New Delhi: India’s biggest maker of home and personal care products, Hindustan Unilever Ltd (HUL) will turn around a recent slump to post higher growth in sales volume for the quarter ended December, but that won’t be sufficient to stem the slide in its market share and profitability, analysts said.
HUL is likely to post nearly 4% growth in volumes for the three months to 31 December compared with only a 1% increase in the September quarter, according to a report by brokerage firm Motilal Oswal Financial Services Ltd.
“Volumes are expected to increase by 4% due to grammage increase in detergents and toilet soaps, price reduction in some home and personal care brands and increased trade margins in shampoo sachets such as Wheel and Rin Advanced,” the report said.
Better prospects: A customer looks at an HUL product. Amit Bhargava/Bloomberg
Amnish Agarwal, an analyst at Motilal Oswal, said the overall effect would be in HUL’s favour. “In the last one year, the volumes have been slipping, but the efforts made by the company to arrest them will show some impact,” he said.
HUL declined to comment on the prediction as it is yet to announce its third quarter results.
The company has taken a series of steps in recent months to drive up sales of key products such as shampoo, soaps and detergents. It splurged on sponsorship of television shows and product placements in programmes. For the quarter ended 30 September, the company spent Rs570 crore on advertising and promotions, up 38% from the same quarter the prevoius year.
HUL also relaxed margins and launched Vijeta, an incentive programme under which wholesalers earn points on every purchase and redeem them for rewards such as better margins, foreign holidays and valuable gifts.
Several dealers, as a result, have exceeded the targets set for them, said an HUL distributor on condition of anonymity, as he is not authorised to speak to the media. “The winter sales of personal care products such as face creams, moisturisers and soaps have also been very good this time,” he said.
But analysts warned value growth and decline in market share would continue to worry HUL. In the quarter ended December 2008, the company had posted value growth of 17%, thanks to price hikes. But for 2009, price cuts and downtrading would restrict value growth to about 7-8%, they said.
“If the company takes more price cuts, it will impact profitability and any increase in trade margins will also squeeze overall margins,” said Sameer Deshmukh of non-banking financial company Tata Capital Ltd.
Anand Shah, analyst, Angel Broking Ltd, said the competition was also getting tougher. “Procter and Gamble and Godrej Consumer Products Ltd have become aggressive in terms of new launches and pricing,” he said. “Volume growth might be more this quarter, but inflation in raw material prices, consumer downgrading and value growth would remain a cause of concern.”