Unilever failing to profit from raw material price drop in India

By Lucy Whitehouse

- Last updated on GMT

Unilever failing to profit from raw material price drop in India
Sales growth for consumer goods multinational Unilever is failing to meet expectations in India, despite the country currently experiencing a considerable drop in raw material prices.

With demand for personal care slipping within the domestic market, Hindustan Unilever has been unable to profit from most of the recent 40% drop in raw materials.

Instead, it has reportedly had to pass on the bulk of these savings to consumers: as a result, growth for the company in the last quarter slumped below expectations to 3.2%, and net profit fell 22% year-on-year to 9.7 billion rupees ($143.6 million).

Perfect storm

Demand has been slipping for consumer goods industries due to a combination of issues in India.

Both the moonsoon and winter seasons were delayed this year, which had a knock on affect onto consumer demand, particularly in rural areas, where the company has recently begun to struggle.

"Rural growth has come down, at a much lower level than it did in the past and now is at par with urban growth​," HUL Chairman Harish Manwani has said, according to Asian Review, adding that the scenario will remain that way for some time.

Much of the previously healthy growth seen in India in recent years had been propelled by demand in rural areas, which has now dropped considerably.

A show of confidence

Manwani has voiced confidence that the company's intended strategy of continuing to diversify its product offering will see Hindustan Unilever ride out this period of slow growth, according to the Indian Express.

In an environment of moderating growth and benign input costs, we remain focused on innovation and market development to drive volumes competitively whilst improving operating margins​.”

In a move set to shore up these assertions, the company has just paid out Rs 2,100 crore to each of its shareholders.

Given HUL’s strong financial position and track record of cash generation, the funds represented by such accumulated general reserves is seen to be in excess of the company’s current and anticipated needs​,” the company has stated.

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