Hindustan Unilever Limited (HUL), the country’s largest pure-play fast-moving consumer goods (FMCG) firm, is gearing up for price cuts once again to bolster dangling volumes.
The company's intent to get volume growth back on track is clear from its decision to reduce prices of Dove and Pears — its two popular soap brands — from third quarter onward.
“We had already cut prices of Lux and Lifebuoy by around 4.6 per cent months ago. Further price reductions are to be taken for Dove and Pears from the third quarter of the fiscal. On overall personal wash, total price cuts to be around six-eight per cent,” HUL chairman Sanjiv Mehta said in a post-earnings conference call.
During the quarter ended September, the company’s beauty and personal care business, which accounts for nearly half of its overall sales, grew a tepid four per cent on account of the price cuts in the personal wash and soaps segment to pass on lower raw material costs.
Other segments such as home care and foods and refreshments, however, grew 10 per cent and eight per cent, respectively.
Abneesh Roy, senior vice-president, research (institutional equities), Edelweiss, believes that action on the pricing front will see the personal care segment post a turnaround.
“Though popular segment in personal wash continues to be soft, we expect the recent price action combined with higher ad spends for Lux and Lifebuoy to change the trend,” he added.
This quarter, HUL increased its ad spend by 8.3 per cent by partially ploughing back savings in margins — to improve subdued demand.
While most of the businesses may have to let go of profitability while ramping up or reviving sales, HUL's timing of bringing in price cuts at a time when raw material costs are lower has kept the losses minimal.
The company, whose performance is considered a proxy for broader consumer sentiment in the country, has posted a 21 per cent rise in its net profit to Rs 1,848 crore during the second quarter of the current fiscal. The company registered sales totalling Rs 9,708 crore — a rise of 6.24 per cent over the corresponding quarter of the previous fiscal.
The maker of Lux soap and Rin detergent registered a seven per cent rise in sales in the quarter under review amidst an overall lacklustre demand scenario due to factors such as subdued wage rates that affected rural sales.
The market, Mehta said, at a trailing twelve months was growing nine per cent in value but in the last three months, it has come down to five per cent. In fact, volumes which were growing at close to seven per cent are now growing under three per cent.
“There is a discernible difference between 12 months and three months which indicates a slowdown. The market, however, remains stable and we have not seen demand pick up yet. The near-term demand outlook, especially in rural India, remains challenging,” Mehta added