Hindustan Unilever Ltd. continues to face a double whammy of subdued demand and elevated prices, which is more likely to dent its margins within the present quarter and end in additional worth hikes, in response to its CEO Sanjiv Mehta.
“Inflation hasn’t gone away…most commodities stay elevated and there’s now one other issue that’s rupee depreciation which might affect commodities and improve enter prices for us,” Mehta, chief govt officer and managing director of Hindustan Unilever, instructed reporters in post-earnings name on Tuesday.
Whilst palm oil costs fell from its peak, the working circumstances proceed to be impacted by inflation in a number of different commodities, similar to crude oil, milk extracts, espresso, barley, polyethylene, caustic soda and vegetable oil.
“With most commodities remaining elevated and consumption of upper price pipeline stock, the September quarter will see extra inflation than the June quarter, and margins will stay beneath strain,” mentioned Ritesh Tiwari, chief monetary officer at HUL.
Companies usually function with 4-12 weeks of stock relying upon the fabric. In line with Tiwari, the correction in spot costs won’t instantly replicate within the books as HUL has already booked stock. Therefore, the constructive affect of decrease palm oil costs and potential softening of different commodities shall be seen from the December quarter onwards.
There’s a extensive hole between worth and value.
The web materials inflation was 20% of complete price, whereas the worth progress stood at 12% in Q1, in response to the corporate.
“We count on web materials inflation within the Dec. quarter to be decrease sequentially, however we would wish to attend and watch how the commodities play out within the subsequent few months to get a way of the precise quantum of discount,” Tiwari mentioned.
The worth of crude oil was up 60% year-on-year within the June quarter, in response to the corporate presentation.
Caustic soda costs have been 125% greater, whereas polyethylene and palm oil have been up 25% and 50%, respectively, over the earlier 12 months.
As price strain persists, the administration mentioned it might take a look at additional calibrated worth hikes in “choose classes” to cushion margins.
Excessive inflation is impacting consumption throughout rural and concrete markets. “On a year-on-year foundation, the market progress has been led by costs whereas volumes have declined. In comparison with pre-pandemic ranges, the volumes remained flat and rural markets proceed to lag city (markets),” mentioned Tiwari, including that the expansion within the near-term will stay worth pushed.
Gross sales of the corporate’s dwelling care merchandise, together with manufacturers similar to Surf Excel and Vim, jumped practically 30% to Rs 4,931 crore, whereas the wonder and private care section grew 17% to Rs 5,364 crore. Meals and refreshments class grew 9% on a excessive base to Rs 3,627 crore, in response to the corporate.
The fast-moving shopper items section fell 5% within the three months ended June. The sector is now pinning its hopes on the forecast of a standard monsoon and better farm revenue to tide over the slowdown.
“There are particular pockets, particularly the central belt, the place the rainfall has been lower than common. But when that catches up, it’ll augur effectively for rural consumption,” mentioned Mehta.
He expects authorities initiatives, similar to greater fertilizer subsidy, to end in greater web revenue for farmers, spurring consumption.