HUL profit up 34% in Q3 on one-time gain

The only stock in India’s benchmark index to rise this year, Hindustan Unilever Ltd(HUL), said third quarter (Q3) profit climbed 34%, exceeding estimates, on a one-time gain from sale of properties.

Net profit rose to Rs547 crore in the three months ended 30 September, from Rs408 crore a year earlier, the Mumbai-based company said in a release on Friday. That compares with the Rs477 crore median estimate of 13 analysts surveyed by Bloomberg.

HUL, the country’s biggest maker of household products, will benefit from a decline in prices of raw materials, including palm oil and petroleum derivatives used to make soaps and detergents. Chief executive officer Nitin Paranjpe had raised prices of soaps, including Lifebuoy and Liril, as the cost of raw materials rose to a record earlier this year.

“There has been a slight margin contraction because of high commodity prices earlier this year that affected the company’s soaps and detergents business,” said Anand Shah, an analyst at Angel Broking Ltd in Mumbai. He has a “neutral” rating on the stock. “With input prices declining, the margin is set to improve.”

The company’s operating margin, the percentage of sales left after subtracting production, marketing and other expenses, narrowed to 12.9% in the quarter from 13.2% a year earlier. Earnings include a one-time gain of Rs109 crore from the sale of properties.

Sales climbed 20% to Rs4,030 crore in the quarter. That compares with analysts’ estimate of Rs4,020 crore.

HUL’s stock is the best performer this year on the 30-stock Sensex with a gain of 5%, compared with a 57% drop in the benchmark. HUL fell Rs18.40, or 7.56%, to Rs224.90 in Mumbai trading on Friday. The Sensex slumped 11%.

Revenue from soaps and detergents gained 26% to Rs1,990 crore. Sales of Fair and Lovely skin cream, Pepsodent toothpaste and other personal care products rose 18% to Rs1,050 crore. Profit before interest and tax rose 4.3% to Rs268 crore.

Declining prices of commodities may help boost profitability for fast moving consumer goods companies such as HUL. The UBS Bloomberg CMCI Commodity Index of 26 commodities has fallen 46% since peaking on 2 July.

“If commodity prices are softening, we need to see that they are sustained,” D. Sundaram, HUL finance director and vice-chairman, said in a conference call with reporters. “Our own approach to pricing has been consistent. We need to give value to our customers and remain very competitive in the marketplace in terms of pricing.”

Earlier this year, HUL passed on higher costs of raw materials to consumers. The company raised the price of Surf Excel detergent in July after doing the same for soaps earlier this year. Soaps such as Lifebuoy and Lux, and detergents such as Surf Excel and Wheel account for about half of the company’s revenue.

Advertising spending rose 14% to Rs404 crore, or about 10% of sales, as competition intensified from rivals, including ITC Ltd and Procter and Gamble Co.

The company’s London- and Rotterdam-based parent,Unilever, owns about 52% of the Indian unit. India is Unilever’s biggest market in Asia, generating about 6% of annual sales.

P&G plans to add half a billion users

In five years, the firm intends to reach out to 75% of the population and increase per capita consumption to $20

Mumbai: The three Indian arms of Procter and Gamble Co. (P&G) are looking to add 500 million new customers in India in the next five years, a top company official said.

That’s a little more than the number of Indian consumers the three companies currently reach out to and will be equal to 75% of the country’s estimated 1.26 billion population in 2014.

“We will add half a billion new consumers by 2014,” said Sumeet Vohra, marketing director, P&G India.

If it succeeds, P&G could close the lead that arch rival Unilever Plc has over it in India, a rare market where the American company lags the Anglo-Dutch consumer multinational.

To be sure, P&G’s ambitions will require it to expand its reach to rural areas—its current consumer base is largely urban—and not everyone is convinced the company can do that.

