HUL anticipates headwinds in coming quarters as inflation woes weigh

FMCG major HUL expects the operating environment to remain challenging in the near term as inflation is likely to continue for the next few quarters.

In order to overcome the challenge, the company is adopting a 'bridge pack strategy', under which it will introduce products packs priced between the existing highest and the lowest prices, according to company officials.

While the company will continue to drive savings 'harder', it will also take calibrated price increases but foresees a decline in margins in the short term.

"Looking ahead, the near-term operating environment will remain challenging. We expect to see more sequential inflation. Growth will be predominantly price-led. We will continue to drive savings harder and take calibrated pricing actions whilst ensuring we protect and grow our consumer franchise," HUL CFO Ritesh Tiwari said in an earnings call for the March quarter and financial year 2022.

He further said, "Our margins will decline in the short term as price versus cost gap increases".

In order to overcome the challenge, the company has kickstarted what it terms as the 'bridge pack strategy'. For example, in the skin cleansing category, it has introduced a Lifebuoy soap pack at Rs 16, which is positioned between the Rs 10 and Rs 36 price point packs.

"We have approximately 30 per cent of our business in the price-point packs," Tiwari said, adding that such offerings give better value to consumers and they are still able to source good brands at an affordable price point.

"And for us, it gives us scale. And also, unit economics gives us better value as manufacturers and sellers. So, bridge pack is what we are trying now to do across all the commodity-impacted categories," Tiwari said.

Elaborating further, an HUL spokesperson said, "The high levels of input cost inflation have had an impact on the offerings we have in some parts of this portfolio. We are, therefore, creating bridge packs to provide the right price-value equation to our consumers, while making sure our products remain affordable and accessible. This will ensure that we protect and grow our consumer franchise in these times of unprecedented inflation."

HUL expects the growth to be price-driven in the coming quarters with calibrated rate hikes in the offing.

About Indonesia's ban on palm oil exports, Tiwari said there may be an impact "in the short term". However, he also added looking at the amount of total production surpassing the local needs of that country, he believes that the sales of palm oil from Indonesia will continue.

Tiwari added that HUL is also looking for alternatives to palm oil for soap manufacturing.

"There is more than one way to make soap, so looking at alternatives, looking at our own efficiencies, and the mix that we end up using in terms of producing soap," he said.

The company will grow its top line ahead of the market by growing competitively, premiumising its portfolio and doing market development at scale, Tiwari added.

"We will deliver modest margin expansion and continue with our track record for strong capital discipline," he said.

The leading FMCG major crossed the Rs 50,000-crore turnover-mark in FY22.