Unilever chief fails to see what really ails Hindustan Unilever

The Unilever CEO believes that HUL is still the lion in several categories. He is living in his own world. Over the past decade, HUL has repeatedly tried and failed in a large number of new businesses, which makes it look like an also-ran

A few days back, the chief executive officer of Unilever, Paul Polman, visited India and talked about the growth plans of Hindustan Unilever (HUL). The most surprising fact was he said that product innovation is the key growth factor for HUL and that it would double its turnover.

Fortunately, while Mr Polman has clearly articulated his target, he has refrained from specifying by when this target would be reached. This is because the CEO was really talking through his hat when he was talking about doubling the turnover.

Take a look at what the performance of HUL has been over the past decade, when the Indian market has conferred huge profits to Indian companies and multinationals. Its net sales in 1999 were Rs10,142 crore. By 2005, it was still around Rs10,982.35 crore and last year it reported net sales of Rs20,623 crore. In effect, HUL took a whole decade to double its turnover—a compounded annual growth rate (CAGR) of 7% in a country where inflation is at least 7% on an average and is sometimes in double digits. Inflation-adjusted HUL has not grown at all. Of course, HUL has demerged divisions and that is why net sales have been down, but it has also acquired businesses during this period

Now, take a look at what a company like Nestle has done over this period. Its net sales in 1999 were Rs1,543.90 crore. This jumped to Rs Rs5,149 crore in 2009—a CAGR of 13%.

There is something so fundamentally wrong with the business of HUL that the Unilever CEO should be talking about a drastic strategy of energising growth and not vaguely dreaming of doubling turnover. After all, successive Unilever chiefs and heads of HUL have talked about various initiatives that have sounded as clever as its advertising—without delivering much to either the topline or bottomline. For instance, a few years back, we suddenly heard that HUL had restructured its portfolio into “power brands” without the slighest of understanding that it was really selling commodity products.

If it tried to raise its prices even the slighest, these “power brands” would be out of the market because Indian products from Godrej, Emami, Jyothi Laboratories and Dabur were snapping at its heels.

The fact is, unlike almost all multinational companies, HUL is living in a world of its own. For instance, what explains its tired effort at producing ever more brand extensions? HUL thinks that consumers would be happily buying another round of soaps and shampoos centered around Dove— Dry Therapy Shampoo, Dove Daily Therapy Shampoo, Dove Hair Fall Therapy Shampoo, etc. backed by an advertising blitzkrieg. Consumers are simply put off and tired.

If the Unilever CEO believes that HUL is still the lion in several categories (as he said in an interview), he is living in his own world. The fact is, over the past decade, HUL has repeatedly tried and failed in a large number of new businesses, which makes it look like an also-ran. Whether in personal care, home care products or food brands, HUL has only a string of failures to show. In 2001, it took over Modern Bread from the government and had aggressive plans to grow this business by creating a variety of baked products around flour from biscuits to spagetti. Over the years, nothing happened. Similar is the scenario with with its Annapurna Atta, which has failed to lead HUL into other successful categories.

The company tried to push its bread and atta together in the year 2002 by launching ‘branded Modern atta bread’ but this was not what the consumers wanted. During the past decade, HUL also forayed into the beauty and skincare segment using the ayurvedic platform. In last eight years, the Ayush brand has only meant large losses. Consumers’ recall of this brand is extremely poor, forget about break even. The company itself doesn’t know when this segment will be profitable.

The fact is, HUL now singularly lacks execution capability. It is still playing the 70s and 80s script of brand extensions and big nationwide ad spend. It spent Rs9,125 crore over six years from 2003—just to stay where it was. This strategy worked when Doordarshan was the only visual medium and competition was non-existent. The world has changed but HUL has not. It is not going to be easy at all to wrest back the initiative. In a highly competitive market, HUL has turned out to be slothful and unimaginative.

