India's largest fast-moving consumer goods (FMCG) company Hindustan Unilever is passing on the benefit of declining raw material costs largely by cutting prices on its packs, rather than increasing grammage, said the management on October 19.
For the quarter ended September 2023, HUL reported 4 percent growth in its topline to Rs 15,027 crore. Of this, about 2 percent was underlying volume growth, while pricing growth was more or less flat.
"With raw material prices coming down, we have passed on a large portion of this benefit in terms of price reduction on single packs and multi packs in soaps and laundry. We also have to run consumer promotions. While we have done some grammage recalibration, but that is not too significant," Ritesh Tiwari, chief financial officer, Hindustan Unilever said in a post earnings concall.
On the back of these cuts, HUL management also sees price growth to be marginally in negative territory if commodity prices remain where they are. The company's focus remains on driving 'competitive volume growth'.
"There are parts of the portfolio where we have increased prices as well. For instance, coffee and dairy prices have gone up so we too hiked prices in coffee and health food drinks (HFD) portfolio," Tiwari added.
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To cope with rising raw material costs, largely palm oil, the company had taken several price increases over the past two years. The FMCG market's cumulative price growth over the last three years stands at 25 percent.
"Consumers especially in the rural areas, and even the urban poor, who are income constrained are looking at such high levels of inflation. Looking forward, we have a cautiously optimistic outlook," said Rohit Jawa, chief executive officer, HUL.
"FMCG demand is likely to continue a gradual recovery with tailwinds from the upcoming festive season, sustained buoyancy of services and Government’s thrust on capex," Jawa added.
Hindustan Unilever Ltd (HUL) on October 19 reported a standalone net profit of Rs 2,717 crore for the September quarter, up 3.86 percent from the year-ago period.
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Analysts expected price cuts, royalty payments and ad spends to weigh on profits. Brokerages had flagged tepid rural demand as consumers grappled with inflationary pressures.
The company’s July-September earnings before interest, tax, depreciation and amortisation (EBITDA) were at Rs 3,694 crore, growing 9.4 percent from a year ago. The EBITDA margin improved by 130 basis points YoY to 24.5 percent.
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