Not just brawn
but also requires brain...!

Rugby – despite its failure to attain the status of a National Sport in any country, Rugby is generating oodles of money for some of the most potential economies of the world. For instance, in North America, the Setanta Sports is expecting a customer base of about 250,000, in the rights to live online broadcasting of 2007 IRB Rugby World Cup, which would be paying $149.99 per year in lieu of the service provided by the same. France - the country generating whopping sums by hosting the Rugby World Cup 2007 can yield as much as €8 billion over the next four years. An estimated development of Rugby tourism is by about a staggering €1 billion per year. About 260 million rugby aficionados are expected to watch the matches on TV consequently infusing about €2 billion. The Wooden Spoon Society is one of its kind which acts as blessing for the so-called Children of Lesser God. Popularity of Rugby, an off -shoot of Footbal, is picking up. With a bunch of benevolence to it, it has become revered.

Re-cycle...
...the game of grit

The infamous & notorious game, cycling has proved to be the most precious & important sport to host economies. Moreover, credit goes to some of the economies like France, Spain, Britain, Italy & Gorgia for their prodigious approach to strategically position this ignored sport. Tour de France is now the blessing for France & other neighbouring host economies. For example, London has spent about €7.4 million to host the event in 2007, which attracted three million tourists, about 2.2 billion TV audiences & generated £37 million as revenue. The UK organises 17 million cycling races every year which contributes £350 million annually. ‘Tour de Gorgia’ is a similar event, pretty famous in USA. This year, it had enthralled half a million foreign spectators. The tour has generated $27.56 million, which is 5% rise over 2006 ( ). These superseded many other international campaigns for creating massive AID/HIV awareness. In addition, these tours have generated myriad of employment too!!

Home run...
...towards social awareness!

Those were the days when most baseball players’ life revolved around their performance statistics like batting averages & strike-outs but today they are uniting to unfold all different kind of statistics. Today, most of legendary players are involved in spreading awareness about the Deep-Vein Thrombosis (DVT) blood clots, which kill up to 200,000 people in the US & have started a campaign against DVT called ‘Know The Stats, Know Your Risk’. This game of Whites which is now predominantly a game of Blacks, is a best example in bridging the cultural gap in the US. To promote the game, around $18 billion was donated by major leagues for direct & indirect support for Boys & Girls Clubs of America. The Major League generated more than $3 million in aid for hurricane victims & donated the same to the American Red Cross. In a match to raise funds for the Prostate Cancer Foundation, almost all top players came together for Home Run Challenge & contributed $2.5 million for research. These initiatives collectively raise the stature of the game among the youth & also help in intensifying its presence in almost all major countries. Moreover, the team members of this game comprise players from almost all races... A mini world in itself.

Take that, you ‘comeback kid’
After several bruising knockouts, the dented champion HUL rose yet again. But with the odds continuously stacking up against it, the burning question is – Is the much pilloried Unilever getting the killer punch this time?

Adversity breeds genius. When the champion of the Indian FMCG space came under attack from several quarters, it was time for Hindustan Unilever Ltd. (HUL) to bring every ounce of managerial genius to the table & get the ship rolling. While the balance sheet is indicating healthy tidings lately, has HUL really been able to bury the ghosts of the past for good?

A bridge collapses in Minneapolis, America, before they could even dedicate a ‘London Bridge’ type song to it! A few dozen people are dead. That doesn’t shock the world as much as the fact that a ‘bridge’ could ‘collapse’, and that too in the world’s ‘most developed nation’. And what’s more, a report follows that says 70,000 bridges in the US are structurally deficient and pose a similar risk! The cost of making amends and restoring Uncle Sam’s dented pride is pegged at a whopping $188 billion. And the time it would take? A generation, or to be precise, 20 years. Sure, it happens, and even to the best of them. And a similar situation faced Hindustan Unilever Ltd. Chairman Harish Manwani, when he took over the reins of India’s largest FMCG company. For a company that was known in the times of Keki Dadiseth to double its turnover after every 4 years, the years from 2001 to 2005 were eminently forgettable; as the company’s turnover in 2005 didn’t even match its turnover in 2001! Add to that six consecutive quarters of internecine pricing battles with P&G, struggling bottom lines, plummeting share prices, resurgent and belligerent competitors like ITC snapping close at its heels; and it seemed like an obituary to HUL’s greatness was in order.