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    S.Kumar Jha

    10 years ago

    I quite aggree with the tone of overconfidence,perceived above.
    Days of facial artifacts are long over.Consumer no more is loyal to any brand any more. They try every thing that comes their way but rarely fall for or date with any and desert completely. sales number is only an illusive indicator of tapping greater vergin areas in this vast country.
    infact growth in margins will be the actual performance indicator.
    to me innovation is not adequately focused.perceptions are gathered with photochromatic lense on, which adds judge mental errors for self , competitors potential strategy and consumers changed characteristics and in turn drifts the trajectory of response and actions widely.
    above all the people steering the
    show, shall have to be provided with the cutting edge of the time,since employees approach have also changed globally and you are no exception.
    aggree they were and still are a lion in own den but have been giving space to others to acquire dimensions to challenge the sr lion in every segment.
    symptom is more dangerous than tremors now.
    23.06.2010 ET brand equity participation reflects misconception about positioning ,where consumer acceptance or divorce is merit based ,now and.
    product acceptability are based on added constituents and is triggered by the option and awareness.
    fast food, slow/inadequate supply and dull response indicates that there is strong gap between consumer needs, gathered market intelligence and courage to face and communicate facts upfront per say within your fourwalls.
    our anlysis 'hind side of the down swinger' is a revelation for business and administrative roles in US and Europe and one must take lessons out of it.
    as per organizational behavior,this is many a times evident in companies, who enjoyed almost monopoly and now per force face the storm.
    respect consumers supremacy and their options to counter the adverse effects expressway.
    dents for change are not evident over months as selling and correction is quite difficult and needs a hardnut mentor and equally sensitized management will.
    co. needs to work across the board to provide oxygen,clear blocked passage of acceptability and idea exchange irrespective of whether it is an old guard or the fresh reinforcement-remix/blend wont work as toxics will spoil the change environment instead.
    our organisation can work on men and methods to organise behavioral and attitudinal improvement through a painless journey and then to vitalize the cooling heels.since we have track record of developing 'world champions' within our own committed capacity..
    make no mistake-feel proud of past-but costs of inadequacy in action is killing , which is showing now.
    initiate and come out of it,because we are your consumer cum well wisher too. we respect your privacy and right positioning you deserve the most.
    in anticipation of good and great days ahead.regards
    s.kumar jha chairman fme-intl


    1 decade ago

    Shows extreme signs of immaturity. The guy who wrote this should have been anti HUL. One should always get the correct picture on sales,growths and market shares before writing.
    Looks like this guy wants to Tarnish the image of HUL. There will always be ups and downs in market and consumer behaviour. HUL is continuously driving to satisfy the consumer needs along with its growth.

    k srinivasan

    1 decade ago

    Its a bullshit facts given here, Check AC Neilson market share figures across categories to find where all HUL leads before writing these stupid stories. Yes HUL is ever Lion as the CEO quotes and will work hard to retain the status and gain back whereever lost the shares

    Alec Lever

    1 decade ago

    Slothful? Not HUL, only the journalistic effort in this ill-judged piece of yesterday's news. Check the companies' web sites Investor Presentations and use accurate sales numbers.

    HUL has a dominant Lion's share of nine 'real world' categories. Its CAGR is 11.2% 2005-8 after a flat start to the decade.

    Dove Hair care was launched in May '07 and is now #1 in Modern Trade driving rapid growth in Conditioners with a 25% share. Consumers are 'put off and tired'? HUL lacks execution skills?

    I used to work for HUL which, like Nestle, is an excellent outfit. However, no business is beyond reproach - Nestles' fastest growing element is staff costs- but please don't undermine enterprise and MoneyLife's credibility with gossipy tabloid standards.


    1 decade ago

    A very incisive analysis. Probably HUL, got engagged in culture of too much bureacracy and compartmentalization, stiffling its innovation DNA.

    Trail goes cold on a $1-billion acquisition

    GMR acquired power utility InterGen, based in the Netherlands, at a transaction worth $1.10 billion in 2008. Two years later, not much financial information is available about the acquired company in the public domain

    GMR Infrastructure’s overseas acquisition of InterGen NV in 2008 was touted as one of the biggest Indian overseas acquisitions, specifically in the energy sector. Two years later, when InterGen’s assets form a significant part of GMR’s power assets, not much financial information about the Netherlands-based company is available in the public domain. 

    GMR had acquired the 50% stake in InterGen from AIG Highstar Capital II LP, a fund owned by the American International Group. Back in 2008, according to a press release issued by GMR, the transaction was valued at $1.1 billion.

    In October 2008, InterGen issued a press release on its website stating that GMR Infrastructure Limited had completed its previously-announced acquisition of a 50% interest in InterGen from AIG Highstar Capital and affiliates. The balance 50% in InterGen is held by Ontario Teachers’ Pension Plan. This Canadian pension plan has held this stake in InterGen since 2005.

    According to a Karvy Research note, InterGen’s total present operational capacity is around 6,254MW, of a total equity value of Rs32,226 million, thus placing GMR’s 50% stake in the power utility at a value of Rs16,113 million.

    This stake in InterGen is significant considering GMR’s total operational capacity (including all its subsidiaries)—and excluding InterGen—is only around 9,087MW. The total stake value of GMR in all the assets and projects owned by it is around Rs2,68,065.40 million, including InterGen.

    InterGen has 12 power plants located across the UK, the Netherlands, Mexico, Australia and the Philippines. GMR’s presence in these countries is only due to the InterGen acquisition.

    Despite InterGen forming a significant asset base for the group and GMR having acquired the stake at $1.1 billion, not much information is available about the company on GMR’s website or in its annual reports.

    GMR’s annual report for 2008 -09 states that the financial results of InterGen have not been considered in the consolidated results of the company pending conversions of Compulsory Convertible Debentures (CCDs).

