Going by Harish Manwani, president, Unilever (Asia/Africa)'s insistence on looking at market share as a strong performance indicator, HLL's numbers for the quarter ending June '06 should be a cause for concern.
Market shares in major categories like laundry, toothpastes and skin care have dipped, while the company has held shares in personal wash and shampoos.
A combination of a clear strategy of brand investments and a robust rural growth has, of course, helped the consumer goods major report a 12% volume growth in its FMCG business. The stock was quoted at Rs 232.3 on Monday, down by 4% - an indication of 'lower-than-expected' market expectations.
In its main business of home and personal care (HPC), the company has lost market share in personal wash, from 54.9% in the June '05 quarter to 54.5%. Its market share had increased to 55.9% during the March '05 quarter, but later slipped. In this category, Lifebuoy was doing well; Lux was facing a decline, but has recovered.
However, Breeze is still under pressure. Its market share in toothpaste has also declined from 32.5% in June '05 to 30.2% in June '06. What's surprising is that in fabric wash - a category where its sales have been quite healthy (the June '06 quarter sales growth for soaps and detergents was 13%) - the market share has declined.
Fabric wash share during June '06 quarter declined to 36.6% from 38.2% in the quarter. Shampoo share recorded a marginal improvement, from 47.5% to 47.7. Company officials have attributed the lower market share numbers to the lag effect of AC Nielsen's market research studies, which do not yet reflect the rural growth rates.
“If that be the case, the market shares should have at least been constant rather than actually declining,” said an industry analyst. Overall, the company's performance reflects its efforts at cashing in on an upbeat consumer mood through product innovation, distribution initiatives and market activation.
The company has relaunched quite of few of its HPC brands like Lifebuoy, Sunsilk Surf Excel and several other variants. The HPC category has done well with sales growing by about 13%. HLL is yet to spring any surprises with foods.
In the foods category, the beverages segment has been a disappointment as sales have declined 3.7%, while its segment profit has declined by 24.5%.
The focus on profitability remains, with the company claiming to have rejigged its supply chain in a manner that gives it a cost advantage. In terms of performance, it has been a good quarter for HLL. Overall sales grew 10.9% and it claims two-thirds of this is due to volume growth.
Despite higher material costs and a 20.5% increase in advertising expenditure, its operating profit margin has actually increased by 126 basis points to 13.5% compared to the previous corresponding period. This is attributed to cost savings, price increases and buying efficiency, and to some extent, to savings on excise.
The effective tax rate during the year indicates that it is benefiting from the production being done in tax exempt locations.