HUL CEO Says Price Rises Slow, But Not Enough To Boost Volume Growth
In Q4, HUL has seen pricing growth of 7% and volume growth of 4%, as against 11% pricing growth and 5% volume growth in Q3.
Hindustan Unilever Ltd. is beginning to see its pricing growth taper off, adding to signs that inflationary pressures might be easing as most input costs have declined compared to a year ago. But that has not necessarily resulted in volume growth yet, according to HUL's Chief Executive Officer and Managing Director, Sanjiv Mehta.
The country's largest consumer goods maker has seen pricing growth of 7% in the fourth quarter, which is lower than 11% in Q3 and down from a record 12% in Q2. But the pace of volume growth slowed to 4% during the quarter under review, compared to 5% growth in the preceding quarter.
"It's true that the price-led growth is slowly moderating," the outgoing CEO and MD told reporters in a post-earnings press briefing. "But to go back to the days of volume-led growth, we need to see deflation in commodity prices... and the chances of that happening would depend on some stimulus. Say, if tomorrow the Russia-Ukraine war comes to an end, that could be one trigger for commodity prices to fall."
Notably, the soap-to-tea maker outpaced the industry in terms of overall volume growth. In Q4, the industry registered flat volume growth in the March quarter, as per Nielsen data. "The current volatile scenario can turn a corner when we see the FMCG market's volume growth at 4-5%," he said.
Mehta further added that while prices of most raw materials have come down, they are still above the 10-year median level. In fact, prices of a few commodities, such as skimmed milk powder and barley, are still higher.
Over the last two years, HUL raised prices by 18% while facing 30% net material inflation in its portfolio.
"We took a price hike of 60% of net material inflation," Mehta said.
In the March quarter, net material inflation eased to 12%.
The easing of commodity prices allowed HUL to initiate price cuts and increase the grammes of certain products.
"When commodity prices start coming down sharply, we will further pass the benefit to consumers, and subsequently volumes will grow," Mehta said, adding "we are absolutely clear we will not lose market share."
The volume growth also continues to be weighed down by sluggish rural demand, while urban demand is continuing to grow faster, according to Mehta.
"When wallet size is small, the impact of inflation is big," he said.
"Moreover, subsidy schemes have been slashed and the free food grain programme has been halted—all of which has implications of its own," he said. Rural volumes for the company declined by 3%, while urban volumes grew by 7%. However, Mehta said, the pace of contraction has moderated, implying that the rural slowdown is bottoming out.
He expects volume growth to revive gradually if GDP grows at 6–7% and as consumers habits adjust to higher costs.
But this was Mehta's medium-term outlook, while the near term looks bleak amid a volatile operating environment.
The Dove soap maker took a disproportionate hit on the margins of products in low-unit packs when commodity prices went up because they did not change the price points, hurting margins.
In Q4, HUL's Ebitda came in at 23.5% versus 24% a year ago.
But sequentially, Ebitda margins expanded marginally despite advertising spends inching up 80 basis points.
HUL's advertising spends stood at 9% of sales in the March quarter, compared to 7.9% in Q3. Still, it is lower than the pre-Covid level of 12%.
"Amidst all this, our focus is on ensuring the right price-value equation for competitive volume growth, building back gross margin, and stepping up A&P investments," said HUL's Chief Financial Officer, Ritesh Tiwari.
The fourth quarter results of FY23 were the last earnings presentation for HUL's Mehta as CEO, who will retire from the company after a 10-year stint on June 26. He will be succeeded by Rohit Jawa, who has joined the firm as CEO designate and full-time director as of April 1, 2023.
