Driving The Topline Growth Is Critical

In our corporate mindset, we do not accept the proposition that efficiencies can reach a peak

Like it or hate it, but the Rs 10,000 crore Anglo-Dutch foods and toiletries major Hindustan Lever's presence on the bourses continues to be formidable. But while it grew from mergers and acquisitions in the 90s, the new Millenium has been one of its most challenging.

Despite an economic downturn, and many of its fast moving consumer goods categories like soaps and detergents stagnating, HLL has managed to grow powered by its 30 power brands. But its topline has been out of sync with bottomline growth.

 

Once again, in the third quarter of the current fiscal, HLL's net profit saw a 20.5 per cent increase to Rs 399.16 crore as against Rs 331.16 crorein the previous corresponding period. Its sales turnover rose seven per cent to Rs 2,635.22 crore.

For the nine-month period, net profit rose by 36.8 per cent to Rs 1,204.93 crore but net sales were up by a mere 3.2 per cent to Rs 8,208.98 crore. The cost management initiatives in the beverages and foods business and portfolio rationalisation were largely seen to be responsible for the its recent showing. This has been backed by reduced supply chain costs as well.

Company executives say they will continue to focus on power brands, seek margin improvement in the foods business and pursue a non-core divestment strategy. Here, HLL's finance director D Sundaram cherrypicks company-specific questions and speaks to Nandini Lakshman.

HLL is considered to be one of the jewels in Unilever's portfolio. Is it because of the market size? How much does HLL contribute to Unilever's total revenue and profits?

HLL has always been an important company within Unilever's portfolio, not only because of its size and profitability of operations but also because of its ability to generate high quality human resource deployed in Unilever operations across the globe.

In fact, at present, there are some 65 managers on expatriate positions in various Unilever jobs across the world, including some chairmen of operating companies. HLL's contribution to total Unilever is approximately six per cent of sales and eight per cent of profits.

What is Unilever's ownership strategy outside India?

Unilever has publicly-held companies as well as 100 per cent owned subsidiaries. In countries like India, Indonesia, Pakistan, Nigeria, etc Unilever has a sizeable local resident shareholding in its subsidiaries.

There are also countries where it has joint venture arrangements with one or more partners, for example in Arabia and Egypt. I am not aware of any specific ownership strategy which I can comment upon.

HLL has been growing its bottomline consistently every quarter without commensurate topline growth. With operational efficiencies at its peak, do you think there is further scope for margin expansion?

HLL is very focused on achieving profitable growth. Profitable growth implies achieving a healthy topline with attendant profitability. In our corporate mindset, we do not accept the proposition that efficiencies can reach a peak.

Achieving a peak may be a phenomenon at a point of time but in a dynamic context, there is continuous scope for challenging the status quo and generating cost efficiencies and eliminating hidden costs.

They come through a host of measures, such as research & development, technology upgradation, energy conservation, packaging development, supply chain efficiencies, working capital reduction et al.

The management is always focused on achieving efficiencies in all its operations and avoiding obsolescence at every stage. Having said that, we always believe that driving the topline growth is critical to achieve sustainable profitable growth. Our focused strategy and the drive on power brands is essentially targeted towards this objective.

While I cannot comment specifically on the margin expansion, one aspect we have highlighted as a pillar of our strategy is that there is considerable scope for improving the profitability of foods further. We are committed to achieving this over a period of time.

Till now, HLL has largely remained unchallenged by domestic competition. Would you agree that the scenario has now changed? Today, how are you combating the intense competition from regional brands?

I do not share the view that HLL has remained unchallenged by domestic competition. HLL has always faced competition in the past, both from the international players operating in India as well as from the deft local, low-price competitors.

As we have always maintained, tackling competitive scenarios is challenging and important; equally important is the need to develop markets through higher penetration, wider distribution value propositions and redefinition of the market in a wider sense.