By Kritika Arora
Prices of certain commodities like that of palm and crude oil may have softened in the last few weeks, but FMCG major Hindustan Unilever (HUL) continues to see inflation as a concern and will keep the price hikes coming, at least in the near term.
While palm oil prices have come down in the last few weeks, prices of other commodities like soda ash, milk extracts, barley, coffee, caustic soda still remain high, Ritesh Tiwari, HUL CFO, said during a post-earnings analyst call. “Needless to say we will continue to take calibrated pricing action and extensively drive product improvement,” he added.
The company also sees its margins to remain under pressure at least in the September quarter before easing from December quarter due to softening in prices of commodities.
While demand in the FMCG industry has been subdued since the last few months, the company expects the market to remain soft in the near term as well. “We expect the market to remain soft and inflation to remain a concern,” Sanjiv Mehta, HUL CEO and MD, said during the post-earnings conference call.
However, with improved government spending, forecast of normal monsoon and higher income in the hands of farmers, Mehta expects demand to bounce back going ahead.
In the April-June quarter, HUL took a price hike of 12% to pass on the spike in input costs to customers and yet improved its volumes by 6% year-on-year.
The improvement in volumes of HUL came against 5% de-growth in the FMCG industry during the quarter due to inflationary pressures. HUL’s 6% volume growth came on the back of it being the market leader, thus benefiting from inflation in commodity sensitive categories. It also resulted because of the company’s continuous efforts on category development to drive future growth, analysts said.
HUL might have also outperformed the market growth given better demand for premium discretionary products, where HUL is better placed, than mass discretionary products, ICICI Securities said in a note.
The company’s volumes were driven by high single-digit volume growth in laundry, where it gained market share, and recovery in certain beauty and personal care categories, like haircare and premium skincare, analysts said.
HUL’s ability to grow ahead of the industry despite inflationary trends and its efforts in category development to drive future growth is what is keeping analysts optimistic.
While Jefferies has upgraded its earnings per share estimate for the company by 2-7% for FY23-24, ICICI Securities has increased its earnings estimate for the company by 3% over FY22-24.