HUL says only mass-end business needs fixing

For consumer goods giant Hindustan Unilever Ltd (HUL), gaining volume numbers back is going to remain a big thrust.

Three-fourth of company’s business is on track, showing double digit growth and market share improvement, while the remaining — primarily in the mass-end — needs fixing, Harish Manwani, chairman said during the Q2FY10 results announcement on Saturday.
HUL has taken several steps in the past two quarters such as improving product quality, pricing, and stepping up investment behind brands; and now expects these actions to bear fruit.

“Brands in the premium and mid-segment have shown double-digit growth with strong volume growth. It is only the mass-end segment where there is an issue and we have taken already actions,” said Nitin Paranjpe, managing director, HUL.

For the quarter ended September 30, the consumer goods maker reported net sales growth of 5% at Rs 4,228 crore as compared with Rs 4,028 crore in the same quarter last fiscal. However, the 21.6% decline in net profit has been a real disappointment.

HUL’s Q2 net profit went down from Rs 546 crore last fiscal to Rs 428.53 crore this year.

During the quarter, the company’s advertising and promotion spend rose 38%, driven by re-launches across brands including Lux, Pepsodent, Liril and Breeze.

The company’s domestic sales, including the Pureit water business, grew 8%.

Fast moving consumer goods (FMCG) sales grew 7%, with 5.7% growth in home and personal care and 13.1% growth in the foods business.

Sales volumes, however, grew just 1%. During the April-June quarter and March 2009 quarter, HUL had reported volume growth of 2% and negative 4%, respectively.
Profit after tax before exceptional items grew 9.5%; while before the mark-to-market charge, it grew 14.4%.

Operating margin improved by 140bps due to carry-forward impact of pricing, improved product mix, and a step-up towards cost saving. PBIT grew 16.5% with operating margin improving to 14.3%, after absorbing 320 bps increase in brand investments.

Soaps and detergents have performed meekly for the company. It has experienced down-trading from consumers, who moved to cheaper brands of national and regional competitors. The company is rejuvenating soap and detergent brands in the mass-end and expects market share stabilisation and positive results in the coming two quarters. This is likely to happen as the re-launched stocks move up the distribution pipeline and reach the consumer.

“In soaps and detergents, we are actively strengthening our full portfolio and improving our competitiveness in the mass segment. We remain determined to profitably grow volumes and further strengthen our market leadership across categories,” Manwani said.

The home and personal care business grew 6%, driven by volume-led growth in personal products. Soaps and detergents grew only by 1%, impacted by low growth in the mass segment.

The personal products category grew 13%. Dove, in soaps as well as shampoo, is the company’s fastest growing brand and is having a positive impact on the market share.

During the quarter, HUL re-launched Clear and Clinic Plus. In skin care, the company re-launched Pond’s White Beauty, and is rolling out a winter fairness cream under Fair & Lovely.

In the oral care category, HUL witnessed some erosion in the segment, even as it re-launched Pepsodent. The month-on-month value share in oral care has declined from 27.1% in August 2009 to 26.8% in September 2009.

The foods business grew 13%, driven by tea, coffee and ice-cream. Beverages grew 18%, fuelled by the launch of Lipton Green Tea, re-launch of tea bags and growth in low unit packs of instant coffee. The company also re-launched Knorr soups in processed foods division during the quarter.

In instant coffee, the company’s value share increased from 44.3% in August to 46.4% in September, while in tea, it increased from 22.3% in August to 22.6% in September.
In washing powders and liquids, the company’s value share has gone up from 36.2% in August to 37.3% in September while in detergents, it has lowered from 36.3% to 36.1% during the same period.

In soaps, the value growth remained flat at 44.5%, while in skin care, it increased to 46.9% from 46.4%.

HUL has 35 brands across 12 categories. “The breadth in our business is our advantage,” Manwani said referring to brands that cater to premium, middle and mass-end of consumer segments.

Manwani said the focus will be on market development as much as on market share gain. The company is also giving major thrust on cost saving from distribution and efficiencies within the organisation.

Going forward, HUL’s strategy will be to focus and cater to consumers across all segments through its existing brands. It plans to take on to the many regional players that have been eating into its market share for over a year now.