The Hindu Business Line : HLL: Q3 numbers signal newfound aggression

A SURGE in consumer spending and a pepped-up brand portfolio have helped Hindustan Lever better street expectations with its numbers for the September quarter.

The 14 per cent sales growth is impressive; it beats the growth rates achieved by several of Lever's smaller competitors and is driven by a broad-based resurgence across categories that the company operates in. In the coming quarters, the key challenge for Lever will be to nudge up profit growth, which has been curtailed by rising input costs. A lower tax incidence (due to rationalisation of manufacturing facilities) and lower interest outgo (due to redemption of bonus debentures) helped the company's profit after tax to grow by 15 per cent this quarter. The analyst consensus was for a flat bottomline this quarter.

There has been a newfound aggression in Lever's marketing strategies over the past few months, coinciding with the rejig in top management. Advertising and promotional spends have been sharply hiked (up by 22 per cent this quarter), translating into higher visibility for Lever's soap and personal care brands, both on the retail shelves and in the mass media.

Established "power" brands have been used to chart forays into new categories: Lakme has been extended into hair care, Lux into body wash and so on. A slew of high-end products in body wash, hair care and tea have been rolled out in an effort to capture the affluent consumer. Finally, brands such as Annapurna that were earlier being phased out, have been given a new lease of life and replaced on the store shelves.

These strategies have resulted in Lever winning back market share from its competitors in categories such as laundry, shampoos and skin care. But the continuing rise in the costs of inputs such as soda ash and surfactants is the key worry for Lever from a profit perspective.

Smaller FMCG companies focused on emerging niches in personal care have managed robust profit growth, because they cater to less price-sensitive consumers.

With a good chunk of Lever's revenues originating from its conventional laundry and soap brands, its profit growth will depend mainly on whether it is able to peg up selling prices on these products, without hurting volume growth.

Any resurgence in rural demand arising from better farm incomes will also help Lever's cause.

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