Hindustan Unilever sinks further on poor growth, high ad spends

HUL’s sales growth has again not kept pace with inflation, net profit is down despite an advertising blitzkrieg of 71% in the December quarter

The third-quarter results of Hindustan Unilever Ltd (HUL) shows that the company continues to be a rudderless boat. It has sunk further into a quagmire of low growth and high advertising expenditure. HUL, of course, sees things differently. The company which has some of the best-known consumer brands (Lux, Liril, Dove, Pepsodent etc.), claims to have reported “strong growth”. Strong growth in this case meant 5% rise in sales during the third quarter (Q3) of FY10 over Q3FY09.

HUL has also stated that its volume growth has “accelerated” by 5% in the December quarter. Compared with the scorching growth every single consumer products company is recording, HUL’s idea of strong growth and accelerating volume growth is strange. If 5% growth rate is strong in a market like India, what will you call the 16% sales growth reported by Godrej Consumer Products Ltd during the same period? Godrej has a much smaller portfolio of products but these are obviously marketed in a much smarter way compared to HUL, which at one time was looked upon with awe by marketing professionals. Indeed, sales of the core of HUL’s product range—soaps and detergents—actually shrank by 2.4% quarter-on-quarter.

HUL also claims that increased cost savings and buying efficiencies improved gross margins. This looks like a dubious claim. In Q3FY09, sales were Rs4,307 crore and operating profit was Rs723 crore, a gross margin of 16.8%. In Q3FY10, operating profit barely inched up to Rs742 crore on sales of Rs4,504 crore. This yields a margin of 16.5%. Operating margin fell; it did not rise, as HUL claims. 

HUL’s December quarter looks pretty pathetic by itself, belying the optimism and cheer of its press release. Set against the galloping advertising expenditure, it should look worrying for shareholders. During the third quarter, HUL, a 52%-owned subsidiary of Anglo-Dutch giant Unilever, spent Rs632.88 crore on advertising and promotions, a 71% jump over the same quarter last year. During Q3FY09, the company spent Rs371.02 crore on the same. Since this ad spend did not lead to higher sales, it means either this huge spending was a drain or HUL’s sales would simply slump if they were not propped up by advertising and promotions.

The key problem with HUL that remains unaddressed for almost decades now is that it has no pricing power, very little competitive edge and its marketing has become totally ineffective. The December quarter results reinforce this view.

  • Like this story? Get our top stories by email.




    10 years ago

    Compay is spending on the advertising but it is good but the medium of advertising are really expensive rather puting the add on the television company should give the advertisement in dailly news papers so that the cost will be low .HUL is facing the problem of sales decrease though some time it show that sales is superior but actually its not something like that. Rural marketing is a very good by HUL but it need to research on pricing strategy of the rural market and the urban market if HUL really want to grow in the rural market then it must have to think about the pricing strategy otherwise it will lose the customers. HUL is well know brand in India so company should put the much more attention on marketing and research of product. company must pay the attention on the marketing research of the products through the brand wise.


    1 decade ago

    If yr example is taken further, the market has valued it correctly, the % rise in the price of both shares over a 3 year period will reveal what is happening. More over some of the ads are of very poor quality n taste. I am writing to them. I am holding shares for the last 20yrs. and the co is sliding down.

    Vinay Lele

    1 decade ago

    These kind of results are with the support of tax incentives with HUL's Factories spread over HP,Uttaranchal ,Silvassa , Daman which are giving them excise / I.T.benefit. The Company needs to think what would happen once these benefits are over !!


    1 decade ago

    Well, its quite complex. The Company claims that 5% growth is "strong", and it spends 71% more on advertising to deliver that strong growth. Its time for heads to roll at HUL. The company probably pays its employees very well, and hence they continue sticking around as "best talent" in the country. With their IIM tags and the close networking which these institutions have, they continue increasing their headcount at higher and higher cost. I think this company at the moment is not being run for shareholders.

    Anil Agashe

    1 decade ago

    I have always thought that for HUL cut in advertising would mean better profits. I do not know why they spend so much to advertise brands which are supposed to be market leaders,especially when they show no growth in volumes.

