Warc Blog

Hindustan Unilever balances approach

29 January 2013
NEW DELHI: Hindustan Unilever, the Indian FMCG group, is aiming to drive growth by being "globally leveraged and locally relevant", combining international know-how with on-the-ground insights.

Speaking to the Economic Times, Harish Manwani, chairman of Hindustan Unilever (HUL), suggested forming tighter bonds with its corporate parent, Unilever, was advantageous in several ways.

"Do we want to operate in India with the capability of a $5bn business or the capability of a $65bn business?" he said. "We are keen to do both. We have to be globally leveraged and be locally relevant. We must think local and act global."

This issue has faced increased scrutiny following Unilever's decision to raise the royalties paid to it by its Indian division from 1.4% to 3.15% of its sales, causing concern among some analysts.

In the last quarter, Hindustan Unilever's sales rose by 15%, with underlying growth of 5%, and Manwani argued these favourable results rested partly on its international links.

"The turnaround in the performance of HUL has a lot to do with the fact that we have leveraged the innovation and functional expertise of Unilever, with local insight and expertise of HUL," he said.

"Our supply chain management, innovation and functional support have become more global. Costs are being incurred on a global basis. We want the might of Unilever's scale to benefit all operating companies.

Sachin Bobade, an analyst at Brics Securities, was less positive about the assistance offered by such arrangements compared with the potential impact on margins.

"I don't buy the argument that just by giving new royalty they will get access to new products," said Bobade. "This is a big negative for the stock."

Janak Mehta, director at FRR Shares, held a similar view, saying: "The Hindustan Unilever stock has gone up significantly over the last one year, and now with the higher royalty payments, it could lose some of these gains."

But the royalty rate being paid by Hindustan Unilever still falls behind those required in 2012 by rivals like Colgate Palmolive, on 5.14%, Procter & Gamble, on 4.7%, and Nestlé India on 4.21%.

Data sourced from Economic Times; additional content by Warc staff

 
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