Costlier inputs, which forced Hindustan Unilever Ltd (HUL) to raise prices of some skincare products, affected sales in the September quarter, parent Unilever Plc said Thursday.
The comment in Unilever’s third-quarter earnings presentation is in line with analysts’ forecasts that India’s largest consumer packaged goods firm by sales will post another quarter of tepid results.
“In India, prices in skin cleansing increased in response to rising commodity costs, dampening consumer demand for the category in the quarter,” Unilever said in a statement.
As commodity prices rose, the maker of Knorr Soup and Surf detergents, raised prices during the quarter to extract some price-led growth. However, that impacted demand.
On Thursday, HUL shares closed down 1.61% at Rs861.95 on BSE, while the exchange’s benchmark Sensex fell 1.56% to 27,643.11 points.
While the prices of key inputs such as crude oil, light liquid paraffin and copra remained lower when compared to the year-ago period, there has been a jump on a sequential basis, said Sameer Deshmukh, a research analyst at Reliance Securities Ltd, in a 12 October note to clients.
His report highlighted that the prices of palm fatty acid distillate, a key raw material for soaps, were higher by 30% compared to the year-ago period, while milk prices were higher by 14%. Reliance Securities expects HUL to report volume growth of 3% in the September quarter.
Analysts at brokerage Prabhudas Lilladher Pvt. Ltd have also forecast a 3% volume growth.
“HUL is expected to report a 3.5% increase in sales on 3% volume growth as price deflation in soaps and detergents, tepid demand and stocking due to transport strike is in base (the previous year),” said analysts Amnish Aggarwal and Gaurav Jogani of Prabhudas Lilladher.
According to Aggarwal and Jogani, demand recovery is yet to set in, while improvement in sentiments is visible.
“Benefits from OROP (one rank one pension) and 7th Pay Commission, increased budgetary allocation for rural India, infrastructure spending and most importantly good monsoon are yet to flow in. Rural demand growth remains muted and all hopes rest on revival in demand post harvest in October. Urban demand has seen some uptick,” the Prabhudas analysts wrote.
HUL’s volume growth has been subdued in the last 14 quarters, coming in at mid single digits. For the three months ended June, volume growth was 4%.
There were expectations that a good monsoon and the Pay Commission award would lead to increased demand, but the effects of those are mostly seen in discretionary consumer goods such as automobiles and air tickets because of pent-up demand which remained unfulfilled over the past two drought-ridden years.