We will try to maximise value for shareholders," Tiwari said. 

 

HUL's thrust on its core operations comes against the backdrop of muted growth in the fast-moving consumer goods industry in recent years. The industry is seeing stiff competition in all major categories such as home care and foods, not just because of local brands but also due to quick-commerce players. Lower disposable income with Indians due to slowing growth, high inflation and job cuts have worsened consumer demand.

 

The company is focussing on cost-saving initiatives to improve efficiency and also aims to realign its portfolio to chase high-growth opportunities. One other area in which the company is trying to gain advantage over rivalsits  is innovation. 

 

In order to be better insulated from the volatility in commodity prices and to deliver more benefits to consumers, the company has tweaked the formulation for its soap products. The company has reduced the non-soluble component of palm oil in soaps to increase the space in the formulation to add more goodies and more functional, benefit-leading ingredients. This will also make the soap products more superior compared to their peers' as well as improve cost efficiency. 

 

HUL hopes to maintain operating margins at current levels in the near term, at a time when moderating demand for fast-moving consumer goods in urban India is hurting all product categories of the company. During Jul-Sept, the company's earnings before interest, taxes, depreciation and amortisation margin contracted 80 basis points on year to 23.8%, as raw material prices shot up.

 

The company expects a single-digit hike in product prices if commodity prices remain stable. The company has already started taking some calibrated price hikes in certain products. Prices of raw materials such as crude palm oil have already surged in double digits. The categories of tea and soap are quite sensitive to pricing, HUL said. 

 

HUL is also trying to ramp- up volumes from e-commerce and quick-commerce channels, which are growing at a faster pace than traditional channels. For the company, 70% of sales come through general trade channels, 20% from modern trade, 7% from e-commerce and the remaining 3% from others. 

 

The company reported its Jul-Sept earnings after market hours on Wednesday. Its shares ended 1% lower at INR 2,659.30 on the National Stock Exchange.  End

 

Reported by Apoorva Choubey and Aman Aryan 

Edited by Tanima Banerjee

 

 

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