The Hindu Business Line : HUL matches smaller rivals in sales growth

The March 2008 quarter has seen HUL’s net sales grow at a healthy 19.1 per cent (13.3 per cent in full year 2007), helped by a 20.4 per cent growth (12.3 per cent) in the home and personal care portfolio. This matches or beats the growth rates managed by the company’s much smaller rivals, indicating market share gains. Every segment has chipped in with double-digit growth. Recent laggards such as personal products (23 per cent growth) have made a comeback, though the food and beverage business (15 per cent) has slowed sequentially.

Margins improve

HUL’s operating profit margins have expanded relative to the same period last year, indicating that recent price increases have probably helped make up for escalating raw material costs. Material costs, a key challenge for FMCGs, have expanded by 17 per cent for HUL. But this has been made up by the strong pace of sales growth.

Segment-wise, profitability has shown a decline compared with the December quarter. But this could be the function of seasonal influences and uneven launch activity.

HUL’s sustainable net profit growth for the quarter at 16.5 per cent lags sales growth. This is however, not a cause for concern, as it is explained by lower treasury income (cash coffers are likely lower after the buyback and brand-building investments). HUL has also continued to splurge on adspend (21 per cent higher) this quarter. HUL’s launches in recent quarters have centred around expanding premium offerings in each of its businesses — whether through extensions such as Knorr and Kissan Amaze in foods, or Pond’s Age Miracle and Dove shampoo in skin and hair care. However, on the flip side, the impact of the series of price increases across products in recent quarters needs to be watched. Only sustained volume growth in HUL’s brands from here on will tell if consumers have taken these increases in their stride.

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