Twitter
Advertisement

HUL leads price hikes in shampoos, detergents

Market leaders in the fast moving foods industry have decided to pass on some more of their steeply rising input cost to consumers.

Latest News
article-main
FacebookTwitterWhatsappLinkedin

P&G, too, hikes prices as cost pressures mount

MUMBAI: Market leaders in the fast moving foods industry have decided to pass on some more of their steeply rising input cost to consumers.

Hindustan Unilever Ltd, the maker of Surf and Rin detergents and Clinic Plus and Sunsilk shampoos, has implemented a 3.5-4% price hike in laundry soaps and hair wash categories.

Rival Procter & Gamble has also moved to hike prices in the soaps segment but the company did not reveal the exact quantum of increases other than confirming the move. Rising crude oil and palm oil prices are behind HUL’s decision to raise the tab on laundry soaps and detergents, while a re-launch of its Clinic Plus and Sunsilk shampoos has been used to price the brands higher.

Analysts Hozefa Topiwalla, Nillai Shah and Divya Gangahar of Morgan Stanley said this would translate into an improvement in operating profits of around 4%.

“This price hike reiterates the improvement in pricing environment in the industry and also underpins our base case for improvement in HUL’s laundry EBIT margins from around 4% levels to mid teens over the next 8 quarters,” the troika said in a report to clients on Monday.

For toilet soaps, input costs have gone up by 60-70% in the last one year, while for laundry soaps it has risen 20-30%.

The cost of the key input for laundry detergents —-  linear alkyl benzene —- has been moving up constantly along with crude oil and petrochemicals, leading to a fresh squeeze on margins, especially in the detergent category.

Most FMCG companies hiked product prices last summer and then again in October-November.

Sumeet Vohra, marketing director, P&G India, said: “We have seen marginal increases in the price of certain laundry brands but these increases are in line with the overall inflation in the economy.”

Analysts believe that if both major players hike prices, they may not lose any market share especially since their brands are well established and can command a better pricing.

Godrej Consumer Products Ltd, another FMCG player, hiked prices last in November in the soap segment.Hoshedar K Press, executive director and president, GCPL, said, “There is nothing planned right now. We’ve a good cover so we will not be impacted much by rising input costs.”

For the shampoo segment, it’s more or less because of re-launch and value addition to the existing prodcts that HUL is looking at higher prices.

Anand Shah, vice-president, co-head equity research, ICICI Securities, said HUL’s gross margins are really good in shampoos and so it can afford to demand higher prices.

“Even in the detergents segment, its margins have consistly improved in the last one year.”

The prices for HUL’s key laundry stock keeping units have risen 27% since March 2004.

Similarly, HUL has taken a price hike of 30% in its mid-priced laundry powder brand Rin Advanced over the past 36 months. So would there be more hikes and then some the toilet soap segment? Analysts are not too sure.

Anand Shah of Angel Broking said that due too intense competition in the soap segment, companies can ill-afford to go for hikes.Unmesh Sharma, analyst with Macquarie Securities, concurs it is a function of competition.

“Cost pressures are still there and margins may still be at an all-time low but price hikes depend on competition.”

s_tanvi@dnaindia.net

Find your daily dose of news & explainers in your WhatsApp. Stay updated, Stay informed-  Follow DNA on WhatsApp.
Advertisement

Live tv

Advertisement
Advertisement