Pulling multiple levers

HINDUSTAN LEVER: After a poor run in the last few years, is India's largest FMCG firm batting on a better wicket?

On the opening slide of its fourth quarterly results presentation, the $ 52 billion consumer goods giant Unilever has a shot of a lady doing cartwheels, while simultaneously pouring AdeS, the company's soy-based juice into a glass.

There was reason to be euphoric. Unilver had delivered a sales growth of 3.8 per cent in 2006, higher than the 3.1 per cent growth in 2005, prompting group CEO, Patrick Cescau to remark "Unilever is competitive again".

Seven quarters back, the company, in Cescau's words, "had stopped growing". For Unilever's Indian operations, Hindustan Lever Limited (HLL) it's been a similar story. Till about two years back HLL did everything, except cartwheels, to fight stagnation in the Indian consumer goods space, with little luck.

For the Rs 12,100 crore HLL in CY 2006, size was then a disadvantage. Smaller but nimbler competition chewed away market shares in its large and key categories like detergents and shampoos.

In the last two years, the FMCG major has managed to post double digit growth, thanks to a mix of better volumes and some modest price hikes. However, its 2006 report card could have been a shade better. Escalating input costs ensured that EBIT margins remained at 12.4 per cent. HLL in the 1990s used to earn margins in the 21 per cent range. The last quarter was particularly disappointing with a top line growth of under 7 per cent, surprising to say the least, at a time when the economy is booming.

Still analysts believe the worst is over, saying that compared to a couple of years back, HLL is on a better wicket. The encouraging factor, they point out, is that the company is no longer losing share. For instance from a share in excess of 70 per cent in the shampoo category in 1999, HLL's share slipped to less than 60 per cent in three years. This year the company has been able to hold if not marginally improve market shares in most major categories.

"HLL is doing a lot of things right like the shift in focus from primary sales to secondary sales. Apart from trying to improve the merchandise mix, it is focusing on the secondary efforts towards generating demand rather than pushing products down retailers," says an industry watcher.

M K Sharma, vice chairman, HLL says the market strategy is to be present across all benefit points. He adds that the company is using the modern format retail to its advantage. Globally, arch-rival Procter & Gamble initially staged a march over HLL's Anglo-Dutch parent, when it came to large format retail sales.

But Unilever which was chosen as retail giant Wal-Mart's best supplier in 2006 is being careful to not concede that advantage in India. HLL for instance, has sent its executives to get trained at Wal-Mart. Sharma points out that HLL also transfers knowledge on best practices in retail to local companies. The objective: forge a stronger relationship.

The modern retail environment should help HLL build its foods business, a segment that it has failed to grow in the past. While the company has ceded advantage to ITC in categories like atta, it is once again focusing on the category. HLL is also increasing focus from branded commodities like salt and atta to value-added processed foods.The ice cream business,which was losing money is looking up.

At present, HLL seems to be gunning for growth rather than worrying too much about profitability. Top line growth has also been Cescau's number one priority. "In the balance between growth and margin, I've clearly put growth first - because it is key to sustained long-term value creation. And it is where we have been deficient in the past," Cescau said recently.

With the national roll out of its water purifier business this year and a foods plan unfolding, HLL is showing that even a 900-pound gorilla can have an appetite for growth. That's good news, as long as it doesn't bite off more than it can chew.