Financial Daily from THE HINDU group of publications
Tuesday, Jul 23, 2002
`Power brands' drive HLL; hopes on herbal foray
MUMBAI, July 22
AT media and analyst briefings today echoing the larger worry about rains, Hindustan Lever Ltd (HLL) reiterated its promise to drive for growth and profitability in the home and personal care (HPC) and foods segment. Though a significant portion of its sales is earned from the largely monsoon-dependent rural economy, senior HLL officials said that the prevailing tough market conditions have not drastically altered the ratio between its rural and urban sales.
In the June quarter, HPC power brands including Lifebuoy, Lux and Fair & Lovely grew by 5.1 per cent driving operating profits. Its overall FMCG sales grew by 1.7 per cent in a market that declined by 5-6 per cent. The company's own FMCG brands now account for 87 per cent of total sales.
During the second quarter, the revenue split was as follows: Soaps & detergents Rs 1,210.10 crore (Rs 1,144.21 crore), personal products Rs 600.97 crore (Rs 590.70 crore), beverages Rs 296.97 crore (Rs 318.59 crore), foods Rs 175.82 crore (Rs 173.78 crore), ice creams Rs 44.69 crore (Rs 60.94 crore), exports Rs 305.54 crore (Rs 506.36 crore) and others Rs 92 crore (Rs 215.76 crore).
The 24 per cent growth in second quarter operating profits was attributed to the 5.1 per cent sales growth in HLL's home & personal care (HPC) power brands and sustained initiatives in managing costs. Additionally, focus on improved profitability in the foods business delivered gross margin increases of 670 basis points, 65 basis points in foods and 1300 basis points in ice cream.
Among brands, Lifebuoy grew by 30.3 per cent in the second quarter, Fair & Lovely by 21.5 per cent, Liril by 12.4 per cent, Lux by 14.5 per cent and Surf by 10.4 per cent. But the company's hair care portfolio and `Rin' failed to enthuse.
"We feel we are exactly on track in terms of delivery, strategy and growth,'' Mr M.S. Banga, Chairman, said on the HPC brands. With focus on improving profitability in foods business, HLL has been able to achieve a gross margin increase in beverages by 6.7 per cent and 13 per cent in ice cream.
At an analysts meet later, a further 6-9 months was sought for HLL's foods business to enter the trajectory of high growth.
High hopes are vested in HLL's new `Ayush' range of herbal care products. Currently five products-strong, Ayush according to Mr M.K. Sharma, Vice Chairman, HLL, could evolve into a brand as big as Fair & Lovely. Since the late 70s, Fair & Lovely has grown to be a Rs 500-crore domestic brand with a further Rs 200 crore from exports.
HLL is also exploring export possibilities for its Ayush range of products. "We have registered for export in 20 countries," Mr Sharma said.
Mr Banga said both organic growth and acquisitions would drive HLL's herbal care foray. The segment accounts for one fourth of the Rs 10,000 crore market for personal care items. Potential market size for herbal care and confectionary (HLL's other new venture) together was pegged at Rs 4500 crore.
Forays into water and direct retailing and effecting deeper rural reach are being studied. Asked if the new organised edge to retailing will erode HLL's margins, Mr Banga said, "We see an opportunity there to partner the modern trade." By end-July, 80 per cent of HPC business covering 2000 stockists would be computer-linked.
HLL's Modern Foods has achieved operational breakeven and the company is ready to purchase the remaining stake from the Government.
The billion dollar-outsourcing plan unveiled at HLL's AGM has been kick-started with tea and toothpaste as initial items for shipment to Unilever markets. "I don't see a fast ramp-up, they have long incubation times," Mr Banga said.
Cautioning against early, conclusive opinion on the efficacy of rains, Mr D. Sundaram, Director (Finance), HLL, outlined the second quarter operating scenario as one indicating modest economic recovery. While the 5.7 per cent agri-growth of 2001-2002 is expected to have a lag effect on rural demand, signs of industrial revival are still weak, he said.
Deeming it too early to forecast the market impact of the ongoing rains, Mr Banga pointed out that at times it seemed the question was not so much how the monsoon actually shaped out to be, but how the perception of that activity was. On more than one occasion, he said, the general effort should be to see how the economy can perform despite such concerns about the weather.
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