High inflation eats away at Hul’s March quarter sales volume

Hindustan Unilever Ltd (HUL) reported stable quarterly sales volume on Wednesday as India’s biggest homewares maker raised prices to offset soaring input costs, which weighed on demand for its products.

The company said it saw new headwinds for the industry as the Russian invasion of Ukraine further fueled already high crude prices and food inflation. Chief Executive Officer (CEO) and Managing Director of HUL, Sanjiv Mehta, said consumers are “rationalizing” their spending due to inflation.

Consumer packaged goods companies, including HUL, have raised product prices to offset soaring costs for raw materials such as palm oil and fuel. But the rise in prices forced consumers to reduce their consumption or buy goods at low prices to manage the household budget, which weighed on demand. Retail price inflation accelerated to a 17-month high of 6.95% in March.

HUL’s performance is seen as an indicator of general consumer sentiment in India. Soup and soap maker Knorr Lux said its profits rose 8.5% from a year ago to reach 2,327 crores in the three months ended March 31, beating analysts’ estimates. A Bloomberg survey of analysts estimated that the company reported standalone profit of 2,203 crore.

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Revenues increased by 11% over the previous year for 13,462 crore as it raised prices to counter high commodity prices. The company’s gross margin contracted 3 percentage points, while operating margin contracted 20 basis points to 24.6% despite “very high” inflationary headwinds, the company said.

Meanwhile, underlying volume growth in the March quarter remained flat.

“Commodity inflation continues to be a significant headwind for the industry. FMCG market growth slowed and volumes fell to high digits in the March quarter. food and kitchenware inflation, consumers are adjusting volumes and essentials have been favored over discretionary category items The near-term operating environment remains challenging; inflation is impacting volumes and Growth will be primarily driven by price,” Chief Financial Officer Ritesh Tiwari said.

Tiwari said the company will continue to generate more savings and take calibrated pricing actions while protecting and growing its mainstream franchise. “Our margins will shrink in the short term as the price-to-cost gap increases,” he said.

HUL senior management, citing data from researcher NielsenIQ, said the consumer packaged goods industry saw value growth of 1% for the March quarter, but volumes fell 8%. While NielsenIQ has yet to release its March quarter figures, data shared by the researcher for the December quarter already points to high inflation that is hurting household consumption, especially in rural markets.

The trend continued in the March quarter, partly fueled by a milder Omicron wave which restricted mobility for part of the quarter, with the exception of the Ukraine crisis which triggered volatility in global commodity prices. raw materials.

“During the December quarter, we had seen discretionary spending increase; then we entered another wave of Omicron, people started working from home again; this again impacted the discretionary categories,” Sanjiv Mehta told reporters during a post-earnings call. However, as the wave receded, business in March was better than in January and February.

Mehta said with rising prices for everything from edible oils to fuel, consumers are rationalizing their spending. “When they rationalize expenses, that’s when they headline the volume. And because prices have risen, volumes are heading. And you end up with low volume growth,” he said.

He said value growth in rural markets has remained stable while volume growth has been negative over the past three months. During the quarter, the company increased its prices by 10%.

Analysts who follow HUL pointed to the company’s “aggressive” price increases in categories such as home care.

Mehta, however, remained firm that HUL’s goal is to grow the business faster than the market.

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