Hindustan Unilever (HUL) on Wednesday reported a flat volume growth for the three months to March, because of high inflation hurting household budgets and weakening consumer demand.
The FMCG major rustled up a net profit of Rs 2,327 crore, up 9% year-on-year on the back of a 10% y-o-y increase in revenues to Rs 13,190 crore, ahead of analysts’ estimates. The company’s operating profit margins, however, declined 20 basis points y-o-y to 24.6% during the quarter.
Volume growth is, however, ahead of the market going by Nielsen estimates, which put value growth for the FMCG sector at 1% and volume contraction at 8% for the January–March period. HUL had reported a 16% y-o-y volume growth in the fourth quarter of FY21, on a favourable base as volumes had contracted 7% y-o-y in the previous corresponding period.
The HUL management has indicated consumers should expect more price hikes on the back of the 10% increase taken by the company during the March quarter, as it combats inflation in prices of key inputs. Given the elevated inflation, a contraction in margins was to be expected for the current year given the decline in discretionary spends by consumers across rural and urban
Sanjiv Mehta, CEO and managing director, HUL, said prices of commodities were expected to go up further in the quarters to come.
“We will have to take some price increases… An immediate price increase is our last resort and a large part of it we have been managing by reducing the grammage,” Mehta said.
The CEO observed that net material inflation has seen an absolute growth of 4.5 times, when seen from the period two years back and compared on a quarter to quarter basis. “So what we are encountering here is unprecedented inflation,” Mehta said. The prices of key raw materials, that the consumer goods manufacturer uses, are up 60% —palm oil and crude — compared to the previous year.
The CEO believes rural demand could see a pick-up in the second half of 2022 on the back of a good rabi harvest, the favourable outlook for the monsoon and increased government spending.
HUL’s ebitda (earnings before interest, tax, depreciation and amortisation) for the March quarter came in at Rs 3,245 crore, up 10% y-o-y.
Ritesh Tiwari, chief financial officer, HUL said the company would drive savings harder and take calibrated pricing action while protecting and growing the consumer franchise. “Our margins will decline in short term as price versus cost gap increases” Tiwari observed.