HUL manages to improve margins despite slowing sales growth

Maker of Dove soap and Sunsilk shampoo showed a 4 percent increase in volume growth

Samar Srivastava
Published: May 9, 2016 06:37:17 PM IST
Updated: May 9, 2016 07:37:59 PM IST

After studying law I vectored towards journalism by accident and it's the only job I've done since. It's a job that has taken me on a private jet to Jaisalmer - where I wrote India's first feature on fractional ownership of business jets - to the badlands of west UP where India's sugar economy is inextricably now tied to politics. I'm a big fan of new business models and crafty entrepreneurs. Fortunately for me, there are plenty of those in Asia at the moment.

As volume growth for India’s largest consumer goods company, Hindustan Unilever slows it’s making up for it by increasing margins. The company which has been prudent in hiking prices has now managed to fine tune strategy to extract slightly higher profits across its portfolio.
 
In the fourth quarter results announced on Monday, the maker of Dove soap and Sunsilk shampoo showed a 4 percent increase in volume growth. While net sales rose 3.3 percent to Rs 7809 crore, profit after finance costs but before exceptional items, rose at a faster clip. At Rs 1461 crore, it was 8.5 percent higher than last year.
 
While increasing margins at a time of sluggish sales is usually a sound strategy, it is also a strategy that is likely to receive a thumbs down from the market. Hindustan Unilever’s stock ended the day down 0.93 percent at Rs 845 on the National Stock Exchange. Priced at a steep 44 times earnings, the stock has been flat for the last year as investors look for clues to where the next leg of growth is likely to come from. Chairman Harish Manwani noted that HUL remains committed to its strategy of volume led growth.
 
One engine of growth – the rural economy – that had led an increase in sales volumes has been sputtering for the last four quarters. “The rural market is now growing slower than the urban market,” said Sanjiv Mehta, chief executive officer of Hindustan Unilever. Rural sales which make up about 40 percent of HUL’s sales were growing at twice the rate of urban sales in 2011-12. Mehta is hopeful of a good monsoon helping the company.
 
Fiscal 2016 was also the year when the company cut prices due to the fall in raw material prices. With commodity – crude oil and vegetable oil – prices rising, HUL’s portfolio is unlikely to see deflationary pressure in the year ahead.
 
Mehta stresses that the volume growth for fiscal 2016 was a robust 6 percent and that the company is confident of getting back to that number. He cited their efforts in market development – “we now have the world’s largest sampling programme” - and in moving consumers towards their premium portfolio of products as key levers of their strategy.
 


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