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Cover Story

Is HUL Losing The India Plot?
From #22 in 2009 to #30 in 2010 and now #35 in B&E POwer 100 list. Onkar Pandey tries to find out where is HUL Going Wrong
Issue Date - 21/07/2011
Certainly, the first decade of the 21st century has been a rough ride for Hindustan Unilever. For one, it’s growth rate has taken a big beating. It hasn’t been able to double its revenue in the last 11 years; poor, considering its scorching pace in 90s, when in was doubling its revenue in every four to five years. Second, it’s no more the feared giant whose marketing skills scared lesser FMCG mortals. Now Players like ITC, P&G, Nestle, Dabur, Godrej Consumers and Marico are slowly and steadily nibbling away its market share in both home and personal care category.

A big reason for the same is the fact that the company has gone for quite a few leadership changes and strategy overhaul in the last decade, which though were course-corrective in nature, forced the company towards a fits and start growth, with each new leadership and strategy change. And now it seems something has really gone amiss with the FMCG giant. The shareholders have started earning less and less from HUL (EPS has gone down from Rs.11.46 in FY’09 to Rs.10.58 in FY’11), which might force them to stay away from the stock in future. Already, Goldman Sachs has further muddled the troubled water by downgrading HUL to “sell” from “neutral,” saying it will find it difficult to sustain strong volume growth in a highly competitive environment, while high input costs will continue to put pressure on margins. It’s profitability is showing continuous dip – from Rs.25 billion in 2008-09, it dropped over 11% in 2009-10 to Rs.22.07 billion. Though it managed to improve its bottomline in the last fiscal to Rs.23.06 billion, it’s just a marginal 4.7% rise.

But more than the profit figures, the real problem for HUL at present is that it has been consistently losing market share across categories. According to Euromonitor International, its market share has dropped from a high of 36.6% in 2005 to 33.3% in 2010 in the personal care segment. Going by individual brands the problem is more worrisome. Its classic brands like Fair & Lovely (down from 5.5% to 5.3%), Lux (5.1% to 4.3%), Lifebuoy (4.2% to 3.7%), Clinic Plus (2.4% to 2.1%), Close-Up (1.8% to 1.2%), Breeze (2.1% to 1.1%), have continuously declined from 2005 to 2010, shows Euromonitor data.

Obviously it’s big base – HUL has grown from annual sales of Rs.113.92 billion in 2001 to a company with annual sales of over Rs.190 billion today – can be blamed for low growth rates, but that’s no excuse as the real problem is that most of the growth has been happening only in volume terms.

Nevertheless, satisfied with the company’s Q4 FY2011 performance (overall business grew by 14%, with personal care business growing by 16.2%, and homecare business by 13.6%), Harish Manwani, Chairman, HUL, said, “Our performance has been strong and consistent through the year. Input costs remain high, while the competitive environment has further intensified...” But then, the company has understood the very fact that there are challenges that it needs to take care of soon. And the as said by Manwani, the company has decided to focus on innovations and strong cost efficiency programmes to deliver long-term competitive, profitable and sustainable growth. However, the food business worries need to be addressed very diligently and immediately. The business that once contributed as much as 37% of the company sales (in 2001), after increased focus on home and personal care businesses lost sight and now contributes only 20%. Certainly ignoring the food division, considering that now the sector is growing at a faster clip now, really sounds like a bad strategy on HUL’s part. Anand Ramanathan, Manager, KPMG Advisory, says, “It’s definitely a cause for concern – the overall food market has out paced personal care and hence it is counter-intuitive for players such as HUL to not reflect this overall movement within the market.”

There is no doubt that after operating for so many years in India, HUL has the required bandwidth and management capability to come out of a slump like this. But for that, the company has to stabilise its top positions and of course, strategies. After all, neither can any CEO deliver overnight, nor can any strategy show sustainable developments in a jiffy; they both need time to fructify. At the same time, the company has to re-access its growth opportunities and focus on ongoing trends. The competition from hereon will only intensify to new degrees. So if HUL misses to build on the base that it has already created, then it might face the risk of losing the glorious India plot.

Onkar Pandey           

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