HINDUSTAN LEVER LIMITED

A Project Report On SURF EXCEL

 TABLE OF CONTENTS

• ACKNOWLEDGEMENTS
• INTRODUCTION
• EXECUTIVE SUMMARY
• INDUSTRY ANALYSIS
• COMPANY OVERVIEW
• FINANCIAL STATEMENT ANALYSIS
• MARKETING MIX OF ORISSA
• COMPETITORS ANALYSIS
• PROJECT1:
o OBJECTIVES
o SCOPE AND LIMITATIONS OF THE STUDY
o RESEARCH METHODOLOGY
o DATA ANALYSIS
§ CONSUMER ANALYSIS
o CONCLUSIONS
• APPENDIX
o CONSUMER’S QUESTIONNAIRE
o DETAILED FSA
 EXECUTIVE SUMMARY

The project assigned to us was to study the business and marketing practice, competitors
in business and customers of Surf Excel, for Orissa market. For this a questionnaire was
prepared for the consumers. A sample of 53 consumers was surveyed. The respondents
were interviewed in market places across Bhubaneswar.
After the analysis we came to the conclusion that the Surf Excel enjoys a space in the top
2 positions in brand recall of the consumer. This is a positive sign for HLL. The research
also shows that the market share of Surf Excel in Orissa’s detergent market is
approximately 66%. Also, from the survey it is evident that brand name, price and
cleansing action are three of the most important attributes a consumer looks for in any
detergent brand. Surf Excel enjoys a good reputation with the consumers with respect to
all these attributes.
Another thing that we noted in this survey was that Television is the most used
information source for the consumer. The exact communication recall however, is very
poor among the consumer. This could be attributed to the ever increasing advertisement
clutter, across all media. Thus, HLL should consider looking for other media like
outdoors.
It was also noted that over 50% of the consumers who used Surf Excel, would purchase
packs whose size was 1/2 – 1 kg and did not prefer purchasing the 200gm pack. We tried
to find out the reason as to why this practice occurred, but to no avail. HLL should
consider promoting this pack size in some way, or phase it out totally.
Thus, we can conclude that Surf Excel enjoys excellent customer reviews. It gets special
recognition for its superior cleansing action, the convenient packs it comes in, the ease it
is available with, and the fact that its price is at par with similar products available in the
market today.

OBJECTIVES OF THE STUDY

1. The primary objective of the study was to understand the customers of Surf Excel
( type/ quality/ their decision making style/ source of information that they use for
collecting information regarding Surf Excel)
2. The study was also aimed to understand the business and marketing practice of
Surf Excel and the marketing mix used by HLL for Surf Excel.
3. Another important objective of the study was to understand the competitors of
Surf Excel.
4. Efforts were also made to evaluate the financial strength and market capabilities
of the parent firm, Hindustan Lever Limited.
 INDIAN FMCG INDUSTRY
Background

The FMCG sector has been the cornerstone of the Indian economy.
Though, the sector has been in existence for quite a long time, it began to
take shape only during the last fifty-odd years. The sector touches every
aspect of human life, from looks to hygiene to palate. Perhaps, defining an
industry whose scope is so vast is not easy.

Generally, FMCG refers to consumer non-durable goods required for daily

or frequent use. The sector touches every aspect of human life, from looks
to hygiene to palate. Perhaps, defining an industry whose scope is so vast
is not easy.

The FMCG sector consists mainly of sub segments viz. personal care, oral care and
household products. This can be further sub-divided into oral care, soaps and detergents,
Health and Hygiene products, beauty cosmetics, hair care products, food and dairy-based
products, cigarettes, and tea and beverages.

Major Indian consumer product companies (like Britannia, P&G, HLL, etc.) have a very
strong presence through their strong brands. Diversified portfolios, wide distribution
networks and scale economies of these companies deter new players from entering.
Brand equity, therefore, is an extremely important factor in FMCG industry. One of the
other most critical factors is the ability to build, develop, and maintain a robust
distribution network

Post-reforms, the industry's growth has been hinging around a burgeoning rural
population which has witnessed significant rise in disposable incomes. Consequently, the
rural markets have been witnessing intense competition in almost all the consumer
product classes. Another reason which has led to rise in this trend is the saturation in
urban markets in most of the consumer non-durable goods categories. This has led to the
industry players scrambling for greater rural penetration as a future growth vehicle, the
area which accounts for 70% of the total Indian households

So far, it has been a chequered graph for the MNCs operating in the Indian FMCG
industry. Domestic companies are only beginning to make their presence felt in the
industry. It has taken tremendous consumer insight and market savviness for the FMCG
players to reach where they are today. But, the journey seems to have just now begun for
the players as the majority of the rural populace are yet to get access to the items of daily
usage like toothpastes, soaps and shampoos.
Value for money

Ever since the global recession of 1991-94, which hit consumer spending hard, value-for-
money has become the buzzword for FMCG companies globally. These FMCG
companies embarked upon major restructuring and cost rationalization exercises as
business continued to become fiercely competitive. Several packaging innovations were
also resorted to. India was no different. There was a paradigm shift towards value-for-
money products and, to some extent, towards the rural market.

What Nirma did all these years suddenly became the buzzword for many FMCG players.
Price cuts became inevitable to keep the market share from shrinking. Sometimes, the
cuts touched ridiculous levels. Economic recession hit the urban pockets badly and forced
companies to train their guns on rural India, which was witnessing a major change in its
aspiration and lifestyles and even had an income that translated into increasing volumes.
India’s agrarian economy is fundamentally strong. Rural India accounts for as much as 70
per cent of the nation’s population. That means rural India can bring in the much needed
volumes and help FMCG companies to log in volume-driven growth. Companies such as
HLL, Colgate and Britannia who already had a strong rural focus, stepped up the gas
further. HLL unleashed its "Operation Bharat". Britannia pushed its Tiger biscuits to
every nook and corner of the country, while Colgate went about wooing the rural masses
by offering low-priced products in convenient packaging. Those who could not do it on
their own went piggyback on somebody else. P&G, whose distribution is largely urban,
chose to leverage Marico's retail reach.

P&G and Smith Kline Beecham, nonetheless, are interesting cases. With small product
portfolios like theirs, they have been able to achieve what others could not and proved
that what you need is a good product, marketed effectively and sold at the right price

Of late, an interesting trend in the Indian FMCG sector has been brand acquisitions. This
represents a growing awareness among the FMCG players are talking today more and
more of product "fits" while discussing brand acquisitions. It is not just acquiring
anything and everything as it was in the past

Rural marketing has become the latest marketing mantra of most FMCG majors. True,
rural India is vast with unlimited opportunities. All waiting to be tapped by FMCGs. Not
surprising that the Indian FMCG sector is busy putting in place a parallel rural marketing
strategy. Among the FMCG majors, Hindustan Lever, Marico Industries, Colgate-
Palmolive and Britannia Industries are only a few of the FMCG majors who have been
gung-ho about rural marketing. With reason.

Certainly, rural marketing holds the key to success of FMCG companies, which are
desperate to find ways out to gain deeper penetration. Not just the rural population is
numerically large, it is growing richer by the day. Of late, there has been a phenomenal
improvement in rural incomes and rural spending power.
FMCG sector performance in last decade

The fmcg sector in India showed a constant decline in the last decade. What started as 20-
25% growth rate in year 1994-96, had reached a negative growth rate of -2.8% in Q1’04.
The FMCG sector is now mockingly called SMCG or slow moving consumer goods.
 Source India Today - R K Swamy BBDO Guide to Urban Markets
*Soap, Shampoo, Nail Polish, Washing Powder, Footwear, Tea, Coffee, Cigarettes, Electric Bulbs.

Rank Towns States Average Monthly Spending on FMCG Products* in

Rs.

1 Chandigarh Chandigarh 3,418

2 Greater Maharashtra 2,955

Mumbai

3 Chennai Tamil Nadu 2,886

4 Ahmedabad Gujarat 2,869

5 Vadodara Gujarat 2,816

6 Pune Maharashtra 2,804

7 Coimbatore Tamil Nadu 2,684

8 Ludhiana Punjab 2,674

9 Faridabad Haryana 2,596

10 Hyderabad Andhra 2,533

Pradesh
 The Fabric Care Market In India

Detergents

The Indian fabric wash market consists of synthetic detergents (comprising bars, powder
and liquids) and oil-based laundry soaps. The detergent powder market is further
segmented based on price and form. It is characterised by brands from a plethora of
regional and local players competing with the national marketers primarily in the low-
priced and mid-priced segments
The synthetic detergent market can be classified into premium (Surf, Ariel), mid-price
(Rin, Wheel) and popular segments (Nirma), which account for 15%, 40% and 45% of
the total market, respectively. The product category is fairly mature and is dominated by
two players, HLL and Nirma. Nirma created a revolution in the market by pioneering the
concept of low-cost detergents. Currently, the market is highly segmented with the
differential between the premium and popular segments at almost 7X.

Growth
Although the per capita consumption of detergents in India (2.7 kg pa) is comparable to
some countries like Indonesia, China and Thailand (around 2 kg pa), it is lower than in
others such as Malaysia, Philippines (3.7 kg) and the USA (10 kg). High consumer
awareness and penetration levels will enable the market to grow at an average 8-10% per
annum with slightly higher growth in the rural areas. Higher penetration stems from
popularity of low-cost detergents. Hence, besides increase in per capita consumption,
there is tremendous scope for movement up the value chain.

Leading Fabricare Brands Available In India

Surf Excel

Surf comes from the stables of Hindustan Lever, the largest player in this market with an
offering at each price point. Surf was the first detergent powder brand to be launched in the
country. It created the detergent powder category and introduced the concept of bucket
wash to housewives hitherto used to washing clothes with laundry soap bars. Surf has, since,
become generic to detergent market. Consumers refer to all their powders as Surf, even
competitive powders are called Surf e.g. Nirma Surf
Selling over 60,000 tonnes per year, Surf is the market leader in the concentrate and
premium powder price segments Surf has always been the first to recognize and respond to
trends. Whether it was through 'Surf with Easy Wash'- a low lather variant, in 1994 or 'Surf
with Wash Boosters' (1995) that provided 'best clean' even in hard water. The brand Surf
Excel now has three variants – Surf Excel Quickwash, Surf Excel Blue and Surf Excel
Automatic – which address different laundry needs but each offers stain removal as the key
benefit.

In 2003, recognising changing consumer purchase patterns, it once again redefined value for
the consumers by introducing the concept of monthly packs.

