Hindustan Unilever, on July 20, said that if commodity prices remain where they are, its price growth will be flattish-to-negative in the coming quarters. The company expects topline growth to be purely volume-led in the next 2-3 quarters.
Fast-moving consumer goods companies take price hikes when raw material costs spike. This helped HUL post double-digit sales growth till Q4 FY23.
Now that input costs have tempered down after the sharp surge during the Ukraine-Russia war, HUL has been passing on the benefit to consumers by cutting prices. HUL's pricing actions have mainly come in the personal care and home care portfolio, i.e., soaps and detergents.
For the quarter ended June 2023, HUL reported a standalone net profit of Rs 2,472 crore, up 8 percent year-on-year. Revenue grew 7 percent YoY to Rs 15,333 crore, of which 3 percent was volume growth, and the rest was price-led.
However, the 3 percent volume growth was below Street expectations of 5-6 percent. "Consumption usually recovers after a lag when we are coming out of tough times. That said, we are laser-focused on volume growth," said Rohit Jawa, chief executive officer, and managing director of HUL. Jawa took over as the top boss of India's largest consumer company on June 27.
Breaking down the volume growth in different categories, Ritesh Tiwari, chief financial officer of HUL, explained that home care, as well as BPC (beauty and personal care categories), saw mid-single-digit volume growth. It was the food and refreshment portfolio that dragged down overall volumes. The F&R segment saw near-flat volume growth as consumers downgraded from premium tea to loose tea.
Focus on volumes
To focus on volumes, the company is looking at increasing penetration in categories such as health and well-being, health food drinks (HFD) and masstige. Masstige stands for mass-produced, relatively inexpensive goods that are marketed as luxurious or prestigious.
"It is not that HUL has under-penetration in these categories. The market itself has to be developed first," explained Tiwari in a press conference.
To this, Jawa added that HUL is over-indexed on premium products, which contributes one-third of the top line. "This segment is growing at least 50 percent faster," he said.
In the masstige category, HUL scaled up the reach of some Love Beauty and Planet, and Simple. The company took Simple to offline shops as well. Meanwhile, in the HFD category, Boost was taken nationally.
Rural demand
For HUL, rural volume growth finally turned positive in the June quarter, albeit on a soft base. "Weather-related risks continue and El-Nino's impact on inflation and rural demand has to be monitored. However, increased government capex and growing remittances keeps us positive on rural demand," said Tiwari.
To ensure sustainable volume growth in rural markets, HUL continues to play the price-value equation. This comes at a time when small, regional players have re-emerged in select categories like tea and detergent bars.
The bottom line is the company remains positive that volume growth will drive topline in coming quarters as the trade channels gradually de-stock all high-price inventory. As low-price inventory comes on shelves, they expect volumes to increase.
"Competitive volume growth is our goal," said Jawa.
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