New Delhi: Hindustan Lever Ltd (HLL), India’s biggest household-products maker, plans to raise prices of some products on higher raw material costs and sell more products in villages as incomes increase.
“It’s possible that we need to take some judicious price increases,” D. Sundaram, director, finance, said in an interview. “Costs have really gone up both on the vegetable oil front” and on petroleum products, he said.
HLL has raised prices of its soaps, skin creams and detergents as costs of raw materials such as palm oil, an ingredient in manufacture of soaps, and linear alkyl benzene, a key input for detergents, have increased. The company has also gained from selling its shampoos, soaps and skin creams in small packets in the country’s 600,000-plus villages.
“Rural areas have continued to grow because of a certain amount of improvement in agriculture,” Sundaram said. “We see a certain amount of increase in the rural markets for our products.”
The Mumbai-based company said on 30 April its first-quarter profit rose 13.6%, less than estimated because sales of skin creams, shampoos and toothpaste grew at a slower pace. During the quarter, HLL increased the price of its Surf Excel Blue 1.5kg detergent pack to Rs120 from Rs117. The price of a 45g pack of Lux was raised to Rs6 from Rs5. A 9g pack of Fair & Lovely cream was increased to Rs6 from Rs5.
“Price increases taken through 2006 and Hindustan Lever’s cost-effectiveness programmes help mitigate the pressure on margins,” Sandeep Bhatia and Sunita Sachdev, analysts at UBS AG, wrote in a note to clients this week. They have a “Buy 2” rating on the stock. HLL is 51.4% owned by Unilever.
Prices of palm oil rose 44% last fiscal year in Malaysia, the biggest producer of the commodity. Raw material costs increased 7.8% in the quarter ended 31 March from the year earlier.
The company spent Rs356 crore on advertising, or 11.2% of sales. In comparison, it had spent 9% of sales in the three months ended 31 December.
HLL seeks to promote the sales of its Surf Excel, Wheel detergents, Lifebuoy, Lux, Breeze soaps, Fair & Lovely skin creams and Pepsodent toothpastes in rural India.
The company aims to “reach 600 million consumers in 500,000 villages through 100,000 entrepreneurs by 2010,” HLL said in its annual report for 2006.
It covered 100,000 villages through 30,800 entrepreneurs at the end of 2006. About 50% of the sales of soaps and detergents are generated in villages. Three out of 10 people living in rural areas use shampoo or skin creams, HLL says on its website.
“There have been a lot of financial transfers happening in the rural economy, either through remittances and government spending on infrastructure, as well as subsidies and support schemes and so on,” Sundaram said. bloomberg