Fast-moving consumer goods (FMCG) major Hindustan Unilever (HUL) is still struggling with inflation in key raw materials even as it sees the price of palm oil stabilise, an important commodity for the soap manufacturer. Given the scenario, the company’s management is “cautiously optimistic in the near term.”
“Except palm oil, which has seen a meaningful correction from its peak, most commodities remain volatile and elevated. The surge in the US dollar is adding to further inflation. CPI inflation continues to remain above the RBI threshold. In the near term, we are cautiously optimistic,” said Ritesh Tiwari, executive director, finance and IT and chief financial officer, HUL, said while addressing a media briefing after reporting the company’s second quarter (Q2) results.
According to the company’s management, the growth in the quarter ahead will continue to be price-led, while softening in some commodities, largely, palm oil will help marginally narrow the price versus cost gap leading to sequential improvement in gross margin.
HUL’s net material inflation (NMI) in the June quarter stood at 20 percent, while it climbed to 22 percent in the September quarter. The company’s CEO and MD Sanjiv Mehta indicated that its NMI in the December quarter is expected to be a bit lower than the September quarter.
The CEO also said that the manufacturers will reduce the prices of their products only after prices subside.
“The net material inflation was 22 percent in the quarter that has gone by….which is pretty significant. And so, once that starts going down, then the manufacturers and marketers will start passing down the benefit of lower commodity price to the consumers,” Sanjiv Mehta added.
HUL slashed the price of its soap brands such as Lux and Lifebuoy by about 5-11 percent in October in the Western region of the country. The price cut, as per the management during the media briefing, came on the back of a reduction in palm oil prices. Palm oil is a key ingredient for soap manufacturers and contributes as much as 40 percent to the cost of making soap.
The company, however, during the quarter also took calibrated price increases across fabric wash and household care portfolios on account of inflation in other raw materials.
HUL reported a standalone net profit of Rs 2,616 crore in Q2, a year-on-year (YoY) climb of 20 percent as compared to Rs 2,187 crore reported in the same period last year. The company’s standalone revenue from operations jumped 16 percent during the period and stood at Rs 14,751 crore. The company reported volume growth of 4 percent during the period. But its gross margins dipped 588 basis points YoY to 44.9 percent and EBITDA margins dipped 176 basis points YoY to 23.3 percent.
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