Shares of consumer staples giant Hindustan Unilever Ltd (HUL) tumbled in trade on Monday, September 29, after posting a weaker-than-expected business update for the September quarter, with the Goods and Services tax (GST) rationalisation impacting the sales for the period.
The firm noted that with the revised GST rates, approximately 40 percent of its portfolio including toilet soap, toothpaste, shampoo, hair oil, and others now benefit from a reduced GST rate of five percent, down from the previous GST rates of 12 percent or 18 percent.
"HUL remains committed to supporting the Government’s efforts by ensuring that the GST benefits are being passed on to consumers through competitive pricing and enhanced value across a wide range of products from 22nd September onwards. These reforms are expected to increase disposable income and drive long-term demand across key categories," added the FMCG giant.
The GST move has resulted in postponement of ordering in anticipation of receiving new stocks with updated prices and lower orders across the overall portfolio as consumers delayed their pantry buying.
As existing inventory with old prices in the trade channel (at distributor and retailer level) had to be cleared there has been a transitory impact in the quarter for HUL, with the effect likely to continue in October as well.
"This has led to a short-term impact on sales for the company in September. Given our existing pipeline inventory in the channels, we expect this impact to continue into October as well," added HUL.
Therefore, the Lifebuoy-maker added that for the quarter, the consolidated business growth is likely to be near flat to low-single digits. "This is a one-off, transitory impact, and we anticipate recovery starting November as prices stabilise, underpinned by rising disposable incomes and our ongoing portfolio transformation actions," the firm added.
At 9.40 a.m., shares of HUL were trading lower by 1.4 percent at Rs 2,476.7 per share, trimming some losses, after tumbling 2.5 percent at open.
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