HUL to rework strategies in oral care segment

Nachiket Kelkar
Moneycontrol.com

Hindustan Unilever plans to rework strategies in the oral care segment after disappointing third quarter for its products like Closeup and Pepsodent toothpaste, in a highly competitive segment.

The India's largest FMCG company had on Tuesday reported 18% year-on-year rise in third quarter net profit at Rs 753 crore, and a 16.4% increase in net sales at Rs 5,853 crore. But it has warned of growing competition and cost pressures, raising concerns if it will be able to maintain at least the 9% volume growth it saw in the third quarter.

Growth in the personal products space was at 14% in third quarter. Oral care in particular saw modest growth in a competitive environment, HUL said. Personal products also saw near 300 basis points drop in operating margins, one of the reasons that left investors disappointed.

HUL MD Nitin Paranjpe said that oral care segment had seen rapid premiumsation, where it had limited presence, and it now needed to take corrective steps.

"There is a challenge (in oral care). The market is premiumizing rapidly. Our presence in premium space needs to be strengthened," he said in a conference call with institutional investors.

Paranjpe and CFO R Sridharan both said that the company was drawing plans to increase its participation in the premium oral care category and HUL would "take what ever steps required to get back to competitive growth in that segment."

HUL did re-launch its Pepsodent G toothpaste in the fast growing advanced care segment in the October-December quarter, but clearly it will have a lot of catching up to do with competition.

Rival Colgate Palmolive, for instance, launched Colgate Sensitive and Sensitive Pro-Relief toothpaste last year, which analysts say has seen good growth. GlaxoSmithKline Consumer launched its Sensodyne toothpaste in India.

Colgate Palmolive India last month reported 74.5% jump its third quarter net profit, while net sales rose 20%. The company's toothpastes saw volumes grow 15% in the three-month period, and it had a market share of 52.5% in the category over Dec 2010-Nov 2011.

HUL's revenue in the personal products segment in the third quarter rose 13.3% from a year ago to Rs 1,886.17 crore. Profit before interest and tax in the segment was up just 2.4% at Rs 488.12 crore.

HUL's stock closed down about 1.2% at Rs 382.15 on NSE on Tuesday. The stock had slipped over 3% post the results on Monday. Several analysts have pointed out that current valuations are stretched and there is limited upside left for growth in the near-term.