HUL sees GST hit to wholesale biz

Fast moving consumer goods (FMCG) major Hindustan Unilever Ltd (HUL) sees the upcoming goods and services tax (GST) impacting its wholesale business and resetting distribution channels.

"There is going to be another turbulent period with the GST coming in where again wholesale, we believe, will be impacted more than the other channels. I think wholesale will take at least a quarter or more post GST to stabilise," Sanjiv Mehta, CEO and managing director, HUL, said at a press conference to announce Q4 results.

According to a senior company executive, the trade pipelines are likely to thin down as companies can get credit of up to 40% of their ST tax liability against excise duty already paid on stocks lying with traders or retailers.

Mehta said quantifying the impact will be difficult as the company had different shares of wholesale across different categories.

He said there would be a level of channel reset and the company' believes contribution of wholesale would come down.

"We have a much wider direct coverage, our share of wholesale will be relatively lower. Having said that wholesale is still important because at the end of the day India has about nine million outlets and a substantial number is covered through the wholesale channel," said Mehta.

HUL believes GST impact will vary across channels.

"There are a lot of open items, clarity on which is expected this week which is very crucial in the history of GST. Final rates for various products, a formal confirmation of the start date which is so crucial, compensation for the fiscal benefits – how will the government do that because we will have to pay and then claim a refund – and based on what mathematics will it come back to us," said P B Balaji, chief financial officer, HUL.

These issues have to be addressed if one is looking for a smooth and timely transition to GST on July 1, 2017, he said.

HUL along with its ecosystem is targeting to go live on July 1 on GST.

Harish Manwani, chairman, HUL, said the impact of the new tax is end-to-end, and therefore one is as strong as the weakest link.

"We are making sure that we are proactively working with all our stakeholders, with the government, industry and across the supply chain. This is something that's in all our interest. The only thing we can do at this stage to mitigate the challenges of GST is to take everyone along so that we don't have anyone in the chain falling off," he said.

For the quarter ended March 2017, HUL reported a profitable volume driven growth. While domestic consumer growth was at 8% the underlying volume growth stood at 4% for the fourth quarter fiscal 2017. Operating profit (Ebitda) at Rs 1,651 crore was up 12% while Ebitda margin increased 90 basis points (bps). Profit after tax before exceptional item (PATbei) at Rs 1,118 crore was up 8% while net profit increased 6%. Also, the cost of goods sold was lower by 20 bps as inflation moderated.

The growth, Balaji said, was broad-based with home care delivering 8% growth driven by premiumisation. Growth in the personal care segment rebounded both in the personal wash and personal products. Its full portfolio of products too rebounded in the fourth quarter, with the packaged foods segment seeing a modest growth.