Near-term performance under pressure due to demonetisation: HUL

Hindustan Unilever Ltd., India’s largest consumer goods company, recently said that its near-term performance would be “adversely impacted” due to the ongoing demonetisation scheme of the government. Adding that in the long term it would be “win-win for everyone”.
In a investor’s presentation recently, HUL said,” Consumers have been impacted by lower cash in hand. They are cautious with their spend and will initially stick to basic necessities. There is trade down-stocking due to a liquidity squeeze and wholesale has been impacted the most.”
” Logistics has been particularly impacted in long-distance routes and media heat is likely to be lower,” it noted.
But the company strongly believes that demonetisation and GST are significant growth driver for India and a win-win for everyone.
According to the company, demonetisation and GST would help industry with “simpler and effective compliance” and “level playing field”.
It would benefit the country with “higher investment led growth” and the government with “lower fiscal deficit and higher tax base”.
Consumers will benefit by lower inflation, HUL added.
The company said that the demonetization impact would be varied across the geographies but the wholesale trade would be impacted the most. Moreover, in the long distance routes, there would be logistical impacts also.
According to the company, gradual improvement in the market impact is expected to be led by urban segment and would depend on liquidity build up across the chain.
“Speed of recovery will be dependent on liquidity build up across the chain,” said HUL in presentation copy submitted to BSE.
While the management refused to share any financial numbers it mentioned that demand for essentials such as food items are the least impacted with consumers opting for smaller packs in order to cut down on their cash spending.
On November 8, Government withdrew Rs 500 and Rs 1,000 notes as part of a crackdown against black money and people have been facing cash crunch.
The Government is also aiming to kick off GST from April next year. The Goods and Services Tax (GST) will subsume excise, service tax, VAT and other local levies.