    Markets continue to fall, but get ready to sell at a rally

    Fears of monetary tightening by the RBI, along with weak global cues, pulled down Indian markets

    Indian investors remained cautious ahead of the quarterly Reserve Bank of India (RBI) monetary policy review on 29 January 2010. It is widely expected that the RBI is set to increase the cash reserve ratio (CRR) requirements for banks. CRR is the level of cash that banks must keep in deposits with the central bank.

    Bourses slipped further on the back of weak openings at European markets. At the end of the day, the Sensex closed at 16,290, declining 491 points from Monday’s close while the Nifty closed at 4,853, down 155 points. Indian markets are expected to remain volatile as traders roll positions in the derivative segment from January 2010 series to February 2010 series ahead of the expiry of the near-month January 2010 contracts on Thursday, 28 January 2010.

    At 12:00 hrs IST the Sensex was trading at 16,491, down 289 points from the previous day’s close while the Nifty declined 95 points, trading at 4,913.

    At 14:00 hrs IST the Sensex further declined 448 points and was trading at 16,332 while the Nifty was trading at 4,862, down 146 points.

    At the end of the day, Jaiprakash Power Ventures plunged 8% after the company announced that it had launched the issue of foreign currency convertible bonds worth $200 million.

    EdServ Softsystems has been awarded a vocational training provider (VTP) status for the southern region represented by the Regional Directorate for Apprenticeship Training of Chennai and Hyderabad regions of the ministry of labour, government of India. The stock was down 2%.

    Lanco Infratech has been awarded five contracts totalling Rs5,676 crore. The stock declined 5%.

    TRF Ltd has received an award worth Rs316.38 crore from NTPC for supply, transportation and installation of coal-handling facilities. The company has also received an additional NTPC order worth Rs295.24 crore. However, the stock was down 3%.

    Indian Infoline declined 6%. The company has acquired Orient Global’s stake in two of the company’s unlisted subsidiaries India Infoline Investment Services and India Infoline Marketing Services Ltd.

    Edelweiss Capital declined 3%. The company is going to buy Anagram Capital for Rs164 crore in cash.

    As per reports, aggregate results of 757 Indian companies showed 48% rise in net profit and 19% rise in sales in the December 2009 quarter over the same period last year.

    The International Monetary Fund, in an update of its World Economic Outlook, said that the world economy will expand by 3.9% in 2010, much higher than the 3.1% it projected in October, and the pace will pick up to 4.3% next year. It also said that India’s economy would grow at around 7.7% this year and 7.8% in 2011.

    During the day, Asia’s key benchmark indices in Japan, Hong Kong, Singapore, South Korea, Taiwan and China were down by between 0.38%-1.09% on fears of China’s central bank tightening rates, and Japan’s outlook downgrade by Standard & Poor’s.

    On Tuesday, 26 January 2010, the Dow Jones Industrial Average was down three points while the S&P 500 and the Nasdaq Composite were down five points and seven points respectively.

    As per US reports, consumer confidence hit its highest level since September 2008 to 55.9 from an upwardly revised 53.6 in December. Also, the national retail federation reported that retail sales were likely to rise 2.5% this year, after a 2.5% drop in 2009.

    However, in premarket trading, the Dow was trading one point lower.

    We expect the market to move upwards from here on. We won’t be surprised to see the Sensex hitting 16,900 in the coming days.

  • Like this story? Get our top stories by email.


    Investor Interest   Exclusive
    Realty projects on Mumbai forest land get SC nod

    Real-estate construction stuck up under the Maharashtra Private Forest (Acquisition) Act since 2006 has now got a green signal from the Supreme Court, but further development will be possible only after a nod from the ministry of environment and forests

    The Supreme Court of India has given a green signal to real-estate construction in Maharashtra for residential and commercial properties stuck under the Maharashtra Private Forest (Acquisition) Act, on Wednesday. But developers have to still wait for the clearance from the ministry of environment and forests (MoEF) before going ahead with construction or selling of projects in these forest lands.

    “It is not an interim approval to all the projects built on forest land. It is only certain sections at Nahur and Bhandup which have got the green signal. Projects in Borivali, Goregaon and Kandivali (all Mumbai suburbs) still have to wait for clearance from the legal body,” said Pankaj Kapoor, founder, Liases Foras.

