Mumbai: Hindustan Unilever Ltd (HUL), the Indian subsidiary of Anglo-Dutch consumer products maker Unilever Plc., has increased the prices of soaps, toothpastes and skincare products by up to 13% over the last two months to counter higher costs on account of the rupee’s steep fall against the dollar.
The company increased the prices of the Pears Pure and Gentle Soap and Pears Germ Shield soap 75 gram packs by Rs.2 in August to Rs.34, a HUL spokesperson said on Thursday in response to an email from Mint. In July, HUL increased the prices of the 120 gm pack of Lakme Peach Milk Moisturizer by Rs.20 to Rs.175; the 150 gm pack of Close Up Menthol Chill toothpaste by Rs.2 to Rs.86, and that of the 400 gm pack of Ponds Dreamflower Talc by Rs.10, the spokesperson said.
The move to increase prices by India’s largest consumer packaged goods company will prompt other companies to follow suit, according to companies and experts. The rupee has depreciated some 13.8% against the dollar since the start of the year, making imported inputs more expensive for consumer product makers. Some other companies, too, have raised prices. Colgate-Palmolive (India) Ltd, GlaxoSmithkline Consumer Healthcare Ltd—maker of Sensodyne toothpaste and Horlicks malted beverage—and Reckitt Benckiser India Ltd, which sells the Dettol brand, also increased prices of some products in the last two months, according to a 12 September report by Edelweiss Securities Ltd.
“Input prices have gone up sharply due to the rupee depreciation,” said Vivek Gambhir, managing director of Godrej Consumer Products, maker of Cinthol soaps. The company is monitoring the situation closely and evaluating calibrated price increases in the soaps category, he said. S. Raghunandan, chief executive officer of Jyothy Laboratories Ltd, said the depreciating rupee is putting pressure on costs, affecting profit margins. The company is known for brands like Ujala fabric whitener and Pril dish washing detergent. Raghunandan said the company will increase prices only after the market leader—HUL—does so.
Likewise, Krishna Mohan, chief executive officer of Emami Ltd, said the company will wait and watch the situation. “We had increased prices by 4-5% in the December and March quarters and will not hike prices immediately,” he said. The maker of Boroplus and Fair and Handsome cream, is reviewing the situation on a daily basis. “Margins will be under stress during the quarter,” said Mohan.
Prices of palm oil—a key ingredient in soap—is cheaper compared to a year ago, but that benefit has been countered by the depreciation of the rupee, according to Abneesh Roy, director of Edelweiss Securities.
To be sure, price increases may further hamper sales in a slowing economy as consumers continue to cut back on small and discretionary spending, analysts said.
“The slowdown in consumer packaged goods sector, which started in the foods category last year, has now become prominent in the personal products category as well. Overall market volumes are down by over 10% in the last 12 months in personal products,” said a 10 September SBICaps Securities Ltd report.
In the first six months of the calendar year, Nestle India Ltd’s sales growth was 8.9%, of which 8.2% was price-related and a mere 0.7% was because of volumes, the report said.
At HUL, the foods, ice creams and packaged food segment saw sales growth taper to 4.8% in the June quarter from 17.3% a year ago. Likewise, sales growth of the company’s personal products category dropped from 16.7% in the June quarter last year to 2% in the same period this year.
The Rs.2,950 crore fairness cream and lotion market saw sales volume contract 4.5% in the year till June 2013. Sales volumes of HUL’s Fair and Lovely Multivitamin, which has a 57% share of the fairness cream market dipped 4.5% from a year ago. High-end fairness creams like Ponds, Dove and Lakme continued to see strong underlying volume growth.
According to SBICaps, HUL will clock a compounded average growth rate (CAGR) of 6.5% in earnings per share (EPS) over fiscal 2015, much lower than 13% seen during FY’07-FY’13 period.
Regardless, companies continue to spend on promotions and advertisements. “Adspends/ promotions will remain high given the aggression on the streets,” said the SBICaps report. It cited HUL’s latest ad war with Colgate.
Likewise, the detergent category has not seen any price increases. On the contrary, companies in the space are running consumer promotions as they try to gain market share in an inflationary environment, said Raghunandan. On Thursday, the HUL stock closed down 2.52% while the Sensex fell 1.08%. From the beginning of July, the HUL stock increased 7.13%, outperforming the BSE FMCG index’s 4.99% rise and the Sensex’s 1.99% rise in the same period .