Hindustan Unilever (HUL), India's largest fast-moving consumer goods (FMCG) manufacturer, is poised to raise product prices further in the current quarter. The company cites ongoing volatility in raw material costs as the primary reason for these impending adjustments, which come on the heels of a 5% price increase implemented between April and June.
Inflationary Pressures and Strategic Response
Priya Nair, MD and CEO of HUL, highlighted the continued volatile environment, influenced by geopolitical events and the potential impact of El Niño on monsoons. Nair indicated a sequential inflation increase of 2-5% expected between the September and June quarters, necessitating calibrated pricing actions.
Despite previous price adjustments, HUL's Chief Financial Officer, Niranjan Gupta, noted that only about half of the cost increases were passed on to consumers in the April-June quarter. This suggests that further measured steps on pricing are deemed essential to manage the rising input costs effectively.
Financial Performance in Q1 and Market Reaction
In the April-June quarter, HUL reported a 10% year-on-year growth in standalone sales, reaching Rs 16,514 crore, up from Rs 15,003 crore a year prior. Underlying sales volumes also saw a 5% increase. However, the company’s standalone net profit experienced a 4% decline, settling at Rs 2,631 crore compared to Rs 2,732 crore in the previous year. This profit dip led to a notable market reaction, with HUL's shares falling 7% to Rs 2,023.15 on the BSE.
Total expenses for the quarter rose by 10% to Rs 13,267 crore. Despite this, Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) grew by 8% to Rs 3,768 crore, indicating some operational efficiency gains.
Raw Material Costs and Future Outlook
Crude oil prices, which have been highly volatile due to global geopolitical tensions, significantly impact FMCG production. Derivatives linked to crude oil are crucial raw materials for a wide range of products, including soaps, shampoos, household cleaners, and packaging materials like plastic bottles and pouches.
HUL officials maintain that demand in both urban and rural markets has remained stable so far. However, they are closely monitoring the evolving situation in West Asia and the progression of monsoon rains in India. While agriculture contributes approximately 15% to India's GDP, Nair noted that the overall monsoon impact could be around 50-60 basis points, emphasizing the importance of its timing, extent, and geographical spread.
Volume Growth and Promotional Strategies
Despite the necessity for price hikes, Priya Nair reiterated HUL's commitment to volume-led revenue growth as a core priority. The company has intensified its advertising and promotional (A&P) expenditures to stimulate sales. In the last quarter, A&P spends amounted to Rs 1,507 crore, marking the highest level in 11 quarters, up from Rs 1,498 crore in the corresponding period last year.
Analysts from Axis Securities previously observed that while demand for FMCG companies showed encouraging momentum, the operating environment continued to be shaped by elevated crude-linked input costs, particularly in the early part of the first quarter. Companies have responded through a mix of calibrated pricing, grammage adjustments, cost optimization, and supply chain efficiencies to mitigate these impacts.