Cost inflation and margin pressures are here to stay at least for the short- to medium-term, says Sanjiv Mehta, MD and CEO of Hindustan Unilever (HUL). The makers of Surf Excel, Lifebuoy and Clinic shampoo in the past one year has passed on to its consumers a 10% increase in prices and Mehta doesn’t rule out another round of price hikes in the coming months. “Commodity prices in the quarters to come will go up even more. We will have to take some more calibrated price increases.”
The FMCG major, which clocked a turnover of ₹50,336 crore in FY22 with a 24.6% EBITDA growth, registered a 0% volume growth. Mehta attributes the flat volume growth to the unprecedented inflationary pressures. “In mid- to long-term our growth will always be volume-led as we want people to consume more. But in the context of high inflation, our imperatives are two — hold on to the consumers within our fold and keep growing the volume and value share. The second is protect the business model,” explains Mehta. Apart from increasing prices in a phased manner, the company also took grammage cuts across its portfolio of products.
Passing on price hikes to consumers, however, was the last option for the FMCG major, says Mehta. The organisation first put in place a discipline of ensuring cost efficiencies across functions before increasing prices. “The net material inflation is 4.5 times higher today than it was two years ago, but we have not increased our prices by 4.5 times.”
Ritesh Tiwari, CFO, HUL, says that the 10% price increase in FY22 came about after a stringent savings exercise. “We first mitigated cost inflation with our savings. Be it supply chain, distribution or manufacturing we have reduced overhead costs, we have even managed savings in our promotional activities. Along all the lines of our P&L we have driven savings. We have a programme which is led from the top but is equally participated by everybody in the organisation to drive savings,” explains Tiwari. “One of the key roles for all of us is to drive more productivity within the organisation. We also spend lot of time in designing value in all our products.”
With uncertainty and volatility becoming a way of life, Mehta says that the only thing businesses can do is build resilience to navigate this choppy weather. “Our focus is clear — we have to grow higher than the market and protect our business model.” HUL added ₹5,000 crore additional revenue in FY22 and Mehta is especially proud of the fact that the company has managed to strengthen its market share across categories.
“Our market shares have been the highest ever. We have focused on volume share and value share and we are gaining both value and volume share. As per Nielsen estimate, the FMCG industry’s value growth is at 1% and volume is at -8%. You can now understand our performance of 10% (revenue growth) and 0% (volume) when we have more than one-third of the total market,” explains Mehta. “Premium brands are growing wonderfully well as there are consumers to whom inflation is not pinching and we also have brands for those who are looking at price points and are adjusting their spends,” he further adds. Out of the ₹5,000 crore incremental revenue growth in FY22, ₹900 crore came of innovations.
Mehta is hopeful that demand would improve in the second half of the year. “The rabi harvest has been good, monsoons are expected to be normal too. If the government front ends its promise of ₹7.5 lakh crore of capital spending, rural consumption should improve by second half of the year. The geo-political situation should start settling down too and one once that happens, commodity prices will also start coming down.”