"I don't see a recession in India. At this stage, I am optimistic that our economy could grow in the region of 6-7%, which under the circumstances would be a great achievement. The Reserve Bank and the government have been doing a good job despite the challenging context," Mehta told ET in an interview.
"There are two imperatives for the government-one is to tame inflation and the second is to keep the economy growing. Halfway through the year, few large economies can say with a reasonable degree of confidence that they could deliver growth in the vicinity of 7%," he said.
About 66% of CEOs in India anticipate a recession in the next 12 months, compared with 86% CEOs globally, according to a KPMG 2022 India CEO Outlook survey released last week.
Citing data from market research firm Nielsen, HUL said the FMCG market expanded 7% in value and fell 6% in volumes in the September quarter.
HUL, the maker of Rin detergent and Dove soap, posted 16% growth in sales, fuelled by price increases and not demand as volumes-or the products consumers actually buy-expanded 4%.
The country's largest consumer goods company-its presence in a range of daily consumption items such as soaps, shampoos and food makes it a proxy for consumer sentiment--said the FMCG industry, by its very nature, is recession-resistant but never recession-proof.
The company said its net material inflation was 22% and it's difficult to predict where this will go in the next few quarters, even as there has been some moderation in palm oil prices.
"Most commodities remain at an elevated level. We must also understand that the rupee depreciation is causing an increase in cost. Oil prices have been oscillating but if there is an end to the geopolitical tensions then they could start cooling off, which, in turn, could start the process of tapering of other commodity prices," said Mehta. "The government has done a good job of manoeuvring to ensure that some of our oil imports come at lower prices."
Consumer inflation hit an all-time high in April in the wake of the Russia-Ukraine war as companies increased product prices by 15-20% or cut down pack sizes over the past year. In September, it spiked more than expected to a five-month high. The decline in the consumer goods segment is more pronounced in rural areas, where volumes fell 9%. However, demand could recover in the second half of the financial year due to moderation in inflationary pressures and normal monsoon although it will depend on the kharif output.
"Despite the challenging context, the headline growth is holding on, and it has also increased a bit, so these are green shoots," said Mehta. "This is where our optimism comes in, but there are several variables at play which could turn into headwinds, and this is where caution comes in."
Innovation Advantage
Over the past few years, HUL has innovated across value chains to enable greater agility, flexibility and efficiency. For instance, it has set up three nano factories that allow production in batches of kilograms rather than tonnes and help in faster product rollouts. This is being introduced in other Unilever markets to bring innovation lead times and cost down.
"We are certainly the thought leader when it comes to the whole digitisation of the value chain," said Mehta. "Many of our models like Livewire and Jarvis, which use our own algorithms to optimise various FMCG variables, have now been adopted by other Unilever markets. Shikhar too is now being adopted by several developing countries."
HUL's digitised sales across platforms, including ecommerce channels and the internal ordering app Shikhar, are more than 20% of its overall sales. Over a million kirana stores use the Shikhar app to order now, up from about 300,000 outlets two years ago.
"We remain positive on HUL's ability to outgrow the market, as well as its pricing power underpinned by distribution expansion, deepening direct reach and product innovation initiatives," said Abneesh Roy, executive director at Nuvama Institutional Equities.
Don't see recession in India; RBI, govt doing a good job despite challenges: Sanjiv Mehta, HUL MD - Economic Times
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