Hindustan Unilever signals more price hikes as commodity inflation bites, shares tumble 7%

Hindustan Unilever on Tuesday signalled further calibrated price hikes to counter persistent commodity inflation, as elevated input costs linked to geopolitical tensions continue to squeeze margins across the fast-moving consumer goods (FMCG) sector.

The country's largest FMCG company joined peers such as Tata Consumer Products in warning that commodity volatility is likely to persist in the near term, forcing companies to pass on a larger share of rising costs to consumers.

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The comments came as HUL reported a 4% year-on-year decline in net profit to ₹26.31 billion for the quarter ended June 30, even as revenue from continuing operations rose 10% to ₹165.14 billion, supported by healthy volume growth and selective price increases.

The maker of Dove, Surf Excel, Pears and Pepsodent said inflationary pressures are expected to remain elevated as commodity prices continue to fluctuate.

"We have only passed half of the inflation in pricing in the June quarter ... we will continue to take some calibrated measured steps on pricing," Chief Financial Officer Niranjan Gupta said during a post-earnings media interaction.

The company increased prices by about 5% during the quarter while underlying sales volumes also grew 5%, reflecting resilient consumer demand despite higher prices.

However, higher input costs continued to weigh on profitability.

HUL's standalone underlying EBITDA margin contracted 40 basis points to 22.8%, although the company retained its medium-term guidance of a 22.5%-23.5% consolidated core operating margin.

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The margin pressure comes amid rising energy, freight and commodity costs following the conflict in West Asia, which has disrupted global supply chains and increased costs for manufacturers across sectors.

Consumer goods companies have increasingly resorted to price hikes to protect profitability. Last week, Tata Consumer Products also indicated further price increases as inflationary pressures persist.

Analysts said HUL's strong sales growth came at the expense of profitability.

"This growth has come at the cost of stressed margins ... which has led to markets reacting negatively," said Akshay D'Souza, an independent consumer goods consultant, as cited by Reuters, adding that elevated palm oil prices continue to keep margins under pressure.

Investors appeared disappointed by the earnings, sending HUL shares down as much as 7% during the day, making the stock the biggest loser on the benchmark Nifty 50 index.

Despite the near-term pressure on margins, Chief Executive Officer Priya Nair reiterated that the company would continue to prioritise expanding volumes over protecting profitability.

"If it comes to choices, our choices are clear," Nair said.