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HUL’s strategy shows initial success

HUL’s strategy shows initial success
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First Published: Wed, Jan 27 2010. 10 40 PM IST

Updated: Wed, Jan 27 2010. 10 40 PM IST
Consumer care and household products maker Hindustan Unilever Ltd (HUL) is finally regaining volume growth in its soap and detergent categories. And the impact on its margins has not been very drastic, due to lower input costs, lower employee costs and a good performance from its personal products division. HUL’s operating profit margin improved by 20 basis points to 17.2%, compared with the year-ago quarter. One basis point is one-hundredth of a percentage point.
But volume growth is the highlight of this quarter. HUL’s overall volume grew by 4.6%, compared with 1% in the September quarter and 2% in the June quarter. The firm has not given category-specific volume growth, but said that volume shares in soaps and detergents have risen over the September quarter. Some credit must go to a low base too and this effect will be visible till mid-fiscal 2011.
Graphic: Yogesh Kumar / Mint
Soap and detergent segments’ sales fell by 2.4% to Rs2,072 crore and profits declined by around 21%. Lower detergent prices, downtrading in detergents, higher ad spending and a high base effect are the key reasons for the decline. However, sales and profits are higher on a sequential basis, indicating some stability in performance.
But HUL’s second warhorse, personal products, came to the rescue. Sales rose by 15% and profits by 12.4%. Soaps and detergents contributed nearly half of sales. Personal products’ share was around 30% but its share of profits was much higher at 56%. Beverage sales were higher by 8% and would have been higher but for downtrading in tea.
HUL’s advertising expense grew 66%, part of its strategy to win back share and volume growth. Margins improved due to a 4.7% drop in input costs and a 4% fall in employee costs. Profit before tax and exceptional items rose by 3% to Rs781 crore. After its initial success, HUL has to show it can sustain volume growth and margins. A rise in input costs and competitive pressures in personal products will be key concerns. Its performance is the first good news for investors after a few dismal quarters; the stock declined only 1.7% on a day when the market fell by 3%.
Write to us at marktomarket@livemint.com
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First Published: Wed, Jan 27 2010. 10 40 PM IST