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Shanti Venkatraman

Selective price increases and a richer product mix have helped Hindustan Lever (HLL) maintain its operating margins during the September quarter at a time when FMCG players have been feeling the pressure of spiralling input costs. New product launches and continuing competitive pressure in its key segments have, however, led to a hefty increase in advertising spends, which has curtailed expansion in profits.

The leading household goods manufacturer reported a 12 per cent growth in revenues and a 14 per cent growth in profits (on a continuing business basis, adjusted for exceptional items). Performance was in line with market expectations.

The pace of overall revenue growth has accelerated on a sequential basis. But this is largely due to the recovery in the beverages segment, which has been under pressure in the last few quarters. HLL's main businesses, soaps and detergents and personal care, however, have seen a slowdown on the back of intense competitive pressure.

On the margins front, HLL has fared better, managing to contain input costs reasonably well. This is significant, as several FMCG players have faced pressure on margins in the September quarter. Gross margins improved significantly on the back of price increases and new launches in the home and personal care segments.

HLL has been active in launching premium variants of power brands such as Lux and Sunsilk. Lux Uplifting Firm, Lux White Glow and Fair and Lovely Menz Active were some of the products launched during the quarter.

HLL is investing heavily in these brands, with the intention of improving its product mix.

New product launches could partly explain the 40 per cent jump in ad spends during the quarter.

But the heavy ad budget could also be reflective of the company's need to defend its market share in highly competitive categories such as laundry and personal soaps.

According to AC Nielsen estimates, HLL's market share in the toilet soaps category has slipped over the last 6 months. If competitive pressures continue to intensify across categories, it is likely that ad spends could continue to be a significant expenditure for the FMCG major and could weigh on profit growth.

More Stories on : Financial Performance | Personal Products | Hindustan Lever Ltd | Microscope

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