Sensitive to the increasing concerns on environmental pollution and water scarcity problems
across the country, it brought to the consumer Surf Excel Quickwash. This low lather
variant is the first eco-friendly detergent in the country, as it uses almost half the water other
detergents require.

Surf has innovated beyond the basic product into other aspects of laundry. Understanding
the need for easy-to-store packaging, tubs and jars were introduced. In order to help
consumers dose correctly for the best possible clean, measuring scoops were built into the
packs. For convenience seekers, washing has been simplified with the ready to dose packs of
Surf Excel Automatic.

Consistent innovation addressing ever-evolving consumer needs has earned the brand a
place in the hearts of consumers. Surf was rated in the top Ten Most Trusted brands in The
Economic Times survey in 2003

Wheel

Wheel is India's number one detergent brand. Launched in 1987, it cleans effectively
with lesser effort, making a laborious chore like washing light and easy. Moreover,
Wheel does not burn hands or harm clothes like some other detergents, which contain
a high percentage of soda.

Ever since its relaunch in 2001, with the new positioning of 'best clean with less effort',
Wheel has been growing strongly. Research showed that consumers seek a solution to heavy
duty laundry, like bed sheets and curtains. Developing on this insight, wheel sought to
eliminate the trouble of tough dirt or heavy-duty laundry. Mass market consumers have
welcomed the solution, making it the number one.

Nirma - a home-grown product that revolutionized the detergent market in India, and
successfully challenged large multinational leaders in the process.The Nirma success story is
a result of its founder, Dr. Karsanbhai Patel's relentless focus on quality, cost and value. The
distribution model, sustained line extensions and umbrella branding strategies have enhanced
the brand's cost leadership. Today, the company's two brands, Nirma and Nima, are
distributed through more thantwo million retail outlets across the country, generating gross
sales in excess of Rs. 26,000 million. In the fabric care category, Nirma has three products
for the lower-end market. The Nirma Yellow Washing Powder is available in pack sizes of
30 gms, 200 gms, 500 gms and 1 kg, and is ranked as the largest selling single detergent
brand in the world.

Nirma is one of the large st selling single detergent brands in the world. Nirma products are
sold through two million retailers and reach 400 million.

This brand had been ranked as the “Most widely distributed detergent powder brand in India” as per All
India Census of Retail Outlets carried out in 435 urban towns by the AIMS (Asian Information
Marketing & Social) Research agency [Brand Equity - The Economic Times, March 11, 1997]. As per
the ORG-MARG Rural Consumer Panel [December 1998] survey, Nirma brand has been ranked as
highest in terms of penetration in washing powder category [BT Rural Market Watch, Business Today, June
22, 1999].
World-over Ariel epitomizes ‘stain removal’ and removes even the toughest stains in the first
wash. Introduced in India in 1991, Ariel has continuously led other detergents in product
innovation. For example, it pioneered the use of enzyme technology for superior and safe
stain-removing power, longer-lasting perfume, and the P&G proprietary cleaning
technology, which cleans everyday soil and dirt from garments. Over the years, the brand has
enjoyed endorsement from celebrities such as the former actress and now MP Shabana Azmi
and lakhs of other homemakers in India.

Tide is the World’s Oldest and Most Trusted Billion Dollar Detergent and is the market
leader in 23 Countries around the world. Tide provides outstanding whiteness on white
clothes and provides excellent everyday cleaning for colored clothes too. Launched in India
in mid-2000, the brand has gained popularity among Indian housewives, thanks to its
superior whitening, creative advertising starring Shekhar Suman, and its Value-for-Money
proposition.

Both Tide and Ariel are billion dollar brands in sales for P&G globally.

Now Large Packs of Tide and Ariel -

World’s Best Detergents at Rs. 23/-
and Rs. 50/- only

Mumbai, India -- March 02, 2004 -- Procter & Gamble today announced that it has reduced the
prices of Ariel and Tide bags (large packs) by 20-50%, while maintaining the superior quality.
The superior quality ½ kg pack of Tide now cleans a family’s one-month laundry in just
Rs. 23/-, while a ½ kg pack of Ariel cleans a family’s one-month laundry in just Rs. 50/-.
This significant price reduction will now allow many more Indian consumers to experience the
world-class experience of outstanding whiteness from Tide and superior stain-removal
from Ariel in every wash.

The new prices of Ariel and Tide are as follows:

 Old Price New Price Old Price New Price
Pack Size P&G's move to slash
Ariel Ariel Tide Tide detergent prices is
200gm Rs. 30 Rs. 22 Rs. 20 Rs. 10 ostensibly to get
more consumers to
500gm Rs. 70 Rs. 50 Rs. 43 Rs. 23 experience its brands
1kg Rs. 135 Rs. 99 Rs. 85 Rs. 46 but the industry sees
it primarily as a
1.5kg Rs. 180 Rs. 145 N.A* N.A move to wrest the
advantage from HLL
2kg N.A N.A Rs. 160 Rs. 88 in a sluggish market.
The prices of sachets (20gm) of Ariel and Tide remain unchanged.
* N.A = Not Available in that size.

Six months ago, P&G reduced the prices of Ariel and Tide sachets by 50% in order to
encourage a larger number of consumers to experience their superior quality. The better
value offer on sachets received such an overwhelming, positive response from consumers
across India that P&G was encouraged to offer the irresistible value to Ariel and Tide bag
users as well, thereby make the world’s best detergents accessible to a larger number of
Indian consumers.

P&G talked to over 3,000 consumers across the length and breadth of India and observed
over 25,000 washing sessions in consumers’ homes. Consumers believed in the superior
quality of Ariel and Tide but indicated ‘pricing’ as a constraint in using Ariel and Tide on a
regular basis.

The drop in prices by the P&G has forced HLL to also react in a similar way thus shrinking
the overall profit margins for the group. While the immediate impact of any price slash is
bound to result in more volumes and thereby shares for the companies concerned,
improving margins in the business remains doubtful.
 Company Overview
Hindustan Lever Limited (HLL) is India's largest fast moving consumer goods
company, with leadership in Home & Personal Care Products and Foods & Beverages.
HLL's brands, spread across 20 distinct consumer categories, touch the lives of two out of 1888
Sunlight soap
three Indians. They endow the company with a scale of combined volumes of about 4 introduced in
million tonnes and sales of Rs.10,000 crores. India.

The leading business magazine, Forbes Global, has rated Hindustan Lever as the best
consumer household products company. Far Eastern Economic Review has rated HLL as
India’s most respected company. Asiamoney has rated HLL as one of India’s best managed
companies. Leading national publications, like The Economic Times, Business World, and 1895
Business Today have also rated HLL as one of India’s most respected companies and the Lifebuoy soap
number one in Market Value Added and EVA. launched

HLL is India's largest marketer of Soaps, Detergents and Home Care products. It has the
country’s largest Personal Products business, leading in Shampoos, Skin Care Products,
Colour Cosmetics and Deodorants. HLL is also the market leader in Tea, Processed
Coffee, branded Wheat Flour, Tomato Products, and Ice cream, Soups, Jams and 1902
Squashes. Pears soap
introduced in
HLL is also one of the country's biggest exporters and has been recognized as a Golden India
Super Star Trading House by the Government of India; it is a net foreign exchange earner.
HLL is India's largest exporter of branded fast moving consumer goods. The company's
Exports portfolio includes HLL's brands of Soaps and Detergents, Personal Products,
Home Care Products, Tea and Coffee. HLL is also driving exports in chosen areas where
India has a competitive advantage – Marine Products, Basmati Rice, Castor Oil and its 1903
Brooke Bond
Derivatives. It is India's largest exporter of Marine products, and one of the largest global Red Label tea
players in castor. launched.

Market leading brands

HLL’s brands have become household names. The company’s strategy is to concentrate its
resources on 35 national power brands, and 10 other brands which are strong in certain 1905
regions. The top five brands together account for sales of over Rs.3000 crores. Each of Lux flakes
these mega brands has a potential scale of Rs.1000 crores in the foreseeable future. introduced

Some of the big brands in Soaps and Detergents are Lifebuoy, Lux, Liril, Hamam,
,Pears,Rexona & Dove, (all soaps), Surf Excel, Surf, Rin, & Wheel (all detergents). HLL
also markets the Vim and Domex range of Home Care Products.
1913
In the Personal Products business, HLL's Hair Care franchises are Clinic, Sunsilk and Lux Vim scouring
shampoos.In Oral Care, the portfolio comprises Close-up and Pepsodent toothpastes and powder
toothbrushes. In Skin Care, HLL markets Fair & Lovely Skin Cream and Lotion, the introduced.
largest selling Skin Care Product in India; a brand developed in India, it is now exported to
over 30 countries. It has been extended as an Ayurvedic cream, an under-eye cream, soap
and talc, in line with the strategy to take brands across relevant categories. The other major
Skin Carefranchises are Pond’s, Vaseline, Lakme and Pears. In Colour Cosmetics, HLL
markets the Lakme and Elle-18 ranges. In Deodorants, the key brands are Rexona, Axe,
1930
Denim and Pond's, while the Talc brands are Pond's, Liril, Fair & Lovely, Vaseline and Unilever is
Lifebuoy. Axe and Denim are HLL’s franchises for Men’s toiletries. formed on
January 1
HLL has recently launched Lever Ayush Ayurvedic Health & Personal Care Products.
Health Care is among the new businesses HLL has chosen to enter. The product range
comprises Cough Naashak Syrup, Headache Naashak Roll-on, Dandruff Naashak
Shampoo, Hair Rakshak Oil and Body Rakshak Soap. The purity of the Ayurvedic
1931
ingredients in Lever Ayush is endorsed by the renowned Arya Vaidya Pharmacy (AVP) of Hindustan
Coimbatore. It is for the first time that rigorous testing procedures of the pharmaceutical Vanaspati
industry have been applied to Ayurvedic products. That is why the brand seal is ‘Truth of Manufacturing
Ayurveda; Proof of Science’. Company
registered on
November 27
HLL has started franchised Lakme Beauty Salons, offering standardised services, in line
with the strategy to add a service dimension to relevant brands.

The company has set up the Hindustan Lever Network, a direct selling channel, offering 1932
the Lever Home range of Laundry and Home Care products and the Aviance Personal Vanaspati
manufacture
Care range. starts at Sewri

The company has also begun an e-tailing service, called Sangam, which can home-deliver
on order by phone or through the Net, a diverse range of about 5000 branded and
unbranded products. The service is now available in select areas of Mumbai and Navi
Mumbai, besides Thane.
1939
HLL is one of the world’s largest packet Tea marketers. Its Tea brands – Taj Mahal, Red Garden Reach
Label, Taaza, - are among the top brands in the country; it also markets Lipton Ice Tea. Factory
purchased
HLL and Pepsi have formed an alliance to distribute a full range of tea and coffee and soft
outright
beverages through vending machines; HLL already has a base of around 15000 such
machines. The coffee business comprises Bru Instant Coffee and Deluxe Green Label
Roast & Ground Coffee.

