A real price reduction will happen only when deflation starts: HUL's Sanjiv Mehta

FMCG giant Hindustan Unilever Ltd's (HUL) outgoing MD & CEO Sanjiv Mehta said the country’s largest FMCG company will be able to cut prices of its products only when there is a deflation of costs, at a time when consumer goods majors have been battling the effects of high commodity costs by increasing prices and reducing product package size. 

“The rate of inflation is coming down, but deflation has not started. Only when deflation starts, a real price reduction will happen…(the likelihood 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,” Mehta said in a post-Q4 result interaction on Thursday. 

India's CPI-based retail inflation cooled to a 16-month low of 5.66 per cent in March 2023. The figure was at 6.95 per cent in March 2022. This was the first month this year so far where India has seen retail inflation falling below the 6 per cent set out by the Reserve Bank of India (RBI) as its upper tolerance limit. 

The Dove soap-maker noted in its investor presentation that while prices of commodities such as Brent crude, soda ash, caustic soda, and palm oil have dropped year-on-year, they remain above long-term averages. The company’s gross profit margin fell from 50% last year to 46% by March 2023, which the company attributed to unprecedented inflation.  

Referring to oscillating crude prices and the company’s flat volume growth, Mehta pointed to volatility in the market forces not fully settling down. HUL posted flat volume growth of 5% year-on-year (Y-O-Y) for the full financial year of 2022-23 and 4% Y-O-Y for the March quarter.  

“We are very cognisant that we have to maintain the price-value. And if commodity prices go down, we will pass the benefit to the consumers. We are absolutely clear we will not lose market share,” he said. 

He added that the company took a disproportionate hit on the margins of products in the low-price categories when commodity prices went up because they did not change the price points. “You can play around with the grammage only up to a point. There we took a hit. As the commodity prices start lowering down, we will of course put more grammage back. Hopefully, that will also help us to improve the margin,” said Mehta, who is retiring after 10 years at the helm of the FMCG giant. He will be succeeded by Rohit Jawa, who has joined the firm as CEO designate and Whole-time Director from April 1, 2023. 

For the full financial year, HUL reported a 16% growth in turnover to Rs 58,154 crore and 13% rise in net profit to Rs 9,962 crore.