Hindustan Unilever, the biggest advertiser in India, protected its profit margins during the Apr-Jun period by slashing its advertising budget by about 32%.
Given that this is after merging GSK’s consumer healthcare business with itself, the actual decline in advertising is likely to have been in the 35% range.
Even after adding GSK CH numbers, the company’s ad spend during the Apr-Jun period was lower by a whopping Rs 375 cr compared to the preceding three months.
The ad budget of HUL, at almost Rs 400 cr per quarter (450 cr after merger), is bigger than the total revenue (including subscription revenue) of most broadcasters in India.
The sharp pullback in ad spends by companies like HUL has had a devastating impact on the media and entertainment industry so far.
HUL, including GSK CH, spent Rs 800 cr on advertising and promotional activities during the three months from April to June, compared to Rs 1,175 cr by HUL alone in the preceding three months and Rs 1,167 cr in the same period of 2019.
While this may have been bad news for TV channels, newspapers and digital outlets, it was definitely good news for HUL shareholders as the cutback was crucial to helping the company maintain its profitability during the three month period.
Because of the cut in its advertising budget and GSK CH merger, HUL’s profit before tax fell only by Rs 178 cr to Rs 2,442 cr.
“The negative impact of adverse mix and higher COVID-19 related costs were deftly managed by dialing up savings and unlocking synergies of GSK-CH merger enabling us to sustain healthy EBITDA margins of 25%,” the company said.
“We continued to remain competitive in our brand and marketing support spends in the quarter.”
HUL, being a manufacturer of essential commodities like soaps, toothpaste and a host of packaged food items, did not see a drastic decline in its sales during the quarter that witnessed a pan-India lockdown intended to eliminate Coronavirus from the country.
Comparable sales at HUL fell only by 7% during the quarter, basically due to the impact of the lockdown.
However, this impact was made up by the merger of GSK’s Consumer Healthcare business with HUL, which makes products like Horlicks, Boost and Maltova.
Because of the merger, HUL was able to actually report a 4% increase in sales to Rs 10,570 cr in the Apr-Jun period from Rs 9,055 in the preceding three months and Rs 10,197 cr in the same period of 2019.
HUL has been seeing a general slowdown in sales, in line with lower consumer spends in recent quarters fueled by concerns about an economic slowdown in the country.
Home care products, such as detergents, saw a slight decline in revenue from Rs 3,464 cr during Apr-Jul of last year to Rs 3,392 cr this year.
“Competitive growth in Fabric Wash and Household Care with our portfolio addressing the ‘Clean living’ needs of consumers. Household Care grew strongly on back of penetration led gains,” the company said.
“Domex’s credentials of destroying Coronavirus in just 60 seconds is resonating well with consumers. In Fabric Wash, our diversified portfolio straddling the price-benefit pyramid has yielded resilient performance…Performance of Purifiers which are in the nature of ‘Consumer Durable’ was impacted severely by the lockdown,” it added.
Beauty and personal care, which includes brands such as Sunsilk, Pears and AXE, saw a sharper, 13% fall from Rs 4,626 cr to Rs 4,043 cr.
“Skin Cleansing led by Lifebuoy delivered strong double-digit growth across formats,” the company said, adding that it has significantly stepped up capacities in both hand wash and hand sanitizers to meet the consumer needs.
“Lifebuoy is making the ‘good habit of handwashing’ viral with campaigns across platforms. Oral Care delivered good performance with accelerated momentum on CloseUp.
“In Hair Care, we saw pickup in consumer demand in the latter part of the quarter. Performance of Skin, Color Cosmetics and Deos being relatively discretionary in nature was impacted severely on account of supply led issues and closure of some of the channels that are extremely relevant for the categories.”
However, the declines were compensated by the third segment — Foods and Refreshment — which saw a Rs 1,008 cr year-on-year jump to Rs 2,958 cr thanks to the addition of GSK brands such as Horlicks.
“Riding on the ‘In-home, wellness and immunity’ trends, Foods, Tea and Coffee delivered strong performance with double digit growths…Ice Creams, foods solutions and our vending businesses which are driven primarily by out of home consumption were massively impacted by the lockdown and closure of restaurants / eateries. Domestic Nutrition business performed well; immunity boosting Horlicks with added Zinc was launched in the quarter,” it said.
Sanjiv Mehta, Chairman and Managing Director commented the “superlative efforts of thousands of our people in our factories and sales organization who have worked with a higher purpose of ensuring availability of essential products to the citizens of our country in these extremely challenging times”.
“While constraints continue due to restrictions in several parts of the country and the near-term demand outlook remains uncertain, we remain well positioned to drive competitive, profitable, and responsible growth,” he added.