Hindustan Unilever cuts Rin price by 30%

The pressure on the margins of Hindustan Unilever (HUL), the largest fast moving consumer goods (FMCG) player in the country, just keeps mounting.

The company, which has been spending heavily on advertising and promotions as it struggles to fend off competition from both regional and national rivals, on Thursday announced a deep cut — of nearly 30% — in the price of its Rin detergent powder.

Analyst Hozefa Topiwala of Morgan Stanley Research pointed out in a note that Rin accounts for 14% of the company’s washing powder category sales and just above 2% of overall company sales.

HUL also has Wheel in the economy segment and Surf Excel at the premium end.

HUL has over the past decade lost market share in key categories such as toilet soaps and laundry products (detergents powder and cakes), which have seen downtrading by consumers. The slowdown last year especially forced consumers to reduce discretionary spend, prompting a shift to cheaper offerings.

Meanwhile, brands like Fena and Nirma have gained market share, at HUL’s expense.

In the quarter ended December, sales of HUL’s toilet soaps and detergents fell nearly 2.5%.

HUL has tried out various tricks to win back lost ground.

It increased the grammage on detergent brands such as Rin and Wheel in a bid to offer better value to consumers. It also reduced the price points on detergent cakes and introduced schemes on large detergent packs.

However, a letup in competition was not to be, especially with Procter & Gamble (P&G) Home Products foraying into the mass-end detergents category with Tide Naturals, a low-cost version of Tide, last quarter. Tide Naturals is priced at Rs 10 for 200 grams, Rs 20 for 400 grams and Rs 50 for a kilo.

The move to slash the price of Rin detergent powder by 30% from Rs 70 a kilo to Rs 50 may be a direct bid to counter the P&G move.

All the same, the price cut could crimp HUL’s margins significantly. Topiwala, for one, sees margins dropping by 50-70 basis points.

HUL stepped up brand investments last quarter by as much as 66% as it re-launched its entire soaps portfolio. With the price war set to intensify, analysts believe the company will have to continue to invest higher on brand building over the coming quarters.

For the quarter ended December, HUL’s domestic consumer and FMCG sales grew 4.6% to Rs 4,504 crore. Net profit increased 5% to Rs 649.1 crore, due mainly to exceptional gains from sale of property.

“Poor results combined with intensification of price war are likely to result in stock underperformance, in our view,” Topiwala wrote in a note to clients on Thursday.