HLL – On a growth path - Views on News from Equitymaster

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HLL – On a growth path

Jul 31, 2000

Hindustan Lever (HLL), India’s largest FMCG company is gearing itself to improve its earnings growth by launching several new products (including premium products) and increasing market share. The company is as confident as ever on achieving its objectives. HLL has been able to maintain its bottomline growth of more than 20% despite slow growth in its key operating areas. This is due to effective cost controlling, better productivity and supply chain efficiencies. The company is leveraging technology for improving efficiency. It has already started reaping benefits in terms of better working capital management and reduction in inventory.

Due to the change of composition of turnover from low priced products to premium products, the company yielded better operating margins. With the increase in the percentage of rich population and the awareness about better hygiene, the opportunities for the company is huge to improve its topline growth.

Mixed bag of market share...
HLL’s market share in the toilet soap segment has reduced from 63% to 61% due to intensifying competition in the personal care market. However the company gained market share in toothbrush, hair care and its foods business due to relaunch and introduction of several new products in this segment.

Comparative market share...
ParticularsMay-00Dec-99
Personal Care  
Toilet soaps60.9%62.7%
Detergent powders38.5%38.6%
Oral Care  
Toothpaste37.0%37.0%
Toothbrush24.3%21.6%
Hair  
Shampoo70.6%70.5%
Hair oils14.5%12.1%
Foods  
Packet tea40.0%39.0%
Coffee45.0%38.0%
Culinary products  
Jams73.0%71.0%
Ketchup42.0%41.0%

New launches...
HLL has launched several new products during the year to increase its market reach and drive its volume growth. The company has been proactive in launching products to suit the requirements of a particular segment. In oral care it has introduced ‘AIM’, a low priced toothpaste to lead conversion from traditional products. To improve on its slow growth rate in the personal product segment it has launched among others the ‘Impulse’ range of deodorant.

The sales growth of ice creams has been flat during the quarter due to a fiercely competitive market scenario. The company has introduced new products under its existing brand ‘Cornetto’, ‘Feast’ and ‘Max’, targeting ethnic Indian taste and preferences. This is expected to improve the ice cream sales growth. The company has also stated that its ice cream business will break even, in cash terms, this year.

In the food business, which is showing the highest growth rate, HLL has launched Lipton ice tea, relaunched Kissan range of products and in the process of integrating the Modern Food business to accelerate growth and leverage synergies. Its ‘Annapurna’ range of food products continues to grow robustly.

It is also venturing in the branded service market with the launch of Surf Laundry Service and Lakme Beauty Salons. The entry into the service sector being is an entirely new concept and will take some time to roll out nationally. The company is aiming to participate in the services sector, which accounts for half the Indian economy and is currently growing at well over 8%.

The initiatives taken by the company to generate volume growth is expected to earn good returns in the long term. This is also evident from returns it has generated year over year. In the first half of the current year, its RONW increased to 48.8% (47.3%) and ROCE improved to 63.1% (58.7%). At the current market price of Rs 237, HLL quotes at a P/E multiple of 45 times its 2QFY00 annualised earnings.

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