The Kissan and Knorr Foods range comprises Spreads & Jams, Biscuit Sticks, Soups, 1943
Personal Products
Squashes, Tomato Ketchup, Sauces, Puree, and Cooking Aids. Popular Foods, like Wheat manufacture
Flour and Iodized Edible Salt, under the Knorr Annapurna brand name, have met with begins in India at
remarkable success. The range has been expanded with ready-to-eat 10-second chapatis. Garden Reach
The innovative offerings are changing consumer habits into using processed, hygienic, Factory
healthy and convenient products.

The Kwality-Wall's Ice Cream range comprises exotic Sundaes, Viennetta Desserts,
popular ‘Impulse’ segment products like Max, Cornetto and Feast, and Cornetto Ripple 1947
Softies. Pond's Cold
Cream launched.
Max was extended in 2001 as sugar confectioneries, because children are a key consumer
segment in confectioneries too. This is among the new businesses HLL has chosen to
enter.
HLL has acquired Modern Food Industries (India) Limited, entering the bread market.
Modern Foods was the first Public Sector Undertaking to be disinvested. Besides 1959
Surf launched.
upgrading the existing Modern products, HLL has launched new products, among them
biscuits.

HLL is liberating its brands from their existing category mindset. Historically, brands
originated and stayed within a category format. HLL sees its Power Brands as being able to
occupy a unique position in the consumer's mind and therefore being able to stretch into
other product formats and categories. All such initiatives have had a promising start, and
1964
there are more to come. Etah dairy set up,
Anik ghee
launched; Animal
feeds plant at
The Distribution network Ghaziabad;
Sunsilk shampoo
HLL’s distribution network is recognised as one of its key strengths -- that which helps launched.
reach out its products across the length and breadth of this vast country. The need for a
strong distribution network is imperative, since HLL’s corporate purpose is “to meet the
everyday needs of people everywhere.”

HLL's products, manufactured across the country, the operations involve over 2,000 1969
Rin bar launched
suppliers and associates. HLL's distribution network, comprising about 7,000
redistribution stockiest about one million retail outlets, directly covers the entire urban
population, and about 250 million rural consumers.

In addition to the ongoing commitment to the traditional grocery trade, HLL is building a
special relationship with the small but fast emerging modern trade. HLL's scale enables it
to provide superior customer service including daily servicing, improving their range
availability whilst reducing inventories. HLL is using the opportunity of interfacing more 1975
Close-up
directly with consumers in this retail environment through specially designed toothpaste
communication and promotions. This is building traffic into the stores while yielding high launched..
growth for the business.

An IT-powered system has been implemented to supply stocks to redistribution stockists

on a continuous replenishment basis. The objective is to catalyse HLL’s growth by 1978
ensuring that the right product is available at the right place in right quantities, in the most Fair & Lovely
skin cream
cost-effective manner. For this, stockists have been connected with the company through launched..
an Internet-based network, called RSNet, for online interaction on orders, dispatches,
information sharing and monitoring. RS Net covers about 80% of the company's turnover.
1930
Unilever is
formed on
HLL's foray into Network Marketing January 1
1988
Launch of
As per the market surveys conducted it is expected that the consumer market in India is Lipton Taaza
worth 13000 crores per year and in few years the network market will capture 500 crores as tea.
per market surveys, considering the potential Hindustan Lever has launched Hindustan
Lever Network (HLN), a unique Network Marketing opportunity .
 1991
The Network marketing concept Surf Ultra
detergent
launched.
In the normal marketing system, the manufacturer supplies the products through the
middle men such as brokers, wholesalers and retailers. These middle-men add their
establishment costs and their own margin of profit or commission on the price. This
increases the price by approximately 45 per cent. The consumer therefore gets the product
at atleast a 45 per cent markup from the manufacturer's price. 1993
Tata Oil Mills
Company
In network marketing, these middle men are eliminated. A person is invited to join and (TOMCO),
become a member (also called Consultant) of the network marketing company. This merges with the
person in turn invites many more people to join under him to form a group. These group company
members, in turn invite their acquaintance to join under them. This group is made to
steadily grow and it can grow into thousands or tens of thousands, in the course of time,
depending upon the enthusiasm with which the Consultant pursue the sponsorship of new
Consultants. 1994
HLL
introduces
These Consultants make purchases of the products of the marketing company for self use
Wall's.
and also for sale to other consumers. For their loyalty in regularly purchasing the products,
the marketing co. gives discounts, handsome bonuses, rewards and special incentives.

Each consultant in the group gets his shares of benefits depending upon the purchases
made by him and also by the number of the consultant under him (called downlines). This 1995
is called network marketing. HLL enters
branded
The growth in the beginning will be slow, from 1 to 2 to 4.......but later on it will be rapid, staples
1000 to 2000 to 4000.....and so on. Given below are the approx. benefits received, business with
salt
depending upon your group strength and on the assumption that each consultant has
purchased goods worth Rs 1,000/- in the month. The benefits will be more for higher
purchases and bigger groups.

Group Strength Benefits: 1996

HLL introduces
253Nos(1+12+60+180) Rs17,938/- branded atta; Surf
Excel launched
1531Nos(1+18+216+1296) Rs64,558/-
3061Nos(1+36+432+2592) Rs 1,28,818/-

2002
HLL enters
Ayurvedic
health &
beauty centre.
 Shakti-Hll Rural Project

Shakti is HLL's rural initiative, which targets small

villages with population of less than 2000 people or less.
It seeks to empower underprivileged rural women by
providing income-generating opportunities, health and
hygiene education through the Shakti Vani programme,
and creating access to relevant information through the
iShakti community portal.

Started in 2001, Shakti has already been extended to about

50,000 villages in 12 states - Andhra Pradesh, Karnataka,
Gujarat, Madhya Pradesh, Tamil Nadu, Chattisgarh, Uttar
Pradesh, Orissa, Punjab, Rajasthan, Maharashtra and West
Bengal. The respective state governments and several
Project Shakti - By using self-help
NGOs are actively involved in the initiative. Shakti already groups, HLL has pushed its products
has about 13,000 women entrepreneurs in its fold. A typical down into the country. Into villages
Shakti entrepreneur earns a sustainable income of about where people cannot spend more than
Rs.700 -Rs.1,000 per month, which is double their average Rs 20-25 on FMCGs in a month
household income.

Project Shakti will expand the distribution cover bottom-up, the rural project will be top-down. This
will be a huge competitive advantage for Lever. The costs of expanding into these villages will be
too high for most companies, which do not have a portfolio spanning teas to detergents,

In recent past Hindustan lever took some major decisions to remodel its business. These decisions
had major impact on the how distribution of lever products is managed in the market.
Hindustan lever took the decision to simplify the company it merged all the different business units
into two large divisions: home and personal care (HPC) and foods and beverages (F&B). This gave
each division "The advantage is that these divisions get us enormous scale," The company
decided to whittle its brands down from 110 to 35, over the next three years. This is known as
HLL’s Power Brand strategy.

To identify these power brands, managers were asked to consider their growth potential, profit
delivery and the size of the opportunity. And to ensure that Lever would not lose sales, it was
decided to migrate these brand users to the designated power brands. For one, the drastic slimming
down of the brand portfolio which threw up huge problems in execution is now over.
HLL is already combining its scale advantage to offer retailers a bigger basket of products and better
service. Instead of different sales teams servicing the same retailer, the company has integrated both
HPC and Foods portfolios for modern trade chains like Margin Free. Once again, its large portfolio
range helps Lever to use the power of customer relationships to corner greater shelf space and a
disproportionately higher share of the branded segment.

Modern trade, it reckons, is already growing at 15-20 per cent and will continue that way for a long
time. By bulking up the businesses, it is possible for Lever to service these modern trade outlets on a
daily business. As a result, these retailers do not have to maintain high inventory levels.

HINDUSTAN LEVER LIMITED --- BOARD OF DIRECTORS

Mr. Harish Manwani Non Executive chairman

Mr. M. K. Sharma Vice Chairman

Mr. Arun Adhikari Managing Director (Home &

Personal Care)

Mr. S. Ravindranathan Managing Director (Foods)

Mr. D. Sundaram Finance & IT Director

Mr. A. Narayan Director

Mr. V. Narayan Director

Mr. D. S. Parekh Director

Mr. C. K. Prahlad Director

 The Competitors
The Indian FMCG markets have witnessed some of the classic struggles involving HLL. So
far Levers have been able to stand their ground but times are changing. HLL’s response to
the latest challenges is being eagerly studied by the corporate India. In order to gain a
foothold in Indian FMCG sector various domestic and MNC companies are using all kind of
schemes to woo customer from HLL. The major competitors of HLL are:

Detergents: P&G, Nirma, Henkel Spic

Toothpaste: Colgate-Palmolive
Beverages: Rasna, Coca-Cola (Sun fill)
Tea: Tata tea
Coffee: Nestle
Ice-creams: Amul
Shampoo: P&G, Garnier

Procter & Gamble

P&G Home Products Limited is a 100% subsidiary of The Procter & Gamble Company,
USA. P&G Home Products Limited is one of India's fastest growing Fast Moving Consumer
Goods Companies that has in its portfolio P&G's global brands such as Ariel and Tide in the
Fabric Care segment, and in the Hair Care segment: Head & Shoulders - world's largest
selling anti-dandruff shampoo; Pantene - world's No. 1 beauty shampoo; and Rejoice - Asia's
No. 1 shampoo.

Fabric Care

Procter & Gamble has two of its world-leading detergents – Tide and Ariel, in India to cater
to the main concerns of the Indian households. In India P&G has launched following
brands:

• Ariel Front-O-Mat Ariel 2 Fragrances

• Tide Detergent
• Tide Bar

Hair Care
In India, P&G’s beauty care business comprises of Pantene, the world’s
largest selling shampoo, Head & Shoulders, the world’s No. 1 Anti-dandruff
shampoo and Rejoice – Asia’s No. 1 Shampoo.