“It is a tall order for P&G to make inroads into rural (areas),” said Dwarika Prasad Uniyal, adviser with Jindal Global Business School, OP Jindal Global University, Sonepat. To do so, the company needs to augment its presence in smaller towns and also work on charging the perception that it is a “premium products” firm.

Still, P&G seems determined to try.

Earlier this month, the Cincinnati-headquartered company’s new president and chief executive, Robert McDonald, said at the annual general meeting of shareholders that P&G would add a billion new consumers over the next five years in emerging markets, and that the company’s Chinese and Indian operations would lead this effort.

P&G wants to increase the per capita consumption of its products from $3 (Rs141) in China and less than $1 in India to Mexico’s level of $20, a move that will add around $40 billion to its sales. At $20, the consumption in these markets would still be a fifth of the $100 it is currently in the US, said a recent AP report.

The result of this focus is a buzz of activity in the three Indian subsidiaries of P&G that continue to remain low-profile and media shy.

The three companies share a common management and distribution structure. Procter and Gamble Hygiene and Health Care Ltd (PGHH) ended the year to June with revenue of Rs774 crore and net profit of Rs179 crore. Gillette India Ltd ended the same year with revenue of Rs661.5 crore and net profit of Rs113 crore. Both companies are listed on the Bombay Stock Exchange and P&G Inc. holds a majority stake (in excess of 50%) in both companies. The third P&G company in India, Procter and Gamble Home Products Ltd (PGHP), is a 100% subsidiary of P&G Inc. It sells detergents (Tide and Ariel), shampoos (Head and Shoulders and Pantene), skincare products under the Olay brand and baby care (Pampers). While it doesn’t report its numbers, the three companies together are estimated to have a revenue of around Rs3,000 crore, according to Vohra.

NEW DESINER'S PLAN FOR ITC'S WILLS LIFE STYLE

Designer plans

T

How Wills Lifestyle hopes to stand out in the crowded readymade apparel market.

ITC entered the apparel retail market in 2000 with Wills Lifestyle. Cigarettes, it knew, was no longer a sunrise business and it needed to diversify into areas where strong brand values can be created. Apparel fitted the bill. The market had begun to show signs of explosive growth as disposable incomes were climbing rapidly. To begin with, Wills Lifestyle had a range of formals for men and a line of western wear for the working woman. Over the years, the company has added new lines of evening wear, sportswear, designer wear, fragrances and accessories.

But the business, which comes under ITC’s fast-moving consumer goods division (2008-09 turnover Rs 18,129 crore, inclusive of taxes), is small ten years later. Atul Chand, chief executive of ITC’s lifestyle retail business division, indicates that the turnover of Wills Lifestyle could be around Rs 200 crore: “We have 10 per cent of the premium apparel retail market which is around Rs 2,000 crore in size.” Another Rs 150 to 200 crore comes from its value-for-money brand, John Players, which retails from 225 stores in the country. Chand’s division — Wills Lifestyle plus John Players — thus contributes a little over 2 per cent of ITC’s FMCG business. All told, the branded apparel market in the country is worth Rs 10,000 crore per annum — ITC’s share is therefore not more than 4 per cent. IDFC-SSKI Managing Director feels the small size of the business could work against it. “There could be a lack of focus because of the business being a small portion of the company,” says he.

It may not be big, but is it profitable? Chand does not share numbers. “What we have done has improved the profitability of our business,” says he. This could mean anything. But some other numbers illustrate a related point. Chand has 100,000 sq ft of retail space for Wills Lifestyle, which fetches him Rs 200 crore in sale. He, in other words, sells Rs 20,000 per sq ft per annum or a tad over Rs 1,650 per sq ft per month. Value retailers are at around Rs 400 per sq ft per month at the moment, while other lifestyle retailers are stuck at around Rs 1,000 per sq ft.

