The recent revision in Goods and Services Tax (GST) slabs has temporarily slowed down Hindustan Unilever Ltd’s (HUL) momentum. The fast-moving consumer goods (FMCG) giant informed stock exchanges that September sales were impacted as the company transitioned its vast product portfolio to revised tax rates.
Transitory Sales Impact
HUL expects consolidated business growth in the September quarter to remain flat or inch up only marginally in single digits. The slowdown stems from disruptions across distribution channels as retailers and distributors focused on liquidating older inventories at pre-revised prices. Bulk orders were put on hold as trade partners anticipated lower rates, resulting in delayed restocking.
According to HUL, this effect is temporary. “This is a one-off, transitory impact, and we anticipate recovery starting in November, as prices stabilize, underpinned by rising disposable incomes and our ongoing portfolio transformation actions,” the company said in its filing.
GST Rollout and Market Adjustments
From 22 September, FMCG companies were required to roll out updated prices after GST rationalization cut rates on several household essentials. While beneficial for consumers, the transition created short-term operational challenges for companies managing hundreds of stock-keeping units (SKUs) across millions of outlets.
HUL confirmed that nearly 40% of its portfolio—including soaps, toothpaste, shampoo, hair oil, talcum powder, nutrition products, and select food items—now carries a reduced GST rate of 5%, compared to the earlier 12–18%. This reform, the company emphasized, is a welcome step to boost consumption, and HUL has already begun passing on these benefits through lower pricing and higher value offerings.
Inventory Disruption Extending into October
The pipeline adjustment is expected to weigh on sales well into October. “While this measure supports long-term consumption, we have seen a transitory impact in the form of disruption at distributors and retailers across channels to clear existing inventories with old prices. This has resulted in the postponement of ordering,” HUL noted.
Despite the disruption, the company remains optimistic about long-term growth. As festive season demand gathers pace, supported by improved consumer affordability, volumes are likely to bounce back in the coming months.
Industry-Wide Effect
HUL’s situation is not unique. Godrej Consumer Products Ltd, another FMCG heavyweight, also flagged similar short-term turbulence due to GST reforms. Its managing director, Sudhir Sitapati, noted that while immediate complications exist, the benefits of lower taxes and higher disposable income would lift demand through the festive quarter.
For both companies, essentials like soaps and shampoos—accounting for 35–40% of their portfolios—are directly impacted by the tax cut.
Growth Outlook
In the June quarter, HUL reported a 3% sales volume growth after three consecutive quarters of slowdown, with net profit rising 8% to ₹2,732 crore. With the GST-led disruptions behind them, analysts expect consumption-led growth to regain momentum from November onwards.
The coming festive season, coupled with portfolio realignments and competitive pricing, could help HUL re-establish stronger growth trends. For now, the September quarter results, scheduled for 23 October, are likely to reflect the GST transition’s short-term drag.
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