    GMR’s results for the December 2009 quarter also state that the company has given a corporate guarantee of up to a maximum of $1.38 billion to the lenders on behalf of a fellow subsidiary to  enable it to raise debt for financing the InterGen acquisition.

    InterGen, with its headquarters in the Netherlands, was delisted from the Singapore Stock Exchange in 2008. The ‘financial reports’ section on InterGen’s website is also locked from public view. Thus, accessing the company’s financial data is almost impossible.

    According to one of the analysts tracking GMR, InterGen’s plants are operating satisfactorily, but not much data is available to state the exact operating profits of the company. An email sent to the GMR corporate communications department requesting more financial information on InterGen remained unanswered at the time of writing this article. Similarly, an email sent to InterGen was also not immediately answered.

    Though InterGen’s financial information is not available in the public domain, facts and figures related to the company’s existing—and planned—capacity as well as debt can be accessed only through analyst reports.

    As per the Karvy research note, InterGen has a total 8,086MW of net operational capacity (including 428MW under construction in the Netherlands). Of the 8,088MW, its net equity capacity is 6,254MW. About 70% of InterGen's capacities are sold on a long-term basis and the remaining on merchant basis.

    The note further states that InterGen’s market value is around Rs1,43,546 million. The company holds debt of around Rs1,86,550 million. Given GMR’s 50% stake in Intergen, GMR’s InterGen stake is valued at Rs 71,773 million.

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    What should a consumer pay—VAT or service tax on buying property?

    The Centre is proposing to levy service tax, while the State government is planning to charge consumers value-added tax on real estate

    The fight between the Central and State governments may lead to consumers being double-taxed for buying a piece of real estate. The Central government is trying to impose service tax—while the State government is trying to impose value-added tax (VAT).
    The software industry which is facing the same problem has been protesting against this issue (of double taxation) for over a year, but has failed to receive any clarification from the government on the same. Now the realty industry is the victim of the same lacuna in the law, and the confusion in the industry is leading the consumers to pay double tax. Earlier, Moneylife has already reported on how developers are charging consumers both service tax and VAT. (see here).

    “You cannot charge both service tax and VAT together. The government has to clearly define what is a real estate property (and whether it comes under the ambit of either VAT or service tax),” said Pranay Vakil, chairman, Knight Frank (India) Pvt Ltd.

    “Sale of immovable property is governed by the Indian Stamp Act which falls under State jurisdiction. The Central government can’t encroach into State territory, and vice-versa, when all powers are exclusively provided for each government,” said Prem Chhatpar, a charted accountant.

    “The government needs to define a real-estate property properly—whether it is a product or a service. Instead, it wants to impose VAT and service tax. At the end of the day, a common man has to pay this amount. He should be aware that he is being double-taxed,” said Pankaj Kapoor, founder, Liases Foras.

    However, Mr Chhatpar said that real-estate consumers are neither supposed to pay service tax nor VAT. According to him, VAT is charged only on sale of goods. When a customer books a property, it is considered as buying of ‘immovable’ property and the buyer is not signing a construction contract with the builder. He is only contracting to buy a completed property. The developer is not rendering any service to the consumers, but only carrying out his duty.

    “Unless the consumer is providing the construction material and asks the developer to construct a property, only then it can be regarded as a ‘service’. In such a case, the consumer can be charged service tax, not otherwise,” said Mr Chhatpar.

    Some industry experts also questioned why both the Central and State governments are proposing to levy VAT or service tax for one year. “Why are we talking of VAT and service tax for one year, when by the next Union Budget, goods and services tax (GST) is likely to be levied,” said Mr Vakil.  

    However, an industry expert is against the proposed GST regime. “If GST is levied, it will boost the realty market—but it will be actually a big boost for the government at the cost of the common man,” said Mr Chhatpar.

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    9 years ago

    Dear All,

    Here government is not worried about the end customer who's purchaing the properties. Here, what builders are doing, they are collecting the Service Tax as well as VAT from the end customers so as to avoid any delay on payment of Service Tax or VAT, which is quiet agreeable. But the government is not understanding and also is not bothered about checking who is collecting the service tax and VAT from the property purchaser and thus whether this money is really going to the government.
    Secondly, why should customer pay twice towards 2 different taxes for a single thing. By doing this, the flat cost is rising and thus resulting in the flat not getting sold.
    Nowadays, already property prices are again hyped. Government has no control on it. Rather it is only thinking from their end how money will be pocketted in their safe. Government should also think on controlling the reality estate prices rather than introducing various tax policies. The rates should be constant at for an year or two. So that, the buyers can plan their purchases and also there will be less troubles for builders / purchasers to sell / purchase the under construction / ready properties.
    I hope many people including the builders/developers will agree on this.

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