Hindustan Lever profit boost

Mr M. Banga, said the aggressive promotion of premium products have given the desired result.

By the BBC's Sanjeev Srivastava in Bombay

India's largest private sector company, Hindustan Lever, has recorded a net profit of 3.46bn rupees (£52m) in the quarter ending June 30,2001 on the back of higher margins on premium brands.

The profit - up nearly 20% over the same quarter last year - does not include a one time exceptional income of 1.19bn rupees (£18m) which has come from the sale of the company's Quest business to ICI group.

Hindustan Lever, which is 50% owned by the Anglo-Dutch multinational Unilever, is known for its extensive household product range which includes food items, tea, toiletries and personal care products like toothpaste, soaps and detergents.

Premier brands

Established in 1888, it is the undisputed consumer goods leader in the Indian industry with its products sold in the remotest of Indian villages through its nearly 900,000 distribution and retail outlets.

Company products like Surf are household names in India

Company products like Lifeboy and Lux soap, Surf detergent and Brooke Bond and Taj Mahal tea are household names in India.

The share closed marginally up at 217 rupees (£3.23), up 0.78% over Monday's close.

Powerful promotion

Announcing the results, the chairman, Mr M. Banga, said the aggressive promotion of 30 power or premium brands identified by the management in March this year from a basket of over 100 products has yielded the desired result.

The power brands registered a 5.7% increase in turnover in the first half of this year while the group turnover grew at 1.8%.

Mr. Banga also said the company will be pruning some of its not so successful brands like Tiger Tea.

Tea accounts for nearly 15% of revenue and the company's restructuring exercise is also most evident in this sector.

In the past 15 months the number of tea brands have been cut from 22 to 11.

According to analysts the brand rationalisation process has also helped the company reduce operating costs such as packaging, servicing, distribution and marketing and the result is showing in the steady bottom line growth the company is able to achieve even in a slowing down economy.

Cutting corners?

However, there is some concern amongst analysts that while the company is maintaining a steady profitability in difficult economic times, the profits are more because of cost cutting and brand restructuring rather than improvement in sales figures.

According to Sushil Choksey of Rosyblue Securities HLL will it increasingly difficult to maintain its record of steady profitability unless sales begin to look up.

But then some things - like weather - are beyond the company's control and two years of poor agriculture conditions have hurt incomes in villages and small towns from where nearly 50% of its revenues accrue.

But things may begin to look up by year end as monsoon is expected to be fairly widespread and intensive this year even in drought-prone western Indian states like Gujrat and Rajasthan.

A significant spurt in rural incomes will increase the purchasing power of nearly 70% of Indians who are either who live in the countryside.