• Pantene Pro V
• Head & Shoulders
• Rejoice
Baby Care

• Pampers

In India, P&G will continue to be a midget, in turnover terms, when compared to Hindustan
Lever. The two P&G subsidiaries in India (P&G Hygiene and P&G Home Products) today
generate a combined turnover of about Rs 1,100 crore, just a tenth of Hindustan Lever's
sales. P&G's distribution network is largely urban and has a reach of 0.4 m outlets.

In 1994, Godrej entered into a strategic alliance with P&G for inter alia toilet soap business,
under which Godrej used to manufacture soaps, which were marketed by a joint venture
company. However post marketing alliance with P&G, the company lost significant part of
its market share and subsequently the arrangement was discontinued. Godrej’s entire
distribution network was then taken over by P&G.
THE Procter & Gamble -Gillette deal could result in the former getting a significant boost
both to its scale of operations and range of products in the Indian market. That Gillette's
portfolio of shaving razors, gels, grooming products and toothbrushes has no overlap with
that of P&G in India (shampoos, detergents, feminine hygiene, cold medication) is a
positive. The addition of Gillette's businesses could help P&G expand its portfolio and
acquire a more extensive distribution network; This may strengthen P&G's hand in the
ongoing war for market share with Unilever arms in the Asian markets, particularly with
Hindustan Lever in India.

Nirma

Nirma is one of the few names - which is instantly recognized as a true Indian brand, which
took on mighty multinationals and rewrote the marketing rules to win the heart of princess,
i.e. the consumer.

It was way back in ‘60s and ‘70s, where the domestic detergent market had only premium
segment, with very few players and was dominated by MNCs. It was 1969, when Karsanbhai
Patel started door-to-door selling of his detergent powder, priced at an astonishing Rs. 3 per
kg, when the available cheapest brand in the market was Rs. 13 per kg. In a short span,
Nirma created an entirely new market segment in domestic marketplace, which is, eventually
the largest consumer pocket
and quickly emerged as dominating market player. Now, the year 2004 sees Nirma’s annual
sales touch 800,000 tones, making it one of the largest volume sales with a single brand
name in the world. Looking at the FMCG synergies, Nirma stepped into toilet soaps
relatively late in 1990 but

this did not deter it to achieve a volume of 100,000 per annum. This makes Nirma the
largest detergent and the second largest toilet soap brand in India with market share of 38%
and 20% respectively.

Soaps
In 1992, sensing a strong need to expand the market through Penetrative
Pricing, Nirma entered this market with the launch of ‘Nirma Bath Soap’&
‘Nirma Beauty Soap’ .In 1998 Nirma expanded its product line in the soap
category by introducing ‘Nirma Lime Fresh’ & ‘Nirma Rose’. This brand had carved a niche
in its segment by achieving leadership position just within two months of its launch. It is
available in 100g and 150g pack sizes. Nirma entered the premium soap segment when it
launched ‘Nirma Sandal’

Detergents

Nirma launched “Nirma Washing Powder” in Indian market in year 1969, This product
was priced at almost one third to that of the competitor brands, resulting into instant trial by
the consumers.
Presently Nirma has different variants in Indian market.
Nirma washing powder
Nirma super
Nirma popular

Edible Salt
Nirma has also entered the Food market in the recent past with launch of Nirma Shudh.
 FINANCIAL ANALYSIS
Ratio Analysis
 All
figures in
Rs cr
Particulars Dec 2001 Dec 2002 Dec 2003 Dec 2004
Sales 12420.71 10641.15 11919.04 11594.65
Total assets 7089.06 7761.01 8104.68 7820.34
Net worth 3170.86 3713.91 2189.22 2148.67
Borrowings 102.55 86.23 1715.18 1604.25
Capital Employed 3273.41 3800 3904 3752
Debtors 1254.38 1169.49 1228.55 793.56
PAT 1576.47 1757.59 1687.33 1208.4
PBDIT 2211.63 2461.31 2462.92 1875.63
Depreciation 202.63 192.65 199.99 195.68
PBIT 2009 2269 2262.9 1680
Current liabilities & Provisions 3709.17 3841.92 4084.71 3919.71
Current assets 3505 3510 3610 3132
Current assets -Inventories 2201 2146 2120 1574
Long term Debt 102.55 86.23 1715.18 1604.25
Interest 12.31 12.86 69.12 136.25
Total Purchases 6077.97 5389.04 5438 5413.77
Profitability Ratios
Operating Profit Margin (%) 16.17 21.30 19 14.5
Net Profit Margin Ratio (%) 12.68 16.51 14.15 10.42
ROTA (%) 28.33 29.23 27.92 21.5
ROCE 61.37 59.72 58 44.77
Return on Equity (%) 49.71 47.3 77 56.23
Liquidity Ratios
Current ratio 0.944 0.91 0.88 0.79
Quick Ratio 0.59 0.55 0.52 0.40
Absolute Cash Ratio 0.25 0.254 0.218 0.20
Solvency Ratios
Debt Equity Ratio .032 0.023 0.78 0.75
Interest Coverage Ratio 163.2 176 32.74 12.33
Efficiency Ratios
Debtor Days 38.85 40.11 37.62 25
Creditor days 135.31 149.2 131.62 145.23
Total assets turnover ratio 1.75 1.37 1.47 1.48
Interpretation:

• Profitability Ratios:
HLL earns 14.5 paisa on every Re. 1 of Sale before Interest and Taxes It ultimately makes 10.42
paisa on every Re. 1 of Sale after Interest and Taxes.

It is visible that Hindustan Lever Ltd. has not been able to increase its Operating Profit margin
constantly over the years. We can see that the operating margin has decreased considerable in the
last year. This is mainly due to the fact that the interest cost of HLL has almost doubled from 69.12
crores to 136.25 crores. Moreover the company’s operating expenses have increased by almost 75
% in the year 2004.The efficiency has certainly decreased over the last few years mainly owing to
high operating expenses , increased interest burden and high indirect taxes. The Net Profit Margin
has also decreased by 17.8 % in 2004 as compared to 2001. This is mainly due to the decrease in
sales by Rs.826 cr.

HLL generates 21.5% Return on Total Assets (ROTA) that it employs in its operations in the
year ended 2004. ROTA has decreased in the last year mainly due to the fact that its profit margin
has decreased. It could be because of high competition as a result of which profits have decreased
and the total assets of the company have increased.

As we can see that the Return on Capital Employed (ROCE) for Hindustan lever Limited has
decreased considerably during the last year mainly due to lower profit margins. The company is
earning a return of 44.77% on the funds employed by it. Though the ROCE has seen a
considerable change, even now the company is getting good enough returns and can pay good
enough dividends to the shareholders as we saw the case in the year 2004 where the rate of
dividend was 250%.

The Return on Equity Ratio (ROE) states how much profit a company earned in comparison
to total amount of shareholders equity on the balance sheet of the company. Here, we see that the
ROE of HLL has increased in comparison to the year 2001 but this cant be concluded as a
favourable situation for the company as looking at the figures in detail we can notice that there has
been a near to 30% decrease in ROE in comparison to the year 2003 , also we do see that the PAT
of the company has fallen by about 23% and the shareholders equity has also decreased by 32% in
comparison to the year 2004. But Even now an ROE of about 56.23% is considered to be very
good.

• Liquidity Ratios:
It can be seen from the above table that the Current Ratio for all the years is less than 1. This
signifies that HLL has short term liabilities greater than the short term assets. It implies that the
company would have problems in managing its short term liabilities and liquidity requirements.
The company might have to resort to financing its short term liquidity requirements by long term
sources of finance.

We can observe that the current assets have decreased by 13 % and at the same time the current
liabilities have decreased by just 4 % in the last year. The reason is that since the company is
using long term sources of finance to fund its short term obligations therefore the interest burden
has increased and as a result the cash balance has decreased .Other receivables have also decreased
by more than 66% leading to a fall in current assets.

• Solvency Ratios:
The company was highly unleveraged in the years 2001 and 2002. It was risky as the company had
invested a huge amount of its own funds as compared to debt. However in the last 2 years the
company has changed its policy and is leveraging the advantage of debt along with equity. Though
the debt equity ratio of 0.75 is not good enough as compared to industry norms of 2:1 but the
company is moving towards a favourable debt equity mix. It has realized the importance of trading
on equity .The Company has increased its debt burden by 1470% in the last 4 years

Interest Coverage Ratio(ICR) basically signifies the ability of a firm to service its interest burden
through the profits generated .In the initial years when the firm had not employed debt its interest
burden was very low. As a result the Interest Coverage ratio is very high, gradually the company
has employed more debt and as a result of which the interest burden has increased significantly.
Moreover, due to high competition and operating inefficiency the earnings of the company have
declined. As a result the ICR has reduced from 163.2 to 12.33 in the last 4 years. However an ICR
of 12.33 is still very impressive which reflects the company’s ability to pay interests on loans
easily. This is a good indicator to the various financial institutions providing long term sources of
finance to HLL.

• Efficiency Ratios:
Here, we see that the Debtors Days for the company is less than the Creditor Days of the
company. From this we can interpret that the company has a favorable cash position as it is making
its payments long after receiving the dues from the debtors. Here, from the Asset Turnover Ratio
we can know how efficiently the firm is using its assets, the ratio for which is pretty low for the
company. The Creditor Days as well as Debtor Days both show negative growth which reflects
negatively on the company’s financials. The Asset Turnover Ratio also shows negative growth
which is also not a good sign for the company. Thus, looking into these figures we can analyze that
the efficiency level of the company has gone down vis-à-vis the previous years and hence the
company needs to look urgently into these matters so as to improve the efficiency of the company.

Ø DU-PONT RATIO ANALYSIS:

The Du Pont ratio analysis is a combination of financial ratios in a series in order to assess the
investment returns of the company. It combines the financial ratios of both the Income Statement
as well as the Balance Sheet in order to assess either the Return on Equity or the Return on
Investment. One of the Plus points of this method is that it provides a clear understanding of how
the company generates its return. This analysis provides an insight into the importance of asset
turnover as well as sales to overall return. This formula shows the relationship of profit margin and
turnover how these two complement each other.
The Du Pont ratio divides the Return on equity into three parts: Net Profit Margin, total asset
turnover, and the company’s use of leverage referred to as Equity Multiplier also.
DU-PONT CHART FOR HLL FOR THE YEAR 2004

RETURN ON
EQUITY
=PAT/NETWORTH
56.23%

Equity NET PROFIT TOTAL ASSET

Multiplier MARGIN TURNOVER
=TA/NW =PAT/NETSALES =SALES/TA
=10.42% =1.48
=3.64%

RETURN ON
ASSETS
ROA=PAT/TA
=15.44%

Growth Trends Over The Years

Particulars Dec-01 Dec-02 Dec-03 Dec-04

Sales 12420.71 10641.15 11919.04 11594.65

Expenditure 10627 8690 9941 10076

Change In
Sales (%) --- -14.33 12 -2.7
Change In
Expenditure
(%) --- -18.22 14.39 1.35
Change in
PBIT (%) --- 12.94 -0.26 -25.75
Change in
PAT (%) --- 11.48 -3.99 -28.38
Change in
Borrowings
(%) --- -15.91 1889 6.46
Change In
Interest (%) --- 4.46 437.48 97.12
COMMON MARKETING MIX FOR ALL MARKETS

1. Product consists of brand,

quality, appearance,
2. Price Structure consists of
prices, dealers and consumers
discounts.
3. Promotional activities consist of
advertising, media.
4. Placement (distribution) system
consists of dealers, distributors,
retailers and overall logistics.

