HUL MD Sanjiv Mehta: India's stimulus to have a trickle-down effect on demand; Co. focus on reducing cost

On Sensex, the HUL stock ended flat at Rs2180.75 per piece.

Jun 30, 2020 05:06 IST India Infoline News Service

In the annual general meeting for FY20, Hindustan Unilever's Chairman and Managing Director, Sanjiv Mehta state that whether economies can avoid recession or not, growth will depend upon various factors. For India, he says the stimulus announced will boost demand, however, also believes that whether it is sufficient for the country's growth that's the real question. He also pointed out that, HUL is focusing on reducing costs to enhance growth as Covid-19 has impacted both demand and supply.

Calling the pandemic as 'Black Swan'  an Omnipresent Reality, Mehta said, "The COVID-19 crisis is a societal crisis threatening lives and the wellbeing of our society with a potential to fundamentally reshape the world."

For the global economy, he says, the Covid-19  impact will vary from country to country and from sector to sector with some seeing a relatively quick rebound whereas many others will feel a sustained loss of output.

He adds, "Whether economies can avoid the recession or not, the path back to growth will depend on a range of drivers, such as the trajectory of the virus, the effectiveness of containment efforts, the economic steps taken by the governments, the reaction and behaviour of the firms and consumers, the degree to which demand will be delayed or lost, whether the shock is truly a spike or lasts, or whether there is structural damage to the economy. The risk of recession remains real, but we must not take it as a foregone conclusion."

On India, the HUL chairman explains that the government's various stimulus announced, "will have a trickle-down effect on demand, but the debate remains whether these are sufficient to kickstart a virtuous spiral of growth or would it require a substantive demand-side stimulus. Given the limited fiscal space, it is not easy for the government to have a large demand-led stimulus and it must be concerning the government that if they go down this route, a large part of the stimulus could end up as savings rather than being spent to generate demand."

Having said that, Mehta says, "the government should keep a close watch on the demand situation and step in unhesitatingly if it does not pick up in the next few months."

Mehta says COVID related uncertainties have impacted supply, demand and liquidity.

At HUL, this meant business unusual on both growth and costs, for Mehta said, " we build plans to maximise all growth opportunities but manage costs assuming a worst-case scenario of muted growths and even a potential recession."

Further, he adds. "We have looked at all our costs with intense magnification with an intent to make costs as much variable (i.e. linked to sales) as possible and remove costs which under the current circumstances will not add value. This approach provides us with the necessary optionality and enables us to protect our business model. Our complexity reduction plans across the value chain are helping us maximise production while realising the benefits of lower costs and cash unlock."

Concerning cash, Mehta said in the AGM, "we start from a position of strength, given our strong Balance Sheet. With overall liquidity constraints across the value chain, we are supporting our partners (suppliers and vendors) to maximise growth while keeping a laser-like focus on receivables. Shorter and dynamic planning cycles help us manage inventory better and reduce business waste."

For short-term, Mehta further added, "we will also re-phase our capital expenditure considering growth opportunities and execution timelines. We are also taking various steps to maintain safety and liquidity of our investments."

By adding iconic brands like Horlicks and Boost through the merger with GSK Consumer Health's (GSKCH), Mehta calls it an "A match made in heaven". On the acquisition, he says, "has brought great brands, built on proven scientific credentials, with great purpose into the fold of a company that can take it to the width and breadth of India and truly make a difference. The acquisition is also deeply in sync with our purpose-led growth agenda and is aligned to both the UN Sustainable Development Goals and the Government of India's thrust on 'Poshan Abhiyan'."

On Sensex, the HUL stock ended flat at Rs2180.75 per piece. The stock has touched an intraday high and low of Rs2199 per piece and Rs2170.30 per piece respectively.

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