Hindustan Unilever Ltd (HUL) on Wednesday reported flat quarterly sales volumes as India’s largest home goods maker raised prices to offset rising input costs, rising demand for its products.
The firm said it saw more headwinds for the industry as the Russian invasion of Ukraine fueled already high crude oil prices and food inflation. HUL’s chief executive officer (CEO) and managing director Sanjiv Mehta said consumers are ‘rationalizing’ spending due to inflation.
Packaged consumer goods companies, including HUL, have raised product prices to offset rising costs of raw materials such as palm oil and fuel. But higher prices have forced consumers to cut consumption or buy lower-priced goods to manage household budgets, depressing demand. Retail inflation hit a 17-month high of 6.95% in March.
HUL’s performance is seen as a proxy for broader consumer sentiment in India. Maker of Knorr Soup and Lux soap said profit up 8.5% compared to a year ago 2,327 crore in the three months ended March 31, beating analysts’ estimates. A Bloomberg survey of analysts estimated the company to report a standalone profit of 2,203 crore.
see full image
Revenue up 11% from a year ago. done 13,462 crore as it raised prices to counter higher raw material prices. The company’s gross margin contracted by 3 percentage points, while operating margin declined 20 basis points to 24.6%, despite “very high” inflationary headwinds, the company said.
Meanwhile, underlying volume growth remained flat during the March quarter.
“Commodity inflation remains a significant headwind for the industry. FMCG market growth slowed in the March quarter, and volumes declined in the high-single digits. With high inflation in food and kitchen items, consumers are scaling up quantities, and priority has been given to essential items over discretionary category items. The near-term operating environment remains challenging; Inflation is impacting volumes, and growth will be primarily price-based,” Chief Financial Officer Ritesh Tiwari said.
Tiwari said the company will continue to drive savings further and take calibrated pricing action while protecting and growing its consumer franchise. “Our margins will decline in the short term as the price versus cost gap widens,” he said.
HUL’s top management, citing data from researcher NielsenIQ, said the packaged consumer goods industry posted value growth of 1% for the March quarter, but volumes fell 8%. Although NielsenIQ has not yet released data for the March quarter, data shared by the researcher for the December quarter has already pointed to high inflation hurting household consumption, especially in rural markets.
The trend continued in the March quarter, partly driven by a slight Omicron wave that restricted mobility for part of the quarter, in addition to the Ukraine crisis causing volatility in global commodity prices.
“In the December quarter, we had seen discretionary spending pick up; Then we got into another wave of Omicron, people going back to work from home again; This again had an impact on discretionary categories,” Sanjiv Mehta told reporters during a post-earnings call. However, as the wave eased, trading in March was better than in January and February.
Mehta said that with prices of everything from edible oils to fuel rising, consumers are rationalizing spending. “When they rationalize spending, they measure volume. And because prices have gone up, volumes have tightened. And you end up with reduced volume growth,” he said.
Price growth in rural markets remained flat, while sales growth remained negative in the last three months, he added. During the quarter, the company increased the price by 10%.
Analysts tracking HUL pointed to “aggressive” price hikes by the company in categories like home care.
However, Mehta was adamant that HUL’s focus is on growing business faster than the market.
suneera.t@livemint.com