The readymade apparel market, it so happens, is highly fragmented. Madura Garments (Van Heusen, Louis Philippe, Allen Solly and so on) of the Aditya Birla Group leads the pack in the premium end, according to analysts, with a market share of 12 per cent. ITC, with a ten per cent market share, hasn’t done too badly. What it also means is that the market is extremely competitive and Chand has to keep the buzz around the brand alive at all times to tackle the rivals.

What has compounded his problem is that rivals like Madura Garments now offer a complete wardrobe like Wills Lifestyle. “We are present in all the addressable markets that exist,” says Madura Garments Chief Operating Officer Shital Kumar Mehta. With his original USP gone, Chand has his task cut out.

FMCG cos accuse big retailers of pushing own labels

The tension between modern retailers and consumer product makers has intensified, with the latter flatly turning down a renewed
demand for higher margins from the likes of Future Group, Reliance Retail and Aditya Birla Group’s More.

With a spate of contracts up for renewal in January, about 10 fast moving consumer goods (FMCG) companies have ruled out higher margins, accusing big retailers of pushing their own labels at the expense of their established brands and not meeting the sales and expansion targets as per the contracts.

“Modern retail today is not offering us the kind of throughput to demand such margins. Also it doesn’t help us when retailers promote their own labels and competing brands at our expense,” said Hoshedar K Press of Godrej Consumer Products (GCPL).

FMCG sales from modern formats, which recorded a growth of over 30% in the past two to three years, had dropped early this year mainly due to closure of several retail outlets as part of a strategy correction by retailers, with consumer demand in urban areas dropping dramatically as the world slipped into its worst economic crisis since the 1930s.

“The scale-up (expansion of stores) in terms of outlets has not happened, as was told to us in the initial contracts. Also, the contribution of modern trade in terms of sales targets remains far below projections,” said an official at a leading Delhi-based FMCG firm, requesting not to be named.

Things have improved since and retailers such as Future Group, Reliance Retail and More have started expanding their operations on the back of improved consumer sentiment in urban centres that is helping high-end, high-margin products to stage a comeback.

And they have renewed their demand for higher margins from FMCG companies. When contacted, Kishore Biyani, CEO of Future Group, said, “Margins will always be an issue. Both sides have to mutually look at ways of growing profitability.”

Traditionally, modern retailers roughly operate on margins varying from 10-15% while the traditional trade operates at around 10-12%, depending on the product category. The face-off is expected to make the two industries to continue working against one other’s interest.

While retailers are giving higher visibility to private labels and smaller brands that offer higher margins, manufacturers are helping traditional grocers (kiranas) to use the best practices of modern trade such as category layout and standardised units.

Retailers’ own brands are 10-20% cheaper than established brands and offer higher profit margins of over 40% than other brands. Aditya Birla Retail’s private labels include Feasters brand of biscuits, fruit juices, noodles and pasta; Enriche shampoo, Kitchen’s Promise spices and Fresh-o-dent toothbrushes and toothpaste. Spencer’s sells private labels under the Spencer’s Smart Choice while Future Group’s private FMCG brands include Fresh n Pure, Cleanmate, Tasty Treat, Caremate, Sach.

Also, smaller companies such as Garden Foods, Capital Foods, Cremica, Fena, Ghadi among others in the FMCG space are making rapid strides and giving the bigger players a run for their money. Manufacturers, in turn, are taking kiranas under their wing and helping them offer better service, pricing and variety to take on competition from modern formats.

Grocers are giving discounts on branded products like detergents, shampoos, soaps,oil, atta and other grocery products from 5-20% by collectively sourcing or aligning themselves with corporates like Hindustan Unilever, P&G and others to be their ‘preferred suppliers’, who are adopting these stores and working with them to manage inventory better.