    A bench comprising Chief Justice K G Balakrishnan and Justices Deepak Verma and B S Chauhan said that the interim order allowing construction activity is subject to the outcome of the pending petitions before it.

     The Maharashtra Private Forest (Acquisition) Act came into force on August 30, 1975. Under the Act, land categorised as a ‘private forest’ could be acquired by the forest department to conserve forests.

     Earlier, developers ignored the legislation till the Bombay Environment Action Group, a non-government organisation, filed a complain in the High Court stating that the state was ignoring the law and was not taking any action to acquire the 305 plots, that the state forest department had notified. 
    In 2006, the Brihanmumbai Municipal Corporation (BMC) had issued a stop-work notice to the projects on these plots, but a few developers went ahead with their projects.

    “The developers have got a sign of relief from the judgement passed by the Supreme Court but have to wait for the MoEF’s decision. The MoEF will take some time to give a go-ahead to such projects. There will be proper due diligence. The developers have to wait till MoEF responds,” said Subhankar Mitra, AVP—strategic consulting, Jones Lang LaSalle Meghraj.

    Earlier, the court had already announced that the developers had to pay a net present value (NPV) as a penalty  for their properties. It also appointed a central empowered committee (CEC) to suggest a solution to this issue. The CEC recommended that residents living in houses constructed before 22 June 2005 pay an NPV of Rs8 to Rs12 per square foot for regularisation, while builders whose projects were completed before this date, but have not yet been given occupation certificates, pay five times the NPV—Rs40 to Rs60 per square foot. Builders who wanted to redevelop factories and commercial establishments into residential complexes were asked to pay an NPV of Rs80 to Rs120 per square foot.

    “The judgement of the court was in favour of the customers who had booked their properties long time back but could not own them due to the litigation. At least, consumers will not feel that the developer has cheated them. Developers have got a positive signal from the legal body and we expect the MoEF will soon give the clearance,” said Mayur Shah, chief, sales business unit, Ackruti City Ltd.

    According to media reports, there are about 150 large projects being constructed over about 200 acres of forest land in the city by builders, with a market value of Rs25,000 crore.

    “It is a great relief for developers and a lot of actual users,” said Dharmesh Jain, chairman and managing director, Nirmal Lifestyle.

    However, sounding a note of caution, Parimal K Shroff from Parimal K Shroff & Co, said, “It is an interim order which has been passed by the Supreme Court. The court has permitted a few people to pay the NPV in a certain period of time. Thereafter, the decision will be taken by the CEC appointed by the court.”

  • Like this story? Get our top stories by email.



    abhay shah

    7 years ago

    plz send me the updates of this issue. its a humble request. thank you


    10 years ago

    These houses must be demolished. Tomorrow the excuse is that there is no space in the villages and the whole nation should descend on us here in Bombay. The resources [Trees, Water bodies and open land] dont belong to migrants. They belong to natives. Thus depriving their rights to the forest for a livelihood.
    Tomorrow the lakes will be destroyed to make way for the migrants who have a greed for the glitzy lifestyle here in Bombay. The court must take back its order and ask the builders to pay back the customers money. Only then the law of the land will prevail.



    In Reply to Luke 9 years ago

    Whoever u are, advising to demolish the houses, should know the actual situation first. No citizen should end up paying their lifetime of savings for the mistakes done at state governments end. They have been making loads of money in the name of taxes, registration,stamp duty for years and now they want to make forest between two non forest areas. How ironic......


    10 years ago

    please give me the latest update on the same issue


    malathi krishnan

    In Reply to neetu 8 years ago

    Please join facebook group "Mumbai forest land" for the latest on this issue. Also sign online petition at http://www.petitiononline.com/bdri1234/p...
    to resolve the forest issue.


    10 years ago

    please send me regular updates on this subject . it is a kind request. thank you

    We are listening!

    Solve the equation and enter in the Captcha field.

    To continue

    Sign Up or Sign In


    To continue

    Sign Up or Sign In



    online financial advisory
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 3 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)
    FREE: Your Complete Family Record Book
    Keep all the Personal and Financial Details of You & Your Family. In One Place So That`s Its Easy for Anyone to Find Anytime
    We promise not to share your email id with anyone