Hindustan Unilever Ltd (HUL) chairman Nitin Paranjape confirmed that the April-June quarter saw significant impact from higher commodity costs following the conflict in West Asia, as reported by The Times of India. The conflict that dragged on for months disrupted energy supplies, pushing up oil prices to over $100 per barrel and weighing on raw material costs for companies. Paranjpe told shareholders that commodity cost inflation this quarter has been significant and will take a while for it to come back to normalcy. However, he expressed optimism that things should ease out a little going forward. "They've come back, and hopefully we should see things easing out a little going forward," Paranjpe said while addressing shareholders at the company's annual general meeting on Tuesday. The company expects volatility in the short term and is well placed to deal with it, staying agile and nimble to manage current issues. "Business resilience today is about building better systems: supply chains that can shift when a route is disrupted….factories that can switch faster…sourcing models that reduce dependency on any single material or geography," Paranjpe explained to shareholders.
Despite the challenging cost environment, HUL continues its strategic approach of price increases being less than cost increases through efficiency programmes, as explained by Paranjpe to shareholders. The company extracts value from every line of the profit and loss account to ensure consumers do not bear the full extent of price increases they would otherwise face. In periods when cost increases are as high as experienced in Q1, the company's efforts to cut costs are even stronger. This approach has been successful in maintaining competitive pricing while managing input cost volatility. "We've always tried to make sure that our price increases are less than the cost increases the company faces through efficiency programmes, and that will continue," Paranjpe explained to shareholders. The company has already implemented price hikes of 2-5% to cope with a 8-10% cost inflation while signalling that more increases could be in the offing.
The FMCG sector is positioned for a strong June quarter according to brokerage Anand Rathi, which expects sustained gross margin expansion as crude oil prices have eased meaningfully from their recent peaks. Brent crude has retreated to around $72-$73 per barrel, well off the highs seen earlier this year during the West Asia conflict, easing pressure on packaging, logistics and several crude derived raw materials that have weighed on FMCG sector margins over the past few quarters. With crude prices having corrected sharply from earlier highs, Anand Rathi expects this easing input cost trend to support gross margins through the June quarter, even as companies continue to prioritise brand building investments that could keep EBITDA margin gains comparatively moderate. However, with local retail fuel price increases feeding into broader inflation, firms will have to pass on part of the cost impact to consumers.
HUL continues building a more agile and resilient supply chain through its multi-year Project Nakshatra initiative, as reported by Business Standard. The company has established multi-category, multi-format factories closer to demand centres, co-located suppliers and warehouses, and introduced nano factories—compact, technology-driven production units capable of manufacturing with rapid changeovers. Looking ahead, AI will be the cornerstone of what the company does going forward, cutting across the entire enterprise to deepen capabilities and enable future wins. HUL will use AI across consumer engagement, marketing, demand sensing and market mix models capable of analysing terabytes of both internal and external data. The company has been sourcing a majority of its raw materials locally over the years, a strategic choice that has held the company in good stead while navigating external disruptions.
HUL shares were trading around ₹2,122, well below its 52-week high of ₹2,705.09, leaving the stock with more re-rating headroom within the FMCG sector if margin expansion plays out as expected. Despite current challenges, Paranjpe emphasized that the company remains well placed to manage short-term volatility and expects to stay agile and nimble to deal with current issues. The company's strategy focuses on sharper segmentation of consumers, building desirable but science-led brands, driving innovation and premiumisation, and entering growth opportunities of the future. Anand Rathi's constructive call on the FMCG sector, anchored on easing crude linked input costs and resilient underlying demand, positions HUL as a key name to watch heading into the June quarter results season.