Fiama Di Wills is Associate Sponsor of the Wills Lifestyle India Fashion Week

Suneet Varma to showcase an exclusive collection for Fiama Di Wills titled ‘The Life of a Swan-Swan lake’ The Spring Summer ’10 edition of the Wills Lifestyle India Fashion Week has Fiama Di Wills, ITC’s premium range of personal care products as the Associate Sponsor. India’s leading designer Suneet Varma has partnered with Fiama Di Wills to showcase a special collection at WIFW. Titled “The Life of a Swan-Swan lake”, created specially for Fiama Di Wills, Suneet Varma’s collection reflects the essence of the brand’s latest launch of transparent gel bathing bars -Mild Dew and Clear Springs made of extracts of peach, avocado, lemon grass and sea weed. Suneet Varma has been true to the brand’s promise by keeping the theme of his collection, pure, mild and transparent. Suneet Varma’s collection is inspired by Pyotr Ilyich Tchaikovsky’s classic Operatic rendition, “Swan Lake”. The Ballet tells the story of Odette, a princess turned into a swan by an evil sorcerer's curse, and the subsequent triumph of love. Speaking on the association with India’s largest fashion event, Sandeep Kaul, Chief Executive, Personal Care Products Business, ITC Ltd said, “For us the Wills Lifestyle India Fashion Week serves as an ideal platform to engage with our consumers. Our association with Suneet Varma is a perfect fit and an obvious decision given his stature in the designing community and the central theme.” On their association, with Fiama Di Wills, Suneet Varma said, “I am delighted to be presenting my collection in association with Fiama Di Wills. The unique Fiama Di Wills proposition has provided a very exciting theme and gave me an excellent opportunity to experiment with my creations. I am sure this effort will be much appreciated by the audience. Fiama Di Wills has created an excellent brand and our association is advantageous to both the brands. I am confident this show will be a spectacular success.” Speaking at the Preview, Deepika Padukone, Brand Ambassador for Fiama Di Wills said, “This edition of the Wills Lifestyle India Fashion Week is especially exciting because it not only coincides with the launch of our transparent Bathing Bars but also because Suneet Varma’s collection has integrated the theme of these gel bathing bars so effectively in his collection” Suneet Varma for Fiama Di Wills- SS2010 “The Life of a Swan-Swan Lake” The collection is inspired by Pyotr Ilyich Tchaikovsky’s classic Operatic rendition, “Swan Lake”. The Ballet tells the story of Odette, a princess turned into a swan by an evil sorcerer's curse, and the subsequent triumph of love. Inspired by the music and dance of the classical ballet, and by great choreographers like Martha Graham and George Balanchine, this is a poetic rendition of the fragility, beauty and elegance of a life of a swan. Odette and Prince Siegfried’s tragic tale of love is best reflected in ivories, grays, and whites while Odile, the seductress finds herself reflected in her signature colour-black. The sheer collection creates vivid poetry on the ramp with many shades of pinks, avocado greens and lilacs, all inspired by the dance of the swans by the lakeside. The silhouettes ripple and reflect the wonderful changes of colour of water from dawn to dusk bringing in a sheer luminosity to the entire collection. The colours and silhouettes merge to form a tableau that best depicts by the dances of the swans in the opera itself. The prominent colours of green and pink reflect the natural world, which forms a backdrop to the actual dance itself. Transparency marks each ensemble along with delicate detailing. The collection is comprised of sheer tunics; worn over sheer yokes, while delicate transparent sleeves add fluidity to the line. The allure of transparency marks the collection. Flashes of red, bring in the heinous villainy of the opera. Von Rothbart, the fictional villain in Swan Lake is rarely seen in human form in most productions as he appears as an evil bird for most of the ballet denoted in darker shades of scarlet. About Suneet Varma Suneet Varma recently created fashion history with a three year tie-up with the international accessories brand Judith Leiber. A leading name in luxury couture, Suneet Varma’s label was established in 1993 and has moved from strength to strength. His exposure to the international mind space came very on early on from the fashion and style based programme ‘Style Guru’ on Star World. Suneet Varma has been associated with some of the leading brands both nationally and internationally. He has been the Brand Ambassador for Moet and Chandon, and has also done a special show for Hewlett Packard Computers in India, titled, ‘fashiontronics’. Suneet Varma has been associated with Swarovski for the past decade where he has been a trend forecaster for the brand. He has also participated in their book on wedding couture. He has been associated with shows for BMW for the past three years, and has interpreted the stylish automobile brand through the fashion decades of the past century. Suneet also has a long term association with Bollywood. From designing Oscar nominated outfits for ‘Monsoon Wedding’ to designing for ‘Kites’ starring Hrithik Roshan and South African super model Barbara Mori, Suneet has dressed the most famous in the country for red carpet glamour. Presently the label is being retailed in 25 stores across the country and also being exported to Dubai, Hong Kong, Kuwait, South Africa, USA and London. 2005 also saw the introduction of a menswear line. About Fiama Di Wills Gel Bathing Bars A first of its kind, a transparent liquid gel has been solidified into a bathing bar so that consumers may get superior bathing experience of a shower gel in a bathing bar format which has been crafted through a unique and patented freezing technology. Backed by deep consumer insights, this proprietary gel bathing bar is a result of years of extensive research and development by the scientists at the ITC R&D Centre. Uniquely crafted, these Gel Bathing Bars provide a novel proposition with a unique dew drop shape, transparent look, rich creamy lather, and a great long-lasting fragrance. These bathing bars are dermatologically tested and proven mild and contain the goodness of natural exotic extracts such as Peaches, Avocadoes, Sea Weed and lemongrass. Launched in two variants that offer specific different skin benefits, the variants are: Mild Dew- Contains extracts of peach and avocado which moisturise the skin Clear Springs- Contains extracts of lemongrass & sea weed which gives Clear skin The Fiama Di Wills transparent Gel Bathing Bars are available at an attractive offer MRP. of Rs. 25 for 110 grams. This differentiated range of bathing bars enriches the consumers with a delightful bathing experience that they will never get enough of

