HUL continues to suffer from poor sales and profit growth

Its much smaller rivals Dabur and Emami continue to record strong growth quarter after quarter

Despite endless restructuring of its business portfolios and continuous high-profile change of its top management, Hindustan Unilever is unable to generate any traction on its sales and profits. For the September quarter, HUL’s revenues were up by 4% while operating profit was completely flat. Compare this with the performance of Dabur India whose revenues were up by 15% while Emami Group’s sales were up by 27%.

HUL’s revenue growth has been stagnant for many quarters now. Over the past three quarters, average topline growth has ranged between 4%-6% which does not even cover inflation. Revenue growth has been continuously declining from a high of 20% it recorded in September 2008.

The recent September quarter has been especially good for fast-moving consumer goods (FMCG) companies mainly because raw material prices were sharply down in that quarter. For instance, Emami’s raw material cost was down by 35% and even Godrej Consumer Products Limited’s (GCPL’s) raw material cost was down by 15%. Both these companies took advantage of lower cost of raw materials and steady demand for their products. Emami’s operating profit was up by as much as 65%. On the other hand, even though HUL’s raw material cost was down by 9%, it had no profit growth. Dabur’s raw material cost has gone up by 3% and yet it has reported a sales growth of 15% compared to the same quarter last year. What is remarkable about HUL is that it had to spend 41% more on advertising compared to same quarter last year to get only a 4% growth in turnover this quarter (Q2 FY 10).

Another key issue with HUL is that it would maintain its high operating profit margin (39% in September 09) rather than creating growth in sales and operating profit. Interestingly, Dabur also enjoys an OPM of 36% which is as high as HUL but Dabur is able to increase its operating profit and revenues virtually every quarter. In the September quarter Dabur’s operating profit jumped by 21% compared to the same quarter last year.

Debashis Basu with Pallabika Ganguly [email protected]
 

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