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HLL: In a transformation phase - Views on News from Equitymaster
 
 
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  • Apr 4, 2001

    HLL: In a transformation phase

    India’s largest consumer products company Hindustan Level (HLL) is in focus due to its restructuring initiatives. The company is aggressively looking for venturing into other high growth markets where the penetration level is low.

    In a bid to boost its ice cream business HLL plans to set up 1,000 kiosks across the country. These kiosks will sell the low priced softy ice cream under the brand name of ‘Kwality Walls’. HLL aims to double the turnover from the segment to Rs 4 bn in the next three years. The marketing for softy will not be through television, but through local visibility campaign. This consumer visibility promotion will boost the volumes.

    Also, as part of its restructuring exercise of pruning the overall brand portfolio to 30, HLL will focus on ‘Cornetto’ and ‘Max’ brand under the umbrella brand ‘Kwality Walls’. The company has expanded its traditional distribution system of mobile and retail vending. Its ice cream distribution network covers 150 towns, 30,000 outlets and 6,000 mobile carts. The focus will also shift more towards selling ice creams through a new niche vehicle: a nationwide chain of parlours. It has already started on test marketing ice cream parlours in Kolkata and Delhi. These parlours offer some of the international brands like Viennetta and Magnum. The company is aggressively entering the ice cream business, which has the good growth potential considering the lower penetration level.

    HLL has decided to hive-off its fragrances and flavours business into a joint venture with ICI India and Quest International. The consideration is fixed at Rs 1.6 bn, which includes a premium for management control. ICI India and Quest International will together hold 51% in the joint venture, while the balance 49% will be held by HLL. The venture would, however, exclude the aroma chemicals business of HLL and the erstwhile Industrial Perfumes Ltd, which will be carried on as a division of the company. This move of HLL is in line with its decision to exit non-core businesses and focus on core brands. To add to this, its parent Unilever has also divested speciality chemical business in 1997.

    HLL has also planned to phase out several of the top brands of International Bestfoods, which its parent Unilever recently acquired worldwide. International Bestfoods (IBL) is likely to merge with HLL in India. The thought behind the strategy is to avoid cannibalization of ‘Kissan Annapurna’, HLL’s flagship brand in the foods business. The brands to be de-emphasized are ‘Captain Cook’ salt and atta, ‘Skippy’ and ‘Trinka’ soft drink concentrate, ‘Tarla Dalal’ range of recipes and ‘Glucovita’ glucose D. However, leading brands from IBL stable, like ‘Knorr’ soups, ‘Brown & Polson’ custard powder and ‘Rex’ baking powder and jelly will be retained, as these do not directly compete with HLL’s own products. The company has also decided to pass on the excise duty exemption on processed foods based on fruits and vegetables to the consumers. This would help the company in generating good volume growth in the competitive food segment.

    Modern Foods, which the company acquired last year, is also undergoing a turnaround process. HLL’s comprehensive restructuring strategy included a focus on sales, quality and employee training. These strategies have been successful in arresting the decline in sales, which has been doubled in the current year compared to the previous year.

    At the current market price of Rs 217, HLL is trading at a P/E of 30 times on December ’01 projected earnings and a market cap to sales ratio of 4.2 times. The company’s restructuring exercise is likely to yield positive results, which will fuel its bottomline growth in the current year. Revenues are also expected to grow in the range of 6-7% with its focus on promoting key 30 brands.

     

     

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