Now Indian Customers Will Taste AdeZ by Next Year

India’s largest consumer goods company by sales, Hindustan Unilever Ltd (HUL) is preparing to launch its global soya-based fruit drink AdeZ in India.

The firm is currently conducting market research and is likely to launch the product next year, according to two people close to the development. AdeZ, a blend of fruit juices and soya, was launched by Unilever UK Foods in 2006.

“The company is likely to tweak the product to suit the tastes of Indian consumers. It could even change the name of the brand for India, but there is no final word on it yet,” said one of the persons, who is not authorized to speak to the media but has been involved closely with the team working on market research for the product.

The launch, earlier scheduled for 2009, is expected next year.

HUL refused to comment on the AdeZ launch. “As a policy we do not comment on market speculation regarding future business plans,” the firm’s spokesperson said in an email.

AdeZ was launched by Unilever UK Foods in 2006, according to Unilever’s official website, then withdrawn from the British market for a variety of reasons.

“The taste perception by the UK consumer was good, yet the product was probably launched at the wrong time,” said Gerald Klein Essink of the Dutch-based soy market analyst firm PROSOY Research and Strategy. he said that the product was doing very well in markets such as the Netherlands, Mexico and Latin America.

Focus on food: HUL managing director Nitin Paranjpe had said the firm’s food portfolio would be designed to suit the local palate.

Purnendu Kumar, associate vice-president at the retail consultancy Technopak Advisors Pvt. Ltd, said that the new product is likely to be included in the performance enhancers or energy drinks category.

The organized and unorganized juice market is close to Rs4,720 crore including three categories—pure juice (with brands such as Tropicana of PepsiCo and Real of Dabur), fruit drinks (such as Frooti, Maaza and Minute Maid) and performance enhancers such as Red Bull and PepsiCo’s Gatorade.

“The energy drinks category would be around Rs200 crore. As India consumers become more health-conscious and with the growth in modern retail, the category is set to grow very fast,” Kumar said.

