Hindustan Unilever Ltd hikes prices of Lux, Lifebuoy soaps

Hindustan Unilever Ltd (HUL) has raised prices of its Lux and Lifebuoy toilet soaps by `1 each.

The price hikes are the company’s first in 20 months, trade sources said.

It has also selectively cut product weight while retaining the maximum retail price, they said.

Analysts view this as a departure from the company’s earlier strategy of regaining market share, which it has not been able to despite cutting prices, and bringing the focus back on profitability.

The cut in Lux soap weight, or grammage, also means the company has effectively raised prices by 10%.

Sales of Lux and Lifebuoy together account for 67% of HUL’s soap segment revenues.

While the price increase in toilet soaps is being viewed positively, it is the company’s actions in the detergents segments that will be keenly watched.

Interestingly, arch rival Procter & Gamble Consumer Products has held back on supplies of its lower priced detergent Tide Naturals to distributors and in place, pushed inventories of Tide, which is priced higher.

According to data sourced from Hindustan Unilever’s distributors across the country, the company has raised prices of the 90 gm Lux soap pack by `1 to `16.

It has also withdrawn the 10 gm extra offer on the 110 gm pack of select Lux soap variants but retained the maximum retail price of the pack at `18.

The FMCG major has raised the maximum retail price of Lifebuoy 106 gm soap pack by `1 to `16.

These price increases, or market intervention measures as Hindustan Unilever refers to it, were done to partly offset higher raw material costs, a company official said. For instance, prices of palm oil —- a primary ingredient in soap making —- were up 20% on year in July, and continue to trade up in August so far, he said.

“We view this positively. It clearly indicates that pricing power is slowly coming back to the company,” said Anand Mour, senior vice-president - FMCG and retail, Indiabulls Securities Ltd.
He said these price increases were not very significant, and expects more such actions over the next month.

Analysts expect these measures to start reflecting “positively” on the company’s operating margins from October-December, and are not concerned over any potential loss in volumes.

“The company displayed ample volume growth in the past two quarters whereas its margins were under pressure,” noted a senior analyst with a foreign brokerage. “It (the company) has probably come to realise that it may not completely recover the market share loss in select categories, and is now trying to bring back profitability,” he added.   

The analyst, though, plans to retain his “neutral” view on the stock for now.

Anand Mour reiterated his “neutral” view on Hindustan Unilever shares, and has a price target of Rs261.

In April-June, HUL’s operating margins had contracted 289 basis points year on year to 12.5% despite lower raw material costs, which led to a 4% decline in recurring profit for the quarter.

However, underlying volume sales growth of 11% helped boost its revenue 7.1% on year to Rs4,794 crore.
NewsWire18