HLL failed to create substantial impact on increasing market

HLL Lifecare Limited under the Health Ministry, which manufactures a range of products, including contraceptives, has failed to create substantial impact on increasing its market share and its market research was "inadequate", the CAG today said.
It also said HLL made advance payments of around Rs 12 crore to M/s Goa Mining Industries for export of iron ore "without" obtaining adequate security to protect its financial interests. Once the export was abandoned, it resulted in outstanding recoverable from GMI to the tune of Rs 4.92 crore on principal and Rs 4.48 as interest on principal.
"The marketing activities of HLL despite various promotional schemes like heavy discounts and relaxed credit failed to create a substantial impact on increasing the market share. Moreover, the market research undertaken by HLL was inadequate and insufficient.

"HLL was heavily dependent on a single buyer which is the government of India where it faced issues like long pending subsidy claims and supplying products at negative margin. HLL also had substantial outstanding debtors pending recovery which had adverse impact on its working capital," CAG said in its report tabled in Parliament today.
The CAG undertook review of the marketing activities carried out by various divisions for three years from 2012-13 to 2014-15 to assess the efficiency and effectiveness of those operations.
"HLL made advance payments of Rs 12.04 crore to M/s Goa Mining Industries (GMI) under a contract for export of iron ore, without obtaining adequate security to protect its financial interests. Subsequently the export of iron ore was abandoned due to ban on exports of iron ore and the risks involved in transporting large quantities.

"This resulted in outstanding recoverable from GMI amounting to Rs 4.92 crore on account of principal and Rs 4.48 crore as interest on the principal as on November 2015," the CAG said in its report.

The CAG noted that iron ore export being a new business
and lack of experience (of HLL) in the field made it all the more important that a secure form of financial security instrument such as a bank guarantee, performance guarantee or a letter of credit should have been taken.
However, HLL instead entered into a high value contract without "safeguarding" financial interest of the company which was against "prudential business practices", CAG noted.

"Due to venturing into a new line of business without any in-house expertise coupled with lack of adequate security to safeguard its financial interest, the company (HLL) could not recover Rs 9.40 crore (principal Rs 4.92 crore plus interest Rs 4.48 crore from a private party," the CAG said.
The CAG found that all domestic divisions of HLL failed to achieve their respective targets particularly in the last two years while its Consumer Business Division (CBD) and Hi-care Division continuously failed to attain their targets since 2012-13 onwards.
It said records revealed that outstanding dues beyond credit period were substantial and stood at Rs 312.92 crore on March 31, 2015.

"Products like Nirodh, Mala-D and female condoms were marketed by CBD through stockists and retail outlets. The outstanding dues beyond credit period showed an increasing trend and rose sharply from Rs 2.58 crore in 2012-13 to Rs 11.38 crore in 2014-15 i.E from 16.07 per cent of total dues of the division in 2012-13 to 50.64 per cent of total dues during 2014-15.
"In Women Healthcare Division, where products like female contraceptives, pregnancy test kits were dealt with and marketed through retail outlets, the total dues beyond credit period increased from Rs 22.32 crore in 2012-13 to Rs 28.09 crore in 2014-15," the report said.

Noting that there were heavy discounts without commensurate increase in consumer sales, CAG said the HLL continued its operations without having a documented pricing policy to facilitate fixation or periodical review of prices.
The CAG also noted that there were deficiencies in monitoring of channel of distribution of supply of products, no formal method of conducting customised market research for product change and development to combat competition and to plan for improvement of market share among others.