 "We are ahead of the market in volume growth: Sanjiv Mehta")
The country's largest consumer goods company, Hindustan Unilever, reported a weak set of numbers for the December quarter. In a media interaction, Sanjiv Mehta, managing director and chief executive officer, says they'll continue to focus on volume growth as price growth remains muted. Edited excerpts:
Volume growth for HUL has improved from 4.5-5 per cent last year to six per cent. Do you see this getting better?
If you see overall market growth over the past two years, value growth of five per cent has come down to about 4.5 per cent. Volume growth, on the other hand, virtually nil two years ago, is now 2.5-3 per cent. We are ahead of the market in this and our focus on this metric will stay. The previous time there was a commodity price deflation, in 2009, we did not focus enough on volume growth. The result was a fall in both price and volume. We were clear we would not repeat this mistake and began taking measures early on, to ensure volume growth stayed intact.
We have stayed on course in investing behind brands goes. Our advertising & sales promotion expenditure has increased and we will keep it that way. Our innovation pipeline remains intact, apart from the price cuts we are taking, keeping the price-value equation in mind. A combination of these has helped us sustain volume growth at six per cent for the past three quarters.
Will you reduce your dependence on soaps & detergents, a mature category and which contributed to the price de-growth you saw this quarter?
It is our core category and we will not take our eyes off it. But, to answer your question, the sales mix will change over time as emerging categories evolve. Segments of the future today contribute 20 per cent of our turnover. This number will go up as these categories get bigger.
You have a cash balance of Rs 5,000 crore on your books. Since you have gone back to making acquisitions with Indulekha (the hair care brand it recently acquired), will you deploy this money into acquiring brands and businesses?
We have always maintained we're open to acquisitions if the fit is right. Indulekha fitted the bill both in terms of our strategic intent and price. If anything else matches our priorities and intent, we will consider it.
The December quarter saw the e-commerce launch of Ayush (their brand of ayurvedic products). Will you take it offline?
Right now, the focus is online. The e-commerce platform is an evolving channel of distribution and something we believe will work for Ayush, which is positioned on the ayurvedic and naturals platform. We will take it offline later.
Did Unilever, your parent and largest shareholder, influence your decision to transfer the entire balance of Rs 2,187 crore in general reserves to the profit & loss account ?
The decision was the result of an option that was available thanks to the new Companies Act, which does not make transfer of profits to general reserves mandatory. We felt instead of keeping the amount in general reserve, we could give it back to the shareholders. We have sufficient cash balance on our books and the amount in general reserve was in excess of our needs. We will decide how to disburse it once necessary approval from the high court to our scheme is received.
That should take about six months.
Volume growth for HUL has improved from 4.5-5 per cent last year to six per cent. Do you see this getting better?
If you see overall market growth over the past two years, value growth of five per cent has come down to about 4.5 per cent. Volume growth, on the other hand, virtually nil two years ago, is now 2.5-3 per cent. We are ahead of the market in this and our focus on this metric will stay. The previous time there was a commodity price deflation, in 2009, we did not focus enough on volume growth. The result was a fall in both price and volume. We were clear we would not repeat this mistake and began taking measures early on, to ensure volume growth stayed intact.
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What have you done to improve volume growth?
We have stayed on course in investing behind brands goes. Our advertising & sales promotion expenditure has increased and we will keep it that way. Our innovation pipeline remains intact, apart from the price cuts we are taking, keeping the price-value equation in mind. A combination of these has helped us sustain volume growth at six per cent for the past three quarters.
Will you reduce your dependence on soaps & detergents, a mature category and which contributed to the price de-growth you saw this quarter?
It is our core category and we will not take our eyes off it. But, to answer your question, the sales mix will change over time as emerging categories evolve. Segments of the future today contribute 20 per cent of our turnover. This number will go up as these categories get bigger.
You have a cash balance of Rs 5,000 crore on your books. Since you have gone back to making acquisitions with Indulekha (the hair care brand it recently acquired), will you deploy this money into acquiring brands and businesses?
We have always maintained we're open to acquisitions if the fit is right. Indulekha fitted the bill both in terms of our strategic intent and price. If anything else matches our priorities and intent, we will consider it.
The December quarter saw the e-commerce launch of Ayush (their brand of ayurvedic products). Will you take it offline?
Right now, the focus is online. The e-commerce platform is an evolving channel of distribution and something we believe will work for Ayush, which is positioned on the ayurvedic and naturals platform. We will take it offline later.
Did Unilever, your parent and largest shareholder, influence your decision to transfer the entire balance of Rs 2,187 crore in general reserves to the profit & loss account ?
The decision was the result of an option that was available thanks to the new Companies Act, which does not make transfer of profits to general reserves mandatory. We felt instead of keeping the amount in general reserve, we could give it back to the shareholders. We have sufficient cash balance on our books and the amount in general reserve was in excess of our needs. We will decide how to disburse it once necessary approval from the high court to our scheme is received.
That should take about six months.