Near-term margin pressure may continue for HUL

Firm announced calibrated price hikes to improve market share

There has been an uptick in the December quarter (Q3), after muted performances over the three previous quarters, with volume and value growth at 4-7 per cent. This was led by beauty and personal care as well as food and refreshment segments, while the fabric wash within the home care segment remained a drag.

Though growth did pick up sequentially, the company expects this segment to enter positive territory as travel picks up. Household care, which includes new launches like Nature Protect and Vim Matic (dishwasher), posted the second consecutive quarter of double-digit growth.

In its largest segment of beauty and personal care, most products registered double-digit growth, with the seasonal winter portfolio boosting skincare product sales. As growth returned, the company was able to take a 5 per cent cumulative price hike over the last two months to manage input cost inflation.

The nutrition business (including GSK Consumer portfolio), which was impacted by supply chain disruption in Q2, is back to double-digit growth. This is expected to sustain as the company expands its rural presence and penetration across the trade channel, including chemists.

The company gained market share in sales through the e-commerce channel, the contribution of which doubled from the year-ago period.

Input cost inflation was felt the strongest in food and refreshment, with segment margins down 245-381 basis points sequentially and over the year-ago quarter. The company highlighted that inflation pressures (tea prices) were bunched up in Q3 and were not entirely absorbed by price hikes. HUL is looking to gain share from the unorganised segment and, thus, has announced calibrated price hikes.

In addition to the hikes, the company is looking at offsetting some pressure by improving product mix and through cost savings. While overall margins were down 80 bps year-on-year, given high input prices, investments in market development, and the firm’s decision to focus on volume growth, margins are likely to be under pressure in the near term.