HUL’s food portfolio in India comprises packaged foods such as soups and ketchups under the Knorr and Kissan brand names, ice creams under the Kwality Wall’s umbrella, beverages such as tea, coffee and wheat flour under the Lipton, Bru and Annapurna brand names, respectively. The portfolio contributes less than 18% to the company’s total turnover.

In comparison, Unilever’s global food portfolio, with brands such as Becel, Flora, Bertolli, Heartband, Lipton, Slim Fast and Knorr, contributes at least 50% to the company’s total revenues.

HUL’s managing director and chief executive Nitin Paranjpe had said food was going to be the company’s focus area. “You will soon see how we systematically build our foods platform. When it’s about food, it has a lot to do with the local palate, so while the technology might come from Unilever, it will be designed to suit the local palate,” Paranjpe had said.

The company began refocusing on the foods segment a year ago with mixed results.

“HUL launched Amaze Brainfood last year but the firm hasn’t disclosed information on the brand’s performance so far,” said Vanmala Nagwekar, a research analyst, with financial services firm India Infoline Ltd.

For the quarter ended June, HUL reported net sales of Rs4,476 crore and net profit of Rs543 crore. The foods portfolio grew 17.3%, while home and personal care grew 11.9%.

Reliance Retail scouting for non-food FMCG brands

Reliance Retail is scouting for brands in the non-food FMCG space to build a portfolio that will complement its private label business.

Having acquired two soap brands from Henkel in the recent past, the retail company believes that establishing known brands is a better proposition than trying to establish its private labels.

According to an official of Reliance Retail, “Soaps and detergents is the largest category in the FMCG sector and our decision to acquire the two soap brands made business sense.

“We continue to scan for brands in non-food categories such as shampoos and toothpaste.”

Its soap strategy will now encompass new price points and propositions to segregate its private label brands from acquired soap brands such as Aramusk and Chek, which the retailer acquired from Henkel.

For instance, Aramusk, a premium brand will be positioned differently from its private label mass soap brand, Amara.

Ms Nandini Chopra, Executive Director, Corporate Finance, KPMG, said the retailer’s strategy seems to be to look for brands with poor topline growth which can be acquired by paying as little as possible.

In fact, the Future Group is believed to be in talks with established FMCG player Godrej to acquire some of its languishing soap brands such as Ganga to complement its private label strategy.

Meanwhile, Reliance Retail has integrated its five value formats under a single entity which will benefit from having a common supply chain and buyer interface.

The formats, including Fresh, Mart, Super and Wellness along with Sahakari Bhandar, have been brought under a single value format to streamline efficiencies.

Mr K. Radhakrishnan, Chief Executive, Hypermarkets, Reliance Retail, said, “In the last six months, we have seen our topline improve. We are now at the tipping point of the retail business and are ready to take off.

“Costs have been brought down and profitability has improved. Our mandate is now to expand the number of stores.”

Profitable venture

In fact, while the rest of its value formats are still struggling to make money, it is the Sahakari Bhankar outlets that turned profitable recently.

“We have management control of the Sahakari Bhandar and its outlets are making money.

“Our formats in Delhi and Mumbai are yet to become profitable but we expect the outlets in the smaller cities to become profitable sooner,” said Mr Radhakrishnan, speaking on the sidelines of the India Retail Forum in Mumbai.

TEEN SHEEN FROM JOHNSON & JOHNSON

Teen sheen

Johnson & Johnson has launched Clean & Clear Active Clear Acne Clearing Gel. It claims to visibly reduce pimple redness and swelling in as short a time as 24 hours. The products addresses teenagers. It is available in a 10 gm tube for Rs 99.

ANOTHER ENTRY IN JUICE SEGMENT

Drink up

Sil has launched an all new fruit beverage. It is available in four flavours - Happily Appily, Orange Oye, Mango Fantasy and Fruit Fusion. All the four variants are available in one-litre packs at an introductory price of Rs 69 and will be made available across India.