MARKETING MIX FOR RURAL MARKET

1. Product
2. Price
3. Promotion
4. Placement system
5. Packaging-Reason for putting it
separately is because symbols and
packaging becomes very important
when literacy levels are very low.
6. Retailer is the one who gives all
information about brand choice and
consumer feedback.
7. Education is very important for
rural sector-eg. Project Shakti
8. Empowerment Example-Project
Shakti and Self Help Groups.

PRODUCT
Surf derives its name from ‘Surfactant’ the basic ingredient of a detergent.

After 44 years, Surf brand has been upgraded and made more modern and contemporary.
Surf has changed – the entire brand is now called “Surf Excel”. Continuous
improvements in the formulation of the product and introduction of new ingredients e.g.
enzymes, along with new perfumes have ensured that the product meets the evolving
consumer needs. The brand Surf Excel now has three variants – Surf Excel Quickwash,
Surf Excel Blue and Surf Excel Automatic – which address different laundry needs but
each offers stain removal as the key benefit.

Surf Excel Blue

Target segment: Economic segment.

Attributes:-Removes stains without fading
colours.
Sizes avalaible: 25gm, 200gm, 500gm, 750gm,
1.5kg, 3kg

Surf Excel Quickwash (also called as Surf Excel Easy wash)

(Hitherto known as just Surf Excel)

Target segment: Superior quality for washing

machine users.
Sizes available:- 20gm, 20gm, 500gm, 1kg, 1.5kg
Attributes:-Stain removal

Surf Excel Automatic

Target segment:-Washing machine owners –Top

and front loading machines .
Sizes available:- 600gm, 1kg
Attributes: Low lather detergent, anti corrosive,
stain removal, ensures longer life of fabric.

PRICE
Latest price war between detergent majors, Hindustan Lever (HLL), Proctor and Gamble
India (P&G), Nirma and Henkel-Spic India (HSIL) has proved that price in the marketing
mix is very critical for growth of HLL products.

If Surf excel prices were reduced to match the price cuts of their competitor (P&G),
simultaneously they had to ramp up spending on advertising and promotions to increase
consumption and penetration in the market and retain values of premium brand
PROMOTIONS

Surf communication has been pleasant, soothing and gentle, Surf Excel has had a
distinctively bold ‘tongue in cheek’ style of communication. Promotions for Surf Excel
are more often than not tactical weapons. Gift is offered to the consumer to gain short-
term patronage or to engineer enhanced consumption. Choice of various promotional
gifts is usually governed by what can be bought cheap rather than any brand-related
factors.
Surf Excel has always been sensitive enough to recognise the change in the consumer
choice dynamics. In some of their promotions, they have pampered influencers
considering that brand choice in family products is a collective exercise.

Various promotions being used for Surf are:

• Scholarship offer –Rs five lakh scholarship.

Extremely rare and intelligent use of the marketing budget.
Beauty of this promotion is in its design. An innovative and clever way of underscoring
the core promise of Surf Excel — stain removal!! Visual depiction in the ad is student-
focussed — there are no mothers or daughters to be seen in the ad. Most of the people in
the ad are in their teens. The protagonist himself is barely in his teens. This can be an
indication towards changing consumer algorithm.
This was backed by Win with Stains campaign – one of the largest campaigns taken up
by Surf excel.
This promotion is happening in Orissa markets which is aimed at offering consumers a
chance to win prizes as well as give students an opportunity to pursue further studies. The
aim of the whole campaign is to drive home the point that stains are good in life and one
is not to be scared to get themselves dirty. They are not only doing road shows,
advertisements but branded horoscope columns in keeping with the theme of luck and
fortune.
They have roped in former South African cricketer Jonty Rhodes to participate in the
'Win with stains' washathon to wash the largest stain in town with kids of the NGO -
Magic Bus

• 1 bucket free with 3kg of Surf Excel has really managed to increase sales revenue
of Surf excel.
This is the most successful consumer promotion till date in Orissa market.

• Surf KidStains - a roadshow that invites consumers to get first-hand experience

of using Surf.

Surf has taken communication beyond mass media advertising and involved consumers
in the brand’s promise in the real world. It has touched consumer’s life through school
contact and in-store programmes. Road shows have helped to go to the consumers and
demonstrate superior performance vis-à-vis competition.
PLACEMENT SYSTEM
In Orissa, HLL has around 100 dealers and distributors. But HLL is into the exercise of
reducing number of channels in Orissa by increasing territory size of each dealer.

HLL Distribution in Rural Markets

HLL has come up with new distribution channels to cater to rural markets.

For long-term benefits, HLL has mounted an initiative, Project Streamline, to further
increase its rural reach with the help of rural sub-stockists. It has already appointed 6000
such sub-stockists. As a result, the distribution network directly covers about 50,000
villages, reaching about 250 million consumers. The pivot of Streamline is the Rural
Distributor (RD), who has 15-20 rural sub-stockists attached to him. Each of these sub-
stockists is located in a rural market. The sub-stockists then performs the role of driving
distribution in neighboring villages using unconventional means of transport such as
tractor, bullock cart,etc.
The Streamline system has extended direct HLL reach in these markets to about 37% of
India's rural population from 25% in 1995 and the number of HLL brands and SKUs
stocked by village retailers has gone up significantly.
PACKAGING
Packaging plays a key role in rural markets. Since customers are daily wage earners and
they don’t have monthly incomes like the urban consumers have, so Surf excel is
packaged in smaller sizes of 20gm so that they can afford given their kind of income
streams.

EDUCATION
Since vast majority of rural India lacks even basic education levels and modern outlook,
HLL is training their new sellers to basic education levels. This is example of Project
Shakti which is explained in detail later.

EMPOWERMENT

HLL runs the program of Self-Help Groups (SHG), which operate like direct-to-home
distributors. The model consists of groups of (15-20) villagers below the poverty line
(Rs.750 per month) taking micro-credit from banks, and using that to buy HLL products,
which they will then directly sell to consumers

Prices of products

20gm 25gm 200gm 500gm 600gm 750gm 1kg 1.5kg 3 kg

Surf Quickwash 2 NA 23 53 NA NA 103 153 NA
Surf Automatic NA NA NA NA 90 NA 145 NA NA
Surf Blue NA 2 16 40 NA 53 NA 103 220
Range of products
If we divide detergent industry into three tiers –

• Premium at Rs.80-140 per kg

• Mid-price at Rs.30-50 per kg
• Popular at Rs.15-25 per kg

Popular segment accounts for 80% of the detergent industry.

HLL leads in detergent powders with

Premium - Surf Excel
Mid price - Sunlight
Popular - Rin, Wheel

Dealers and distributors

Retail Distributor Margins

Example of various distributor discounts on sale of these variants.

Sale of 200gm Surf Excel Dealer Discount of 8%

Sale of 20 gm Surf Excel Dealer Discount of 12%

Wholesale Distributor Margins

They get a standard discount of 1.5% on sale of any variant

Strategies in Orissa market

1. Shakti Program
With a twin objective of creating "income-generating capabilities" for underprivileged
rural women and "improving their rural living standard" through health and hygiene
awareness, the Project Shakti is implemented in Orissa.
Housewives and old ladies are targeted for this project. They are trained and given basic
education to sell products. All products which are priced below Rs 5 are sold through this
project. The sellers which are all ladies are paid margins of 3% on their sale of products.
Now out of a total of 15,454 Shakti Entrepreneurs across India, Orissa has
over 928 (6%)Shakti Entrepreneurs spread across 22 districts.
They are operating through Self Help Groups (SHG's) which is makes women direct-to-
home distributors of HLL. Partnerships with several NCOs and support from state
governments have been key enablers for the programme. Currently women entrepenuers
are earning an average income of Rs. 7007- per month, doubling their household income.
For the SHG women, it provides a stable, sustainable source of income. For villagers, this
channel has become a source of genuine and correctly priced products.
SALES TREND IN BHUBANESHWAR

Big Bazaar ,Bhubaneshwar

Sales figures of Surf excel and is competitors

Surf Ariel Tide

July sales 1,21,000 26,246 71,672
July sold quantity 1787 pieces 341 pieces 1996 pieces
MARKET SHARE OF SURF

Bhubaneswar,
20%

Orissa, 35%
Surf Excel
Surf Blue
Orissa, 65%

Bhubaneswar,
80%

SALE OF SURF EXCEL ON BASIS OF DIFERENT SIZES

10%
25%
20gm
200gm
500gm
others(1kg,1.5kg)
15%
50%

SALE OF SURF BLUE ON BASIS OF DIFERENT SIZES

7% 13% 20% 500gm

750gm
5%
1kg
3kg
55% others(25gm,200gm)
PERCENTAGE SHARE OF SURF IN PREMIUM DETERGENTS
MARKET

25%

Surf Excel
Ariel

75%

SALE OF SURF EXCEL ON BASIS OF SEASONS

Customers reduce their washing frequency in rains, so the sales are drastically affected.
Sale of detergents is strongly affected by seasonal changes as shown in the chart below.

12%

18% Summers
Winters
Rains

70%
 COMPETITOR ANALYSIS.
In this section we compare HLL with its competitors, viz. Proctor and Gamble (Ariel,
Tide) and Nirma Ltd (Nirma washing powder).We now compare these products and the
companies on the various counts.

Market Share:
The per capita consumption of detergents in India is 2.7 kg per annum. The synthetic
detergent market can be classified into three main categories –
Premium (Surf and Ariel) – 15% of total market
Mid price (Rin and Wheel) – 40% of total market
Popular (Nirma) – 45% of total market.

