Reviving Hindustan Lever Limited

 
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Case Details:

Case Code : BSTR206
Case Length : 19 Pages
Pages Period : 1998-2006
Organization : HLL
Pub Date : 2006
Teaching Note :Not Available
Countries : India
Industry : FMCG

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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"There is initial euphoria surrounding Levers right now, but it is still early days to predict its comeback. There is no need to go overboard about its growth claims. It can possibly make a comeback with a 6-7 per cent topline growth, which is good, but it would still lag behind industry growth rates. Even if its stock price has moved up, it has still under-performed in its sector." 1

- Nikhil Vora (Vora), Vice-President (Research), SSKI Securities,2 in July 2005.

"Blame Lever's decline on a mixture of management hubris and a rapidly changing Indian market. After two decades of dominance, Lever's managers lost touch with consumers."3

- BusinessWeek, December 27, 2004.

Back on Growth Path

On December 16, 2005, Harish Manwani (Manwani), Chairman of Hindustan Lever Limited (HLL), India's largest fast moving consumer goods (FMCG) company announced that Douglas Baillie (Baillie) would take over as the Chief Executive Officer (CEO) of HLL from March 01, 2006.

Having worked with HLL's UK based parent company - Unilever - for over 25 years, Baillie was promoted from the post of Group Vice-president and Head of Unilever AMET (Africa, Middle East and Turkey). HLL has been experiencing many problems since the late 1990s. The company's plans for 2006 include moves aimed at increasing its market share in the laundry and hair care segments. HLL's financial performance between 2001 and 2004 was not up to the mark. During the period, its revenues plunged by Rs 7.27 billion, while profits fell by Rs 3.5 billion. HLL which earlier commanded a dominant position in most of its product categories, lost market share in the detergents segment after competitors like Procter & Gamble (P&G) resorted to price cuts.

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HLL also reduced the prices of its detergents but this impacted its profit margins adversely. Though HLL's detergent sales volumes increased from 892 thousand tons to 930 thousand tons between 2001 and 2004, sales in terms of value dropped from Rs 19.75 billion to Rs 18.72 billion. HLL's management began a restructuring exercise that aimed at boosting growth both in terms of volumes and revenues, finally translating into better profits for the company.

The company decided to do away with its 'margin approach' and aimed at getting more market share in all product categories, especially in the laundry and hair care segments. These decisions were taken in the face of its declining sales and margins. The company's stock too performed badly during this period. By focusing on volume and revenue growth, reviving promising products and concentrating on its 'power brands,'4 HLL hoped to enhance the company's revenues and profits in the long run. The new CEO is also expected to steer the company in this direction. All these changes, begun in 2002, have started to bear fruit as HLL registered double digit growth of 14% in its revenues in the third quarter of 2005.

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1] Purvita Chatterjee, "HLL: On Comeback Trail?" The Hindu Business Line, www.blonnet.com, July 07, 2005.

2] SSKI (SS Kantilal Ishwarlal) Group is a third generation investment banking and securities firm. It is one of India's leading broking firms catering to foreign/domestic institutional investors.

3] Manjeet Kripalani, "Hindustan Lever takes a Bath," BusinessWeek, December 27, 2004.

4] HLL's 'power brands' include about 30 brands (out of 110) such as Rin, Surf, Lux, Sunsilk and Clinic Plus. In 2001, HLL decided to concentrate its marketing resources on these brands. The top five 'power brands' which included Rin, Wheel, Lux and Broke Bond tea accounted for about 30% of the company's total sales. Apart from these, HLL also gave marketing support to 10 brands which were popular in regional markets, which it called its regional jewels.

 

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