Urban growth has been weak for a while and there appear no signs of a turnaround yet
Broader demand trends seen in 3QFY14 have continued into the current quarter, and that there appears to be no signs of any ‘bottoming out’ of the current slowdown in demand for Hindustan Unilever. The company management does not expect any significant change in demand patterns in the near-term, and believes any recovery will come through only after a couple of quarters.
3QFY14 recorded 4% volume growth for the domestic business and trends seen so far this quarter are roughly similar. Rural growth which was strong up to 1QFY14 had started to see a slip post the quarter – which continues to be the case in the current quarter as well. Urban growth has been weak for a while and there appear no signs of a turnaround yet. While company management believes the current growth rate is lower than medium-term trend growth rates, it does not expect a pick-up over the near-term, according to a research note by Nomura on Hindustan Unilever.
According to Nomura, although market growth rate has slowed, competitive intensity remains strong across the sector. While there have been some withdrawals of promotions in the soaps and detergents segment, overall competitive intensity remains strong.
Overall, company management remains cautious as far as the near-term outlook is concerned, but the medium-term outlook for the sector appears more robust. As a market leader in several categories, the company sees itself being well positioned in terms of portfolio range as well as strong distribution network to take advantage of growth of the sector in the medium- to long-term, points out Nomura. Nomura believes that investors should reduce their exposure to HUL at the current levels.
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