Political instability under a weakened interim government, policy and regulatory delays, the impact of India’s revised Goods and Services Tax (GST), outward migration of youth and the depreciation of the Nepali rupee against the US dollar have dented the profits of multinational companies operating in Nepal.

Unilever Nepal, the country’s largest fast-moving consumer goods manufacturer, reported a 10 percent quarter-on-quarter drop in net profit to Rs431 million, according to its latest financial statement. The company’s total income also fell 8.23 percent in the second quarter of the current fiscal year.

In its quarterly review, Unilever Nepal said that despite strong performance in November and December 2025, the reporting period remained challenging. The company cited market disruptions caused by local political uncertainty, subsequent market closures, the festival market shutdown during the second half of October last year amid the Tihar holidays, and an overall slowdown in the first half of January. The impact was felt across segments, particularly in personal care.

The company said sales contraction, higher material costs and its inability to adjust pricing due to the situation created by GST changes hurt profitability.

“The headwinds still persist in terms of GST rate changes in India, significantly impacting the Personal Care Business Group. Additionally, informal trade routes have seen increased inflow of India-manufactured cheaper products into border towns, making locally manufactured products uncompetitive,” the maker of Horlicks and Lifebuoy said.

India’s revised GST regime, widely referred to as GST 2.0, came into effect on September 22. Under the new structure, most goods and services fall under either the 5 percent or 18 percent tax slab, while ultra-luxury items attract a 40 percent levy.

Unilever Nepal said political instability amid a weakened interim cabinet has resulted in policy and regulatory delays. As a result, business concerns such as India’s GST revisions and the inverted duty structure remain unaddressed. The company stressed that both administrative and structural remedies from the government are required to neutralise the impact.

Years of instability, low jobs creation and unmet promises have also affected the broader business climate. The situation pushed young people to the streets, culminating in violent clashes in September. The youth-led protests were driven by demands for systemic reform, an end to corruption and the creation of an economic environment capable of generating jobs at home. The next federal election is scheduled for March 5.

“Whilst there are positives in the macroeconomic landscape, we are anticipating economic headwinds which will challenge consumption sentiment and affect demand for our products,” the company said. It also noted that strong foreign exchange devaluation seen in January is likely to continue further into the year.

Although the recent Gen Z-led movement resulted in deaths and widespread destruction of public and private property, key external economic indicators remain relatively stable, largely supported by remittance inflows from migrant workers. However, expected commodity inflation and continuing outward migration are adding pressure on domestic consumption.

“As a result, we expect challenges in achieving volume-led growth in the future but have an ambition to strive for achieving our growth aspirations,” the company added.

The Nepali currency has weakened from around Rs142 per US dollar to Rs145 per dollar in recent weeks, raising the cost of imported raw materials and finished goods.

Consumer price inflation stood at 2.42 percent year-on-year in mid-January, down from 5.41 percent a year ago. Food and beverage inflation declined 0.09 percent, while non-food and services inflation stood at 3.81 percent during the review month.

Meanwhile, Bottlers Nepal (Balaju), the producer of Coca-Cola, Fanta and Sprite, reported an 11.9 percent reduction in net loss to Rs290 million in the second quarter.

The company said the shift of the Dashain festival to the first quarter resulted in lower business volume in the second quarter. “However, our strong brand portfolio, adoption of prudent pack-pricing strategies, and continued focus on disciplined cost management helped offset the decline in revenue and enabled us to improve profitability,” it said.

According to Bottlers Nepal, a complex and challenging environment, outward migration of youth, lower relative affordability of products and the depreciation of the Nepali rupee against foreign currencies, which increased material costs, affected performance.

The company said it is continuously assessing its exposure to internal and external risks and implementing risk management procedures, alongside developing cost-effective distribution models for upcountry areas.

Bottlers Nepal Tarai, the group’s subsidiary, posted a net loss of Rs139 million, down 30.9 percent compared to the same period last year.