Hindustan Unilever will not hike prices this quarter: CFO P.B. Balaji
Mumbai:Hindustan Unilever Ltd, India’s largest consumer packaged goods company by sales, has cut the prices of its detergent bars and soaps on the assumption that it will benefit from input tax credit under the goods and services tax (GST). A month into the new indirect tax regime, P.B. Balaji, chief financial officer at HUL, has his task cut out—ensuring that the assumptions made prior to the rollout of GST are realized. “The next 3-6 months will be about extremely meticulous, detailed work,” he said in an interview. Edited excerpts:
You were up and running within minutes of the transition to the GST regime. How did you manage that?
It’s been a long ride with a lot of planning and detailing as we started preparing in November 2014. The reason is, we never looked at it as an accounting and finance project. It’s bigger than even an enterprise resource planning (ERP) implementation. We looked at it as business processes being redone and got the full team and organization involved. That is one of the reasons we landed smoothly.
Secondly, the magnitude of business process changes has been huge. We simplified a lot of old processes and stopped those that did not make sense. We accelerated disposal of businesses that were non-core so that we didn’t have to transition them into GST. Then there were price reductions to be planned for, as we were very sure about our commitment to anti-profiteering. This is a highly competitive business, so if we are able to land our price drops faster in the market, then we get that little bit of competitive advantage vis-à-vis others. Therefore, we said when we look at GST, we will also look at what we can win with GST and not just comply with GST.
Can you give us some examples of what this meant?
We invested in flexibility, we invested in capital. For example, we designed our artwork in such a manner that if we increased the grammage of soaps to 66g or 67g or 68g, it can be done without trouble. So, the wrapper and artwork in case of soaps will not change for small changes in final grammage. This was done two months ahead of time. So, the minute we decided on the price, then we could rapidly execute the same. That’s how we get speed in execution. At that point, if we turn back and say we are going with 66g and let’s now etch the dye, the lead time to land the price would be two months, which we have now managed to crash to two weeks. This needed a lot of alignment and preparation. Likewise, we have done this even for the system processes time. So, towards the end of June, when new laws were being notified, we were ready to interpret it and implement it in a day's time. Earlier, given the coding, testing, fine-tuning, this would require two months.
So far, we have seen only price reductions. But a large part of your portfolio also comes under the 28% tax bracket. Will there be price increases?
We have clearly said that there will be no price increases. At least for this quarter, even if the tax rates have gone up. In fact, we have also dropped prices for detergent powders even as the tax rates have increased.
Does that mean margin pressure going forward?
Margins will see no impact.
So, what can we expect in the next 3-6 months?
It will be about extremely meticulous details. The reason is, look at all the pricing we have done. We have forecast that this will be the impact on all the lines on the profit and loss account. We have taken the pricing and gone ahead with it. But is reality playing out like that? Everyone is really excited by the output tax credit. But the real fun will be the input tax credit which will be complex as we have to collect it. Here, every invoice that I have received from the supplier will have to be checked with the supplier to confirm if they have paid the tax so that we can take the credit. This will be an extremely rigorous piece of work.
Does that mean that the calculations could misfire?
Frankly, till September, we can’t rest easy as a finance team. We have to make sure everything is tied up and then go back to the business and say that what we estimated is broadly under control and a reality. Also the scale. We anticipate that we will upload two crore lines of data every month. Therefore, to ensure the accuracy of every invoice, and then ensuring the suppliers also enter their invoices, and then reconciling it at our end and then chasing those suppliers who have got it wrong. I am confident that we will pull it off. But nonetheless, the next 3-6 months will be hard work.