The Hindu Business Line : Price cuts, export dip hit HLL bottomline

The HLL Chairman, Mr M.S. Banga, flanked by Mr D. Sundaram (right), Director-Finance & IT, and Mr Arun Adhikari, Managing Director, at the company's AGM in Mumbai on Thursday. - Shashi Ashiwal

DEEP price cuts on key products such as detergents and shampoos, which has not quite been made up by volume growth, has no doubt had a hand in the 43 per cent drop in Hindustan Lever's profits for the June quarter.

But reversals suffered in businesses such as foods and exports and declining treasury income, have also contributed to the dent on the bottomline.

HLL's segmental results reveal that the price cuts of 20-25 per cent on some detergent and shampoo brands probably did perk up demand. For the June quarter, HLL managed to keep the decline in soap/detergent sales (value) to 2.8 per cent while personal product sales actually grew in value. Profit margins on home and personal care products were lower, as expected, after the price cuts. But lower profitability in businesses such as beverages, processed foods and exports, is certainly more worrisome.

Non-operational items have also played a big role in HLL's uninspiring profit performance for the quarter. Treasury income, which dropped to less than half of last year's levels, accounted for about 15 per cent of the Rs 247-crore contraction in gross profits. The interest obligation on bonus debentures accounted for another 12 per cent. Adspend - a discretionary expense - shot up, also denting HLL's profit numbers.

The sharp hike in adspend, by about 30 per cent, is a sign that HLL is aggressively investing in brand-building, despite the slowdown. This is a positive sign for two reasons. One, healthy growth numbers from competitors such as Colgate-Palmolive and Godrej Consumer suggest that they could be gaining ground in HLL's home turf; HLL may have to use its marketing muscle to counter them. Second, with surplus cash no longer earning a hefty return, it makes sense for HLL to use it to nurture its core businesses, where it may make a difference.

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Price cuts, export dip hit HLL bottomline