GST boost for big soapmakers' volumes

Aggressive price cuts, reduced competition from unorganised players aid growth

Organised soapmakers gained from the implementation of the goods and services tax (GST), showed the September quarter results of the two top sectoral players in the country, Hindustan Unilever (HUL) and Godrej Consumer (GCPL). The overall volume growth of both the companies was led, in part, by soaps.

The GST was rolled out on July 1. In the first quarter (July-September) since then, HUL’s volumes grew by 4 per cent, year-on-year (YoY). In the same period, GCPL’s volume growth was 10 per cent.

The soap business, which gives GCPL a third of its domestic revenue, grew in the September quarter by 18-19 per cent — highest among its three categories, said Vivek Gambhir, managing director (MD) and chief executive officer (CEO) of the company.

“Volume growth in soaps was led by price cuts, micro-marketing initiatives, and activations, as well as reduced competition from small and unorganised players,” Gambhir told Business Standard. 

He added, “We are seeing early signs of this (lower competition from unorganised players), especially in the north and the west. How it will play out will be evident in the coming months.”

HUL cut soap prices by about 3-4 per cent; GCPL opted to pass on all the benefits of lower GST to consumers, with a 6-8 per cent cut in soap prices, analysts tracking the market said.

Before the GST, the tax rate on soaps and most other branded consumer goods in the country was about 23-24 per cent. Soaps, hair oils and toothpastes were all put in the 18 per cent GST slab, making it possible for manufacturers to slash prices.

HUL MD and CEO Sanjiv Mehta also reiterated the positive impact of the GST on his company, saying it had opted to take a “portfolio approach” to pricing. Price cuts were introduced after factoring in the net impact of the GST.
 

Analysts also said the GST had forced small and unorganised players to temporarily shut shop. “There have been compliance issues over the GST among small and medium entrepreneurs. While makers of spurious products may not find it easy to operate the way they did before the GST was implemented, the smaller guys, who make genuine products, may come back once they are able to sort out compliance issues,” said Sachin Bobade, senior analyst at Mumbai-based brokerage Dolat Capital said.

Almost 15-20 per cent of the Rs 14,000-crore domestic soaps market is estimated to be unorganised. HUL commands a lion’s share of remaining organised market.

According to industry estimates, HUL has around 45-46 per cent share of the organised soaps market, while GCPL has a market share of 10-11 per cent. RB (maker of Dettol) and Wipro Consumer Care (maker of Santoor) fight it out for the third position, with an estimated market share of around 8-9 per cent.

Typically, unorganised players get active when commodity prices fall, allowing them to manufacture and price products cheaply. While palm oil prices, the chief input for soap-making, was down year-on-year in the September quarter, unorganised players were unable to do much because of challenges thrown up by the GST.