*India must ensure it doesn’t get entrapped by stagflation: HUL MD Sanjiv Mehta – The Economic Times

Clipped from: https://economictimes.indiatimes.com/industry/cons-products/fmcg/india-must-ensure-it-doesnt-get-entrapped-by-stagflation-mehta/articleshow/91241840.cms

Synopsis

Consumer-products makers including HUL have been increasing prices to offset the rising cost of energy, packaging and transport. With Russia’s invasion of Ukraine further stoking commodity and supply chain prices, HUL said it expects softening of commodity prices when the Ukraine crisis gets resolved. The company, which has historically shied away from giving profit guidance, warned margins would be under pressure in the near term. “We have a very strong business model with a 25% Ebitda margin, but it doesn’t mean it will always grow in a linear fashion.

Hindustan Unilever managing director Sanjiv Mehta said the country must ensure it does not get entrapped by stagflation and urged the government to accelerate front-loading the ₹7.5 lakh crore which the government had earmarked in the budget for the capital expenditure.

“The ₹7.5 lakh-crore which the government had earmarked in the budget for the capital expenditure, they should front-load it as much as possible so that it gives impetus to the economy during these tough times,” he said.

Stagflation refers to a recession-inflation situation in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high.

“Inflation is certainly having an impact on consumption, and we must ensure that we do not get entrapped by stagflation. It would be a tightrope walk for the Reserve Bank of India. They will have to ensure that there is sufficient liquidity, and the growth is not constrained but at the same time, there is no runaway inflation,” said Mehta, adding that even before the Ukraine crisis, private consumption and private capex needed improvement and both to an extent are interlinked.

“Until this happens, the government would have to play the prime mover of fueling growth in the economy.” The country’s biggest consumer goods company posted a 10% growth in sales entirely driven by price hikes as volume growth or actual products consumers purchased remained flat. Still, the maker of Rin and Dove outpaced the overall fast-moving consumer goods (FMCG) market, which expanded 1% in value, while volume fell 8%. HUL‘s performance is considered a proxy for broader consumer sentiment in India.

The company blamed the overall market slowdown on rising prices across categories. “For most Indians, incomes are limited. Add to that price increases, not just in packaged FMCG, but in a gamut of things including fuel, edible oils, and grains. As a result, funds in the households meant for spending on packaged FMCG often get reduced and consumers titrate volumes by reducing the quantum of consumption or in many cases opt for low-unit price packs,” said Mehta.

Consumer-products makers including HUL have been increasing prices to offset the rising cost of energy, packaging and transport. With Russia’s invasion of Ukraine further stoking commodity and supply chain prices, HUL said it expects softening of commodity prices when the Ukraine crisis gets resolved.

The company, which has historically shied away from giving profit guidance, warned margins would be under pressure in the near term. “We have a very strong business model with a 25% Ebitda margin, but it doesn’t mean it will always grow in a linear fashion.

During this period of high inflation, it is likely that margins may dip. However, we also remain confident that we will be able to recover our margins going forward,” added Mehta.

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