Product Comparison:

HLL (market share – 40%, including all 3 segments) manufactures Surf Excel in three
avatars, Surf Excel Blue, Surf Excel Automatic and Surf Excel Quick wash. The USP of
Surf Excel is that it reduces soaking time and water usage by 50%. It also contains a
lesser amount of bleach than Ariel or Tide.

P&G (market share – 12%, including all 3 segments) produces both Ariel and Tide. Ariel
is produced in three types, Ariel Front-o-mat, Ariel Spring Clean and Ariel Fresh Clean.
The USP here would be removal of tough stains while taking care of cloth quality and
imparting a fresh fragrance to it.
Tide detergent improves washing experience while imparting a lingering lemon fragrance
to clothes.

Nirma (market share – 30% of popular segment) comes in three variants, Nirma washing
powder, Super Nirma washing powder and Nirma popular washing powder. Its USP
would be low prices and the value for money it gives to the customer.

Pricing Comparison:

We now compare the prices for these brands. The price of each product and its variant is shown in the table b

20gm 200gm 500gm 600gm 750gm 1kg 1.5kg 2kg 3 kg 4kg

(30sachets)
Surf Quick wash 2 23 53 NA NA 103 153 NA NA NA
Surf Automatic NA NA NA 90 NA 145 NA NA NA NA
Surf Blue NA 16 40 NA 53 NA 102 NA 220 NA
Ariel 2 22 50 NA NA 99 145 NA NA NA
Tide 1 10 23 NA NA 46 NA 88 NA 186
Place comparison:

HLL’s distribution system is one of its key strengths. The delivers its finished products
to various Carrying and Forwarding Agents, via whom the goods reach different
wholesalers. From here the goods are delivered to either rural or urban retailers, via
whom they reach the consumers.
HLL's scale enables it to provide superior customer service including daily servicing,
improving their range availability whilst reducing inventories. An IT-powered system has
been implemented to supply stocks to redistribution stockists on a continuous
replenishment basis. The objective is to catalyze HLL’s growth by ensuring that the right
product is available at the right place in right quantities, in the most cost-effective
manner. For this, stockists have been connected with the company through an Internet-
based network, called RSNet, for online interaction.
As far as distribution to rural areas is concerned, they use a process called Project
Streamline, wherein there exist networks of rural sub-stockists, who operate in the rural
areas itself.20-30 sub-stockists come under a rural distributor (RD). The sub-stockists are
then responsible for distributing the products in rural areas.

Nirma Limited markets its products through its fully owned subsidiary Nirma Consumer
Care Limited (NCCL), which was incepted in 1985.NCCL then resells the products
through ‘Nirma’ and ‘Nima’. Nirma pioneered the concept of flat distribution network.
Nirma Consumer Care Limited operates with two parallel distribution networks. The
NIRMA brand is marketed through the first network, which consists of about 450
exclusive distributors. It is one of the lowest cost FMCG distribution channels of the
country. The principle channel for Nirma’s Products is the lowest cost system in India
with in built flexibility and speedy distribution. All NIRMA and NIMA range of products
have a retail reach of over two million retail outlets and more than 40 million loyal
consumers spread all over the country. The Company has been successful in establishing
an extremely good urban as well as rural presence through the two distribution channels.
The distribution channels have played a significant role in making Nirma a household
name. The efficient network has made Nirma Washing Powder the brand with highest
penetration in its product category. The network is well equipped to meet the demands of
the loyal consumers of the Company across the country.
Promotion comparison:

HLL.
Advertising.
Surf excel, synonymous with the catch line, ‘Surf Excel hai naa!’ was the first national
detergent brand on television. It has indulged in numerous advertisement campaigns
which have gained a lot of popularity.
Surf Excel and Lalitaji ad also was in news for a long time. Slice of life situations have
generated high levels of interest in the communication. Using consumer speak in the form
of testimonials has helped in building credibility in the brand.

“She was a hard-headed bargain-hunting housewife who demanded value for money and
not just cheap price. Consumers' faith in Surf was restored, and not just because she
offered a rational argument. The real reason Lalitaji was believed was because she was
trusted by the Indian housewife to get her a good bargain. We showed her bargaining
with the vegetable vendor about good tomatoes and bad tomatoes ... `Sasti cheez or
achchi cheez me farak hota hai, bhai saab.' "

This advertisement reversed a declining brand share trend.

The currents advertisement on television shows noted actor and human rights activist
Shabana Azmi (who did promote Ariel once upon a time), walking with two buckets of
water and encouraging a crowd of people to do the same. It basically plays on Surf
Excel’s strength to perform with lesser amounts of water. It thus underlines the fact that
by buying Surf Excel, even the most common of people can make a difference to our
environment.
Sales Promotions.
HLL has indulged in numerous promotional
activities like the ‘win with stains’ campaign.
'Win with stains' is a promotion aimed at offering
consumers a chance to win prizes as well as give
students an opportunity to pursue further studies.
Under the "Win With Stains" consumer promotion
every consumer who purchases a large pack of Surf
Excel Quickwash (500gm and 1kg) or Surf Excel
Blue (500gm, 700gm and 1kg) will get a stained cloth.
On washing the cloth the consumer will get a chance
to win a grand prize of Rs. 5 lakh scholarship or a
Zenith Personal Computer or runs of 1, 2, 3, 4, 5
and 6.On collecting 12 runs the consumer would be
entitled to receive an Oxford Dictionary worth Rs. 325.

In Orissa distributors of HLL indulge in activities like

washing clothes in public places, in order to acquaint
people with the effectiveness of Surf Excel.

P&G.
Advertisements.
Ariel has a very vigourous advertisement campaign in it’s kitty. It boasts of enjoying
endorsements from celebrities like Sharmila Tagore (actor and wife of Nawab of
Pataudi),
Smriti Irani (television actor and BJP member)

An advertisement that had gained a lot of popularity was

the one where the daughter-in-law had stained her
mother-in-laws saree, after she had worn in to a party.
She then used Ariel to remove the stain just as her
mother-in-law came home.

The tide advertisements generally show people going

about their daily activities, when suddenly the screen has
something orange rushing through, leaving a sparkling white garment. This tries to show
that nothing is as white/clean as something washed with Tide.

Sales promotions.
Like HLL, P&G also indulges in numerous promotional offers from time to time. Tide
and Ariel have recently slashed their prices in order to penetrate into deeper markets.
P&G in association with Sony Entertainment Television, launched the ‘shiksha-secure
your child’s future’ as a promotional campaign. By purchasing packs of Vicks, Whisper,
Ariel, Tide, Head & Shoulders and Pantene between 21st April - 12th June 2003, a
mother can win either Rs. 2 lakhs towards Graduate Education Fee of one child (24 such
Prizes), or Rs. 5,000 towards Next Year's Tuition Fee for one child (96 such Prizes), and
a number of Consolation Prizes, all courtesy P&G.

NIRMA.
Advertisements.
Nirma began it’s advertisement by playing it’s ever popular jingle on
the radio, as early as 1975.
Nirma’s telelvision advertisement history is synonymous with the dancing girl.
This advertisement, which was broadcast on telelvision in 1982 for the
First time, reached out to lakhs of people. The brand gained enormous
popularity because of this particular advertisement and soon grew to
be the most used detergent in India. In the 1980’sit overtook it’s
biggest competitor Surf, and this was dubbed the ‘marketing miracle
of the decade.’

A current advertisement features a small child using Super Nirma to wash his soiled
clothes before his mother can catch him doing so. These advertisements generally appeal
to the masses and are based on common problems and day to day incidents.

Another current Nirma Ad

features the ever popular family feud wherein
four daughters-in-law of a family have a tiff which ends up in a
colourful food fight. And then Nirma comes to the rescue.
‘Sab ki pasand Nirma.’
 RESEARCH METHODOLOGY

For the purpose of the project, information was collected from both primary and
secondary sources.

The primary sources of information were consumers, retailers, wholesalers and territory
Sales incharge of HLL. For collecting primary information one questionnaire were
developed for the consumers.

The questionnaire contained a total of 14 questions. Most of the questions were close
ended questions so that the respondent does not have any problem in answering them.
The objective of the first question was to determine the TOMA or the Top of Mind
Awareness of the consumers. The following questions aimed at knowing the decision
making criteria of the customers of detergent powder using various attributes like brand
name, cleansing action, chemical content, price, packaging, availability, advertisements,
sales promotion, amount of water required for cleaning etc. This was followed by few
questions for the users of Surf Excel pertaining to their consumption pattern, sources of
information and their association with the parent company. Consumer perception of Surf
Excel was also tested on the attributes like Cleansing action, Packaging, Availability,
Price and Advertisements effectiveness. There was also a question to determine the
preferred pack size of the customers. The last question was targeted at the non-surf users
to determine the reasons of not trying “Surf Excel”.

For carrying out the survey a sample 53 consumers were interviewed. During
consumer interview, each one was administered the questionnaire. The areas where
the consumer survey was done were:
• Markets of Bhubaneswar : Indradhanush Market, Shaheed Nagar
Market, Unit 1 Market, Unit 4 Market, Bapuji Nagar Market, Janpath,
Kalpana Square.
• Big Bazaar.
Unstructured interviews were undertaken to get information from Distributors, Territory
Sales Incharge, and manager of big Bazaar.

The secondary information pertained to company details and it was collected from the
company brochures, Annual Reports, and various web sites on internet. The secondary
information contains information relating to the company, its products in the market, its
ambitions etc.

SURVEY ANALYSIS
Question : Which brand of detergent do you use to wash your cloths?

Brand Used

6%

19%

9%
66%

Surf excel Ariel Tide others

Question : What is your average (per month) consumption of Surf excel?

 Consumption per month

12

10

No. of respondents 6

0
>1Kg 1/2 - 1 Kg 250 - 500 gm <250 gm

Consumption per month

Question : Rank the following attributes in terms of importance while purchasing a

detergent(Washing powder).(Rank in scale of 10)

Attribute Ranking Chart

Company Name

Fragnanace

Amt Of Water Reqd

Sales Promotions

Advertisment 1st Prefrence

Attributes

2nd Prefrence
Availabilty 3rd prefrence
4th prefrence
Packaging 5th prefrence

Price

Chemical Content

Cleansing action

Brand Name

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Question : Which pack of Surf excel do you generally buy?

 Pack Purchase

10% 10%
0%

24%

1.5 Kg
1 Kg
1/2 Kg
200 gm
20 gm

56%

Question: Details of respondents on basis of gender.

Respondants

19%

Males
Females

81%

Question: Details of respondents on basis of their annual income level.

