Unilever's India business to be stronger in medium term: CEO Fernando Fernandez

Unilever chief executive Fernando Fernandez said the fast-moving consumer goods (FMCG) company's emerging market performance is strengthening, with India very well-positioned for medium-term growth despite a short-term drag from tax reforms.

During an earnings call on Thursday, Fernandez said India's goods and services tax (GST) overhaul temporarily weighed on third-quarter sales as trade channels reduced inventories and traders postponed purchases ahead of the implementation of lower GST rates.

About 40% of Unilever's Indian portfolio benefited from the government's move to slash GST to 5%, making products roughly 10% cheaper. "This will boost demand in the medium term. The macro environment in India continues to be favourable. Trading conditions are expected to normalise from November onwards," he said. "Underlying performance was driven by premium portfolios in beauty and well-being and personal care."



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India, the second-biggest market for Unilever after the US, is expected to contribute about 14% of the Anglo-Dutch multinational's global sales following the ice-cream division spin-off.

Fernandez said along with GST, earlier reductions in personal income tax and interest rates, should lift consumption by increasing disposable incomes and improving consumer sentiment in India.

The revamped GST regime, which came into effect from September 22, lowered taxes on daily essentials including soaps, shampoos, toothpaste and food items to 5% from 12% or 18%. However, the trade pipeline for many companies, including Hindustan Unilever (HUL), had virtually dried up as trade partners did not want to block their working capital by ordering and getting credit for the price difference later.

In India, more than 90% of HUL's personal care portfolio underwent a GST rate transition in the quarter, which resulted in flat sales growth. HUL said GST caused an estimated volume impact of up to 2% in the September quarter but expects fast-moving consumer goods consumption benefits from net disposable income and improved consumer sentiment.

"Both of these elements will be supported by this GST transformation, which the government has done. So, in our view, this will absolutely augur well for consumption. This will incentivise further our journey towards making the portfolio more premium. It will incentivise consumption, and hence, overall, it's in a positive territory," said Ritesh Tiwari, chief financial officer at HUL.

Tiwari also pointed to wider macroeconomic support for consumption, citing monetary easing, direct tax benefit implemented earlier, and food inflation meaningfully coming down, saying the GST change "adds to that to help us improve in the macro conditions and trading conditions". "I don't think GST reform on its own will be a silver bullet in terms of driving consumption, but absolutely an important initiative by the government, which adds to the overall demand atmosphere," Tiwari said.

The multinational posted a 3.9% sales growth for the third quarter, with 1.5% from volume and 2.4% from price. Unilever, like its Indian unit HUL, said its second half growth is expected to be ahead of the first half, despite subdued market conditions, reflecting continued strength in developed markets and improving performance in emerging markets.

"We are shaping a brand portfolio that's built for the future-with more beauty, well-being and personal care, prioritising premium segments and digital commerce, and anchoring our growth in the US and India. By putting desire at scale at the core of our strategy, and executing with excellence across every channel, we are setting Unilever up to win," Fernandez said.