Thankfully though, HUL has not taken a generation to bring back some semblance of pride to its balance sheet. For the financial year 2006, the gross sales figure has grown to Rs.130.35 billion (yo- y growth of 8%), and for the quarter ending June 2007, HUL has posted a growth of 13% in net sales to reach Rs.34.31 billion. Interestingly, profits have been even better off , with PAT growing at 24.4% to reach Rs.4.72 billion. An exuberant Manwani is quick to point out, “We have sustained our strong growth momentum across HPC and Foods businesses. The corner stone of our strategy is to continuously strengthen our portfolio and deliver consistent and profitable growth.” His sprightliness would impel one to miss out some minor anomalies. For instance, the stellar revival in their Achilles heel – the foods business, has a lot to do with the merger of Modern Foods with HUL in February this year. Also, the company is on a cost cutting spree (brand building seems to be passe for now!), as it reduced its advertising expenditure by 2.7% (over Rs.900 million) for quarter ending June 2007. Well, yes the company has had some revival in financials, but all celebrations within the company would certainly give way to a woeful discomfiture when one sees the performance of HUL at the bourses. A stock that reached a peak of Rs.260 in September last year, has had a pathetic everyday closing price of Rs.196 over the past six months! It just touched Rs.205 on August 6, 2007, despite a shot in the arm from the management, which aims to use surplus cash to buy back HUL shares at a maximum of Rs.230 per share and upto an aggregate of Rs.6.3 billion. Why aren’t markets buying the HUL story anymore?

The other fish in the ocean...

While HUL officials did not comment on any issue related to their growth, Lalit Thakkar, Director Research, Angel Broking elaborated on the concerns thus, “A slowdown in domestic demand consumption emanating from overall economic slowdown, higher raw material prices (like vegetable oils, LAB, wheat etc.), extreme monsoon conditions & stronger competition resulting into market share losses remain the key long term risks...” Business uncertainties are actually proving to be mood dampeners for the entire sector, as the BSE FMCG Index, which closed at 1973.16 points in July 2007 (w.r.t 2025.69 points in August 2006). And the company understandably would want this cut in its advertising & promotional expenditure as a one off affair, as competition seems to be gaining an edge that spells bad tidings. According to CMIE, Kwality Walls had a market share of 19%, whereas Amul had a market share of 17% in 2006. But in 2007 Amul has conquered the market with 37% market share and sent HUL reeling to a market share of 9%. Similarly, in beverages, the trigger happy Tata Tea has garnered volume share of 19.2% in June 2007 in sales of packet tea, whereas erstwhile leader HUL, only recorded 18.6%. And to top it all, even P&G is beating HUL in toothbrushes (Oral B over Pepsodent) and detergents (Tide over Rin Advanced) as per AC Nielsen data.

They both lack ‘levers’!

Finally, there’s the legacy burden, as HUL’s Anglo-Dutch parent company UniLever is going through a painful reorganization too... with plans of around 20,000 job cuts over the next four years as well as selling off its laundry division in the US, besides sell off or reorganisation of 60 factories in Europe, its biggest market. Uncon- firmed speculations are on about a merger with Colgate Palmolive. And just like Uni- Lever, even Manwani would realise that while HUL’s resurgence has begun, it is far from complete. Organised retailing in India could be the next big threat for HUL to contend with. With respect to the threats posed by organised retail to FMCG players, Neville M. Dumasia, Executive Director, Advisory Services, KPMG India, quoted exclusively to B&E, “Retailers would compete directly with FMCG companies by promoting their own brands which would give them higher margins. They will begin to dominate the supply chain and shift the power from the FMCG companies to themselves.” And HUL clearly has to take up the cudgels in the semi-urban and rural segments as well, where ITC has pipped it to the post in setting up its retail outlets called choupal sagars. A recent Assocham study on FMCG projects that rural & semi-urban FMCG market size is projected to grow by 10% and 6% respectively by 2010. Urban India market size, on the other hand, is projected to fall by 25% as the market moves towards organic products. While that should be the preferred course of action for the future, there really seems to be little HUL can do currently to reinvigorate its stock. Indeed, more rocking quarters and expansions into sunrise areas could improve investor confidence. Surely HUL would not wish to wait for a generation for that to happen!

The war on the ground

This folktale of ruling the rural soil commenced way back in 2000, when ITC rolled out its first e-Choupal. At that time, ITC was in the phase of metamorphosing itself from a tobacco major to a FMCG conglomerate and this definitely was a landmark initiative taken by the company to cash in on the lucrative rural economy. But strangely, HUL, being in the country for long time and in touch with rural soil since 1976, never thought of creating such an internet-based intervention and procurement oriented networking model. Trailing ITC in such an endeavour, HUL integrated a model of its own in 2001, which encouraged rural women to become selling agents for HUL products. Christened as ‘Project Shakti’, this model viewed the villagers as buyers, which was a clear lack of strategic focus. ITC, on the other hand, fi rst viewed the farmer as a seller, and sought to improve the lot of this burgeoning population fi rst by buying their produce at fair prices. In terms of coverage, ITC connects over 31,000 villages through 5200 kiosks and HUL merely connects only 22,000 villages. Both players are yet in the investment mode in rural India, but analysts already seem to be handing the ‘victorious’ tag to ITC. “ITC has strengthened its food portfolio with a strong back end support and HUL is being cornered by ITC with its aggressive rural expansion plans. Also, HUL never had the patience to create a strong raw material base for it’s food portfolio,” affirms Sumeet Budhraja, FMCG Analyst, Edelweiss Securities Pvt Ltd. And ITC has also aggressively tapped rural retail with Choupal Sagars. Surely, HUL is paying dearly for its complacency in tapping the market of the future