 Annual Income Level of Sample

13%

34%

16%

<50k
50K-1lk
1 lk- 2 lk
> 2 lk

37%
 SCOPE AND LIMITATIONS OF THE STUDY

1. The sample was restricted to the geographical limits of Bhubaneswar only. As a

consequence, the results of the study pertain to Bhubaneswar market only and
might not be a true representative of Orissa market.
2. A sample of 53 customers was taken to carry out the study. The sample is very
small to draw important conclusions and is not a true representation of the 36 mn
plus population of the state of Orissa.

3. The demographic profile of the respondents is not the same as that of the target
market. This might result in discrepancies.

4. There was a general tendency in respondents to give incorrect personal or

demographic information. This might have an effect on the profile of the respondents.
CONCLUSION

CONSUMER’S SURVEY

1. 100% of the respondents had Surf in their TOMA of 3 brands. But another
interesting thing that came to light was that only a few respondents said Surf
Excel.

2. 66% of the respondents surveyed were Surf users. Remaining was divided
amongst tide (19%), Ariel (9%) and others (6%). This is a sufficient indication of
Surf Excel being market leader in Orissa market.

3. The decision making criteria of the consumers were also studied. The results of
the same were as follows.
a. 60% of the respondents find Brand Name to be very important buying
criteria.
b. 87% of the respondents rated Cleansing action to be very important
buying criteria.
c. 22% of the respondents rated Chemical content to be very important
buying criteria.
d. As per the survey, price is perceived to be an important criterion by only
41% of the respondents.
e. The research also establishes that consumer perceive the timely sales
promotions offered by the company as an important buying criterion with
over 47% respondents considering this as an important factor.
4. Over 50% of the Surf Excel using respondents consume, on an average, ½-1 Kg
Surf Excel.
5. Another important point that came to light in our research was that the
respondents using Surf Excel don’t prefer buying 200gm pack of surf excel. This
observation was verified by the actual market data, collected from the Territory
Sales Incharge.
 6. Another finding from the research was that a majority of the Surf Excel users
were unaware of the fact Surf is a HLL product.
7. The research showed that over 86% of the respondents find TV as the major
source of information about Surf Excel. Despite of this only 26 respondents were
able to correctly recall any surf excel advertisement seen on TV. This finding
points towards the reduced recall of communication by the brands due to
excessive cluttering on mediums like TV.
8. The research showed that the consumer perception about Surf Excel is by-large
very good. Consumers perceive Surf Excel to be very good in cleansing action.
They find Surf Excel to be conveniently packed, very easily available and
competitively priced.

Questionnaire

Dear respondent,
We are students of XIM (Xavier Institute of Management) and as part of our curriculum
we are conducting a market research. We would like your cooperation for the same, with
an assurance that all the information, which you’ll give, will remain confidential.

Q 1. Name any three detergent brands.

____________________________________________________________________

Q 2. Which brand of detergent do you use to wash your cloths”?

i) Ariel ii) Tide
iii)Surf Excel iv) LG Super Enz
v) Any Other (Plz sepecify)________

Q 3. Rank the following attributes in terms of importance while purchasing a detergent

(Washing Powder). (Rank the scale of 10):
Most Least
Important Important
 (5) (1)

Brand Name:

Cleansing Action:

Chemical Content:

Price:

Packaging (incl. Size

options available):

Availability:

Advertisements:
 Most Least
Important Important
(5) (1)

Sales Promotions:

Amt.of water required

for cleaning:

After wash fragrance:

Name of Company:

(Following set of questions are only for those respondents who use Surf Excel)

Q 4. What’s your average (per month) consumption of Surf Excel?

i) >1kg ii) 500gm-1Kg
iii) 250gm-500gm iv) <250gm

Q 5. For how long are you using Surf Excel?

i) <6 Months ii) 6 – 12 Months
iii) 1-2 year(s) iv) > 2years

Q 6. With which company do you associate the “Surf Excel”?

i)P&G ii)HLL
iii)J&J iv) Any Other (Plz sepecify)________

Q 7. How did you come to know about “Surf Excel”?

i) Retailer ii) Friends iii) Relatives iv) Press Ad
v) T.V. vi) Radio vii) Cinema viii)Displays
ix) Hoardings x) Promotional stalls xi) Any Other source _________
 Q 8. Can you recall any one of the advt. of Surf Excel that you saw in past one month? If
yes please narrate.
________________________________________________________________________
________________________________________________________________________
Q 9. Rate your perception about Surf Excel on the given attribute.
Cleansing Action

Excellent Pathetic

Packaging (convenience)
Convenient Inconvenient

Availability

Easy Difficult

Price

Low High

Advertisement

Effective Ineffective

Q 11. In what pack sizes is Surf Excel available? (Write down all the pack sizes stated by
the respondent)

Q 12. Which pack size of Surf Excel do you generally buy?

i) 1.5 Kg Pack ii) 1 Kg Pack
iii) ½ Kg Pack iv) 200 gm Pack
v) 20 gm satches

(Following question is only for those respondents who don’t use Surf Excel)

Q 13. Any specific reason for not trying “Surf-Excel”.

i) Lack of awareness ii) Highly priced
 iii) Non availability iv) Negative feedback
v) Others (specify)______________

Personal Details

Name _________________________________

Gender Ο Male Ο Female

Age Group Ο up to 18 Ο 18-25 Ο 25-35 Ο above 35

Profession Ο Student Ο Service Ο Self-employed Ο Business

Ο Others (specify)______________

Annual Income level Ο Up to 50,000 Ο 50,000-1 lk

Ο 1 lk – 2 lk Ο above 2 lk

Thanks for your cooperation…

 BIBLIOGRAPHY

1. Market Research for Small Business. by: Edmunds

2. Marketing Management by: Philip Kotler
3. www.google.com
4. www.magindia.com
5. www.blonnet.com
 Ratio Analysis of HLL
Ø Profitability Ratios:
Profitability Ratios show how successful a company is in terms of generating returns or
profits on the Investment that it has made in the business i.e. the Profitability ratios speak
about the profitability of the company. The various profitability ratios used in the analysis
are: operating profit margin (operating profit divided by net sales), net profit margin
(net profit divided by net sales), return on investment (operating profit divided by total
assets), return on capital employed (operating profit divided by capital employed) and
return on equity (net profit divided by net worth of the company). As obvious from the
name, the higher these ratios the better it is for the company.

There are two types of profitability ratios:

• Profit Margin ratios

o Operating Profit Margin ratio
o Net Profit Margin ratio
• Rate of Return ratios
o Return on Total Assets (ROTA)
o Return on Capital Employed (ROCE)
o Return on Net Worth (RONW)

A) Profit Margin ratios measure how much a company earns relative to its sales. A
company with a higher profit margin than its competitor is more efficient. The
Profit Margin of a company determines its ability to withstand competition and
adverse conditions like rising costs, falling prices or declining sales in the future.
The ratio measures the percentage of profits earned per rupee of sales and is thus
a measure of efficiency of the company.

i) Operating Profit Margin ratio measures the earnings before Interest and
Tax, and is calculated as –

Profit before Interest and Tax (PBIT) / Net Sales x 100 %

Dec Dec Dec Dec

Particulars 2001 2002 2003 2004

Operating Profit Margin 16.17 21.30 19 14.5

ii) Net Profit Margin ratio measures the earnings after Interest and Tax, and is
calculated as –
 Profit after Tax (PAT) / Net Sales x 100 %

Dec
Particulars Dec 2001 2002 Dec 2003 Dec 2004
(Rs. Crores)
Sales 12420.71 10641.15 11919.04 11594.65
PAT 1576.47 1757.59 1687.33 1208.4
Net Profit Margin Ratio(%) 12.68 16.51 14.15 10.42

Interpretation: For the year ended 2004

HLL earns 14.5 paisa on every Re. 1 of Sale before Interest and Taxes It ultimately
makes 10.42 paisa on every Re. 1 of Sale after Interest and Taxes.

It is visible that Hindustan Lever Ltd has not been able to increase its Operating Profit
margin constantly over the years. We can see that the operating margin has decreased
considerable in the last year. This is mainly due to the fact that the interest cost of HLL
has almost doubled from 69.12 cr to 136.25 cr. Moreover the company’s operating
expenses have increased by almost 75 % in the year 2004.The efficiency has certainly
decreased over the last few years mainly owing to high operating expenses , increased
interest burden and high indirect taxes. The Net Profit Margin has also decreased by 17.8
% in 2004 as compared to 2001. This is mainly due to the decrease in sales by
approximately Rs.826 cr.

25

21.3
20
19
16.17 16.51
15 14.5 Operating profit
14.15
12.68 Net profit margi
10 10.42

0
2001 2002 2003 2004

Rate of Return ratios

 i) Return on Total Assets (ROTA) ratio tells us how well management is
performing on all the firm's resources. However, it does not tell how well they are
performing for the stockholders. The ROTA of a company determines its ability
to utilize the Assets employed in the company efficiently and effectively to earn a
good return. The ratio measures the percentage of profits earned per Rupee of
Asset and thus is a measure of efficiency of the company in generating profits on
its Assets. It is calculated as --

Profit before Interest and Tax (PBIT) / Total Assets x 100 %

Particulars. Dec 2001 Dec 2002 Dec 2003 Dec 2004

PBDIT 2211.63 2461.31 2462.92 1875.63
Depreciation 202.63 192.65 199.99 195.68
PBIT 2009 2269 2262.9 1680
Total assets 7089.06 7761.01 8104.68 7820.34
ROTA(%) 28.33 29.23 27.92 21.5

Interpretation:

HLL generates 21.5% return on the Total Assets (ROTA) that it employs in its
operations in the year ended 2004. ROTA has decreased in the last year mainly
due to the fact that its profit margin has decreased. It could be because of high
competition as a result of which profit have decreased and the total assets of the
company have increased.

