Inflation to put pressure on margins in the near term: HUL

FMCG major Hindustan Unilever saw a 13 per cent uptick in profits year-on-year to ₹2,381 crore for the June 2022 quarter. In the June 2021 quarter, the company had reported consolidated profits of ₹2,097 crore. 

Its total income rose 20 per cent to ₹14,757 crore in Q1FY23 against ₹12,260 crore in Q1FY22.

The company noted that despite softening of palm oil prices, the company’s operating conditions continue to be impacted by inflation.

The real challenge

Ritesh Tiwari, Executive Director, Finance & IT and Chief Financial Officer of Hindustan Unilever, said at the press briefing, “Inflation has been a real challenge for the industry for the last few quarters. Several commodities have inflated to the decadal high at the same time. Against the 10-year median price, crude, caustic soda and barley have all inflated more than 15 per cent.”

Tiwari said with the dollar strengthening they are seeing currency-led inflationary impact as well. Inflation is impacting consumer demand and market growth for the company is driven by price hikes taken by the company. Rural demand is still faring poorer than urban’s, and the company continues to see minimal growth in volumes.

HUL reported 6 per cent volume growth, an improvement over the negative volume growth reported in previous quarter. However executives noted that growth for the company is going to continue to remain price led in the near term. 

HUL’s results press release noted that, “EBITDA margin at 23.2 per cent remained healthy despite the unprecedented inflation in input costs,” however, Tiwari noted that pressure on margins is going to persist in the near term for sequential quarters as well. The positive impact of palm oil soften and the potential commodity price tapering will be seen from December quarter onwards. 

On price hike

The company officials said that of the 20 per cent commodity inflation, 12 per cent has been transferred as price hikes to consumers, the company remains unclear regarding reducing prices in the future. The executives said that while they are taking every step to reduce non-consumer facing costs, they will also consider introducing bridge packs to new categories. 

Sanjiv Mehta, CEO and Managing Director, responding to the query regarding whether consumers have the capacity to take future price increase, said, “When we come to the premium part of the portfolio, where we are over indexed to the market, there is much more capacity to take price increase, vis-a-vis mass market. We remain circumspect about taking price increases. We play many levers, after playing many lever we consider this option.”

Mehta added, “While there are near-term concerns around inflation, the recent softening of commodities, forecast of a normal monsoon, and monetary/ fiscal measures taken by the government augur well for the industry. We are confident of the medium to long-term prospects of the Indian FMCG sector and remain focused on delivering consistent, competitive, profitable and responsible growth.”

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