The Hindu Business Line : Price cuts, ad spend shave HLL profit by 46 pc in Q2

INDIA'S largest FMCG company, Hindustan Lever Ltd (HLL), ended the June 2004 quarter with a 46 per cent decline in its net profit at Rs 244.49 crore as compared to Rs 450.93 crore in the year-ago period.

The company reported a 4.7 per cent decline in its net sales at Rs 2,571.64 crore for the June quarter as compared to Rs 2,700.97 crore in the year-ago quarter.

A decline in margins in the soaps and detergents business impacted profitability for HLL. The company had gone in for price cuts on some of its detergent brands in response to Procter & Gamble's decision to slash prices.

Faced with intense competition, HLL also hiked its advertising and promotion spend by 30 per cent to Rs 256.66 crore (Rs 197.57 crore). "In such a competitive scenario, we decided to put everything to support our detergent brands," Mr M.S. Banga, Chairman, HLL, said at a news conference.

He admitted that the price level for some of its detergents at the premium and mid-priced segments was unsustainable in terms of profitability.

During the June quarter, HPC recorded a volume growth of five per cent but value growth was flat due to price reductions in laundry and shampoo. Foods volumes declined by nine per cent because of planned discontinuation.

The businesses that reported a fall in sales are soaps and detergents, beverages, processed foods, ice creams, chemical, agri and plantations. Those that reported an increase are personal products and exports.

In terms of profits, soaps and detergents, personal products, beverages and exports showed a decline while ice creams reported increase.

According to Mr D. Sundaram, Director - Finance, HLL, the company has had a Rs 175 crore decline at the EBIT level. Apart from the margin pressures and brand expenditure, the company's other income dipped to Rs 70.26 crore from Rs 98.61 crore because of a fall in interest rate on its investments.

In its beverages business, HLL reported a drop to Rs 269.54 crore (Rs 286.84 crore) in sales. While Brooke Bond and Lipton fared well, overall portfolio showed declines because A1 was discontinued. Coffee also declined in value.

In processed foods, which reported sales of Rs 82.23 crore (Rs 176.75 crore), jams, ketchups and soups grew by nine per cent but was offset because of declines in squashes and a defocus in atta. Besides, there were trade stock returns. Overall the company had to make a provision of Rs 15 crore for stock obsolescence.

Shampoos grew in volumes by 40 per cent but two per cent in value. "In shampoos we took a deliberate cut in gross margins to drive growth,'' Mr Banga said.

In confectionary, HLL expects a breakthrough in distribution by tapping the one-million paan vendors. "We are constructing a distribution model to take a number of our SKUs not only in confectionary but in other segments through this network," he said. Smaller packs drive volume growth for HLL.

For the first half of 2004, HLL's net profit fell by 35 per cent to Rs 539.37 crore (Rs 833.85 crore).

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