Hindustan Unilever maintains sales even as drought trims incomes

HUL benefits from faster growth in rural markets, where per capita consumption of its goods, including Lipton tea, Sunsilk shampoo and Sunlight laundry soap, is about a third of urban levels
Singapore: The world’s second largest consumer goods maker, Unilever Plc/NV, said it’s maintained sales at its Indian unit even as the country’s weakest monsoon season in seven years depresses rural incomes.
“If the monsoon season ends with less rain there could be some slowdown in terms of growth,” Harish Manwani, head of Unilever’s emerging markets division and chairman of Hindustan Unilever Ltd (HUL), said in an interview in Singapore on Wednesday.
“Thus far, we’re not seeing the impact,” Manwani added, as the government provides some employment for poor families.
While the monsoon has revived, the dry spell has already cut farm output, eroding incomes and curbing consumption of the 742 million people in villages.
HUL benefits from faster growth in rural markets, where per capita consumption of its goods, including Lipton tea, Sunsilk shampoo and Sunlight laundry soap, is about a third of urban levels.
Less monsoon rains would impact consumption because the rural economy is largely agriculture dominated, said Abhijeet Kundu, an analyst at Mumbai-based Antique Stock Broking Ltd, who recommends buying the shares.
Unilever owns about 52% of HUL, whose shares ended flat at Rs266.95 in Mumbai trading on Thursday. The stock has gained 6.7% this year, making it the worst performer on the Bombay Stock Exchange’s Sensex index, which has surged 60%.
Rains in the monsoon season that began on 1 June had narrowed to 23% below the 50-year average as of 1 August from a high of 54% on 24 June, according to the India Meteorological Department.
Rainfall last month was 27% below average and the government had declared drought or drought-like conditions in almost half the country.
The government has stepped up spending and boosted wages under the National Rural Employment Guarantee Scheme. That’s helped gross domestic product expand 6.1% in the three months ended June from a year earlier, the first time economic growth has accelerated since 2007.
Sales rose 7.8% in the three months to June, HUL said on 27 July. Still, profit at India’s biggest household products maker slipped 2.7% amid higher advertising costs and lower income from financial investments and the sale of properties.
HUL has boosted expenditure on advertisements during the India Premier League cricket tournament held in South Africa in April and May. It intends to continue making competitive levels of investment to shore up growth, Manwani said. “We will spend what it takes to be competitive.”