Looking at ROTA from another angle in order to do, Dupont Analysis, we have,

ROTA = PBIT / Sales (Profit Margin) x Sales / Total Assets (Asset Turnover)

For HLL, Profit Margin ratio is 14.5 % & Asset Turnover ratio is 148.3 %

Interpretation:

Clearly, HLL is a company which survives more on volume of sales than the
profit margins on its products.

ii) Return on Capital Employed (ROCE) ratio explains the overall utilization of funds
by a business enterprise. It says how much profits we earn from the amount invested by
the Shareholders. Capital Employed means the long-term funds employed in the business
and includes the shareholder’s fund, debentures and long-term loans.Profit before Interest
and Tax is considered for computation of this ratio to make numerator and denominator
consistent. It is calculated as --

Profit before Interest and Tax (PBIT) / Capital Employed x 100 %

Where, Capital Employed = Owner’s Fund (Share Capital plus Reserves &
Surplus) + Long-term Debt

Particulars Dec 2001 Dec 2002 Dec 2003 Dec 2004

PBIT 2009 2269 2262.9 1680
Net worth 3170.86 3713.91 2189.22 2148.67
Borrowings 102.55 86.23 1715.18 1604.25
Capital Employed 3273.41 3800 3904 3752
ROCE 61.37 59.72 58 44.77

As we can see that the ROCE for HLL has decreased considerably in the last year mainly
due to lower profit margins. The company is earning a return of 44.77% on the funds
employed by it. Though the ROCE has seen a considerable change even now the
company is getting good enough returns and can pay good enough dividends to the
shareholders as we saw the case in the year 2004 where the rate of dividend was 250%.

Return on Equity = Net income________

Shareholders Equity

Particulars. Dec 2001 Dec 2002 Dec 2003 Dec 2004

PAT 1576.47 1757.59 1687.33 1208.4
Shareholders Equity 3170.86 3713.91 2189.22 2148.67
Return on Equity (%) 49.71 47.3 77 56.23

The Return on Equity Ratio states how much profit a company earned in comparison
to total amount of shareholders equity on the balance sheet of the company. Here, we see
that the ROE of HLL has increased in comparison to the year 2001 but this cant be
concluded as a favourable situation for the company as looking at the figures in detail we
can notice that there has been a near to 30% decrease in ROE in comparison to the year
2003 , also we do see that the PAT of the company has fallen by about 23% and the
shareholders equity has also decreased by 32% in comparison to the year 2001.Even now
an ROE of about 56.23% is considered to be very good.
 100
Rate of return ratios
77
80
61.37 59.72 58 56.23
60 49.71
%age

47.3 44.77
40 28.33 29.23 27.92
21.5
20

0
2001 2002 2003 2004
years

Return On Total Assets Return on Capital Employed Return on Equity

Ø Liquidity Ratios
Ability of the firm to meet short term obligation comes from holding of liquid assets
which are readily convertible into cash. It’s the responsibility of the treasury manager to
maintain the right balance between investments and liabilities to get the maximum
liquidity. It involves constant monitoring of cash flow position. We will analyze the two
popular measures of the liquidity of the company.

Current Ratio:

Current Ratio = Current Assets / Current Liabilities

Quick ratio:
Quick ratio = (Current assets – Inventories) / Current Liabilities

Also known as the acid test ratio, it is a stringent test that indicates if a firm has enough
short-term assets (without selling inventory) to cover its immediate liabilities. It is similar
but a more strenuous version of the "working capital" ratio, indicating whether liabilities
could be paid without selling inventory. It’s more reliable then current ratio because it
considers only the most liquid assets and does not include the hidden factors like window
dressing that may skew the actual scenario.

Particulars Dec 2001 Dec 2002 Dec 2003 Dec 2004

Current liabilities &
provisions 3709.17 3841.92 4084.71 3919.71
Current assets 3505 3510 3610 3132
Current assets -Inventories 2201 2146 2120 1574
 Current Ratio 0.944 0.91 0.88 0.79
Quick Ratio 0.59 0.55 0.52 0.40
Cash and near cash items 943.25 977.28 892.4 781.53
Absolute Cash Ratio 0.25 0.254 0.218 0.20

It can be seen from the above table that the current ratio for all the years is less than 1 .
This signifies that HLL has short term liabilities greater than the short term assets. It
implies that the company would have problems in managing its short term liabilities and
liquidity requirements. The company might resort to financing its short term liquidity
requirements by long term sources of finance.

We can observe that the current assets have decreased by 13 % and at the same time the
current liabilities have decreased by just 4 % in the last year. The reason is that since the
company is using long term sources of finance to fund its short term obligations therefore
the interest burden has increased and as a result the cash balance has decreased .Other
receivables have also decreased by more than 66% leading to a fall in current assets.

1 0.944 0.91 0.88

0.79
0.8
0.59 0.55
0.6 0.52
0.4
0.4

0.2

0
2001 2002 2003 2004
years

Current Ratio Quick Ratio

Ø Solvency Ratios
It’s the company’s ability to meet long term liability. Also called the capital structure it is
one of the major financing decisions for the company. A proper mix of equity and debt is
said to be always beneficial for the company rather than pure equity. Existence of debts
disciplines management to some extent. We will have a look at few of the solvency ratios
for HLL.

DER: Debt to Equity Ratio

 DER = Long-term debt / Shareholders Equity

Particulars. Dec 2001 Dec 2002 Dec 2003 Dec 2004

Shareholders Equity 3170.86 3713.91 2189.22 2148.67
Long term Debt 102.55 86.23 1715.18 1604.25
Debt Equity Ratio .032 0.023 0.78 0.75

The company was highly unleveraged in the years 2001 and 2002. It was risky as the
company had invested a huge amount of its own funds as compared to debt. However in
the last 2 years the company has changed its policy and is leveraging the advantage of
debt along with equity. Though the debt equity ratio of 0.75 is not good enough as
compared to industry norms of 2:1 but the company is moving towards a favourable debt
equity mix. It has realized the importance of trading on equity .The Company has
increased its debt burden by 1470% in the last 4 years which is mainly on account of
issuing Debentures of the amount of 1320 cr in 2003.

0.78 0.75
0.8
0.7
0.6
0.5
ratio 0.4
0.3 Debt
0.2
0.1 0.032 0.023
0
2001 2002 2003 2004
years

Debt Equity Ratio

Interest Coverage Ratio:

ICR = (PBIT) / Interest

Particulars Dec 2001 Dec 2002 Dec 2003 Dec 2004

PBIT 2009 2269 2262.9 1680
Interest 12.31 12.86 69.12 136.25
Interest Coverage Ratio 163.2 176 32.74 12.33
Interest Coverage ratio basically signifies the ability of a firm to service its interest
burden through the profits generated .In the initial years when the firm had not employed
debt its interest burden was very low. As a result the Interest Coverage ratio is very high
gradually the company has employed more debt and as a result of which the interest’s
burden has increased significantly. Moreover due to high competition and operating
inefficiency the earnings of the company have declined. As a result the ICR has reduced
from 163.2 to 12.33 in the last 4 years. However an ICR of 12.33 is still very impressive
which reflects the company’s ability to pay interests on loans easily. This is a good
indicator to the various financial institutions providing long term sources of finance to
HLL.

Ø Efficiency ratios:
It measures the quality of a business' receivables and how efficiently it uses and
controls its assets, how effectively the firm is paying suppliers, and whether the
business is overtrading or under trading on its equity (using borrowed funds).

Debtor Days:
(Total No. of Debtors/Total Sales)* 365

This ratio actually indicates the no. of days of sales that are on the balance sheet of the
company as debtors. This ratio is expressed in no. of days. A higher debtor day’s ratio
signifies general problems in the collection of funds faced by the company or the
financial position of the debtors.

Particulars Dec 2001 Dec 2002 Dec 2003 Dec 2004

Debtors 1254.38 1169.49 1228.55 793.56
Sales 12420.71 10641.15 11919.04 11594.65
Debtor days 38.85 40.11 37.62 25

The Debtor days for the company have seen a decline from 37.62 days in the year 2003 to
25 days in the year 2004. This is mainly due to the fact that there was a significant
improvement in the companies receivables management. The Debtors have decreased by
about 35% where as the sales have seen a decline of just 2.72%.

Creditor Days:

(Total No. of Creditors/Total Purchases)*365

This ratio indicates the no. of days of purchases that are on the balance sheet of the
company as creditors. Expressed as no. of days, a lower creditor days ratio signifies that
the company is liberal in paying its creditors and follows a policy of paying them at a
faster rate.

Particulars. Dec 2001 Dec 2002 Dec 2003 Dec 2004

Creditors 2253.23 2202.91 1961.06 2154.11
Total Purchases 6077.97 5389.04 5438 5413.77
Creditor days 135.31 149.2 131.62 145.23

Here, we see that the credit days which the company enjoys from its suppliers are pretty
high throughout the time period under consideration. The Creditor Days for the company
have seen a rise from 131.62 days in the year 2003 to 145.23 days in the year 2004.
Hence, we can say that the payment policy followed by the company is not very liberal
and the payment made by the company to its creditors is pretty late.

Total Assets Turnover Ratio =

Net sales___
Total Assets

Particulars Dec 2001 Dec 2002 Dec 2003 Dec 2004

Sales 12420.71 10641.15 11919.04 11594.65
Total assets 7089.06 7761.01 8104.68 7820.34
Total assets turnover ratio 1.75 1.37 1.47 1.48

Total Assets turnover ratio signifies how efficiently the company is utilizing its assets to
generate returns. We see a drop in the turnover ratio in the year 2002 because of a
combined effect of a decrease in sales and increase in total assets simultaneously. The
company has maintained a constant turnover ratio in the years 2003 and 2004. It indicates
efficient usage of assets by the company to generate constant sales .

Ø DU PONT RATIO ANALYSIS:

The Du-Pont ratio analysis is a combination of financial ratios in a series in order to
assess the investment returns of the company. It combines the financial ratios of both the
Income Statement as well as the Balance Sheet in order to assess either the Return on
Equity or the Return on Investment. One of the Plus points of this method is that it
provides a clear understanding of how the company generates its return. This analysis
provides an insight into the importance of asset turnover as well as sales to overall return.
 This formula shows the relationship of profit margin and turnover how these two
complement each other.

The Du-Pont ratio divides the Return on equity into three parts: Net Profit Margin, total
asset turnover, and the company’s use of leverage referred to as Equity Multiplier also.

DU-PONT CHART FOR HLL FOR THE YEAR 2004

RETURN ON
EQUITY
=PAT/NETWORTH
56.23%

Equity NET PROFIT TOTAL ASSET

Multiplier MARGIN TURNOVER
=TA/NW =PAT/NETSALES =SALES/TA
=10.42% =1.48
=3.64%

RETURN ON
ASSETS
ROA=PAT/TA
=15.44%
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Title: TABLE OF CONTENTS
Subject:
Author: ximb
Keywords:
Comments:
Creation Date: 12/13/2007 3:06 PM
Change Number: 3
Last Saved On: 12/13/2007 3:06 PM
Last Saved By: tapan
Total Editing Time: 2 Minutes
Last Printed On: 12/13/2007 3:07 PM
As of Last Complete Printing
Number of Pages: 66
Number of Words: 13,028 (approx.)
Number of Characters: 74,265 (approx.)