Rising input costs force HUL to raise prices of Rin

MUMBAI: Hindustan Unilever (HUL) has kicked in a phase of price increases in laundry, a segment where margins had clearly bottomed out. The move could be followed up by other laundry makers in due course.
HUL has increased the price of a 500 gm pack of Rin powder by Rs 2, one kg pack price by Rs 4 and 96gm Rin bar by Re 1. The grammage on the Rs 10 price point Rin bar has been reduced from 200 gm to 190 gm.
“There has been a steep increase in input prices. We are looking at all options, including cost effectiveness programmes and judicious price increases. It should be noted that increase in cost of some commodities is exceptionally high,” said an HUL spokesperson.
It is learnt that Rohit Surfactants, too, has made a few changes to the price and grammage of select SKUs (stock keeping units) of Ghari detergent, the second largest laundry brand after Wheel. The price of 1 kg pack of Ghari detergent powder has increased from Rs 32 to Rs 35, while the Rs 20 SKU of the brand has witnessed a grammage reduction from 590 gm to 570 gm.
Analysts believe the margins in soaps and detergents for FMCG companies like HUL have bottomed out.
HUL reported 8% volume growth in soaps in the previous fiscal, which is the highest since 1996. Its detergent volumes grew by 19.2%, led by price cuts and aggressive go-to-market strategies. However, margins for the soaps and detergents segment reached an all-time low of 9.5% due to the dual impact of lower prices and steep increase in input costs.
“The operating environment remains challenging, as inflation is sustaining and GDP growth may moderate in the near term. In addition, competitive pressures are rising, as new entrants seek a slice of India’s growth potential,” said a Motilal Oswal report, which expects volume growth to soften as the impact of price increases sets in.
“Fiscal year 2011 detergent volume growth of 19.2% (for HUL) appears unsustainable. We believe soaps and detergents margins have bottomed out at 7.5% in the fourth quarter of fiscal year 2011,” the Motilal Oswal report said.
Soaps and detergents contribute 44% to HUL’s sales of about Rs 20,000 crore.
A Religare Institutional Research report said most FMCG companies are expected to report a contraction in operating margins led by a gross margin decline, as input commodity costs have edged up.
Pricing action in highly competitive categories like detergents, shampoos and biscuits is among the key issues to watch for in the ensuing quarters.