HUL Absorbs Higher GST On Detergents, Cuts Soap Prices

India’s largest consumer goods maker Hindustan Unilever Ltd. has not increased detergent prices to factor in a higher Goods and Services Tax, people aware of the company’s pricing told BloombergQuint.

Detergents are taxed at 28 percent under the GST compared to 22-24 percent earlier. HUL earns a third of its revenue from home care products like detergents, dishwashing bars and floor disinfectants. The company didn’t respond to BloombergQuint’s emailed queries on prices of its washing powders.

Detergents is a highly competitive category and it’s not easy to immediately pass on higher tax to consumers, said Sachin Bobade, an analyst who tracks consumer goods companies at brokerage Dolat Capital Markets Ltd. Companies are expected to choose volumes over hiking prices as growth has been tepid in the last few quarters, said Bobade.

To add to that, distributors cut stock ahead of the GST rollout fearing losses on transition stock. Sales to bulk dealers in June fell by 10 to 15 percent, Dhairyashil Patil, national president of All India Consumer Products Distributors’ Federation, had told BloombergQuint earlier this month.

Godrej Consumer has also decided not to increase prices of its hair colours.

Kataria said the company is “confident that we will be able to manage the higher costs in hair colour” after the tax rate rose from 26 percent earlier to 28 percent under GST. It earns 12.3 percent of its revenue from the category.

Soap Prices Fall

Consumer companies, however, have decided to reduce prices of products on which tax rates have fallen, partly to comply with rules. The new indirect tax regime implemented from July 1 mandates them to pass on the benefits to consumers. An anti-profiteering clause in GST provides for penalty on companies not cutting prices to match lowered tax rates.

HUL will cut prices of its Lifebuoy and Lux soaps by Rs 10-14 on a pack of four. For the premium Dove and Pears bathing bars, the company said it will offer 33 percent extra grammage while maintaining prices.

HUL earns nearly half of its revenue from personal care products like soaps and shampoos. A presentation on its website said HUL will pass on the net benefit based on fair principles.

Godrej Consumer Products has also reduced prices of soaps by 6-8 percent. They contribute more than a fourth of its revenues. The company expects high-single digit volume growth from September.

Kataria expects the wholesale channel to start stocking up in the next 15-20 days. Demand for new stock has already started to emerge from modern retail and general stores, he said.