Fast moving consumer goods major Hindustan Unilever plans to strengthen its premium portfolio by keeping focus on innovations that would take it up the pyramid and also provide the company enhanced margins, Sanjiv Mehta, CEO and MD, told CNBC TV18 in an interview.
“Our focus on innovations is looking at going up the pyramid and ensuring that increasingly our focus remains on enhanced benefits and strengthening our premium portfolio,” he told the business news channel.
Better demand premium portfolio helped the company arrest the decline in its margins during April-June quarter and also improve market share. The company posted operating margin of 23.2% during the quarter, down 110 bps year-on-year. The decline was still ‘contained’ due to company’s efforts on cost-saving measures and better demand from premium portfolio which gives higher margins, HUL had said during post-earnings conference call.
The premium portfolio also helped the company post volumes ahead of the industry during the quarter. HUL recorded volume growth of 6% during the June quarter against 5% volume decline by the industry during the same period due to inflationary trends.
Brokerage ICICI Securities said in a note that better demand in premium discretionary segment than mass discretionary could be the reason for HUL outperforming the market because the company is better placed in that segment. Nevertheless, Mehta pointed that focus on premium segment would not take the company away from addressing the needs of people at bottom of the pyramid. HUL would ensure that it has product superiority in that segment and customers get better price-value equation.
“We have strong portfolio which caters to the bottom of pyramid. Like Taza in tea, Wheel, Rin in detergents, Lifebuoy, but the focus is on premium products that would bring us better margins,” Mehta said.
He added that current market trends indicate that urban is growing faster than rural, modern trade is growing faster than general trade and large packs are growing faster than small packs. General trade caters more to the rural economy and small packs cater more to the people at bottom of the pyramid, and which is why also HUL was able to move ahead of the market in June quarter and gain market share.
Further, Mehta reiterated his confidence in health and food segment since the segment hasn’t been able to deliver the results as expected so far and said that he believes growth in the segment would come, albeit with a lag.