Unilever: The crown should move to Asia

UK-based global consumer giant Unilever, reported that Asia, Africa and emerging markets accounted for 4.5 billion revenue of the total 10.8billon. This is 41.6% of the total. The company was asked in the earnings call if it could be split between two geographies, developed and emerging markets.

[caption id="" align=“alignnone” width=“380” caption=“Unilever building in Helsinki. By Sean Biehl. Some rights reserved”] [/caption]

The Financial Times newspaper said on Thursday that the two halves have broadly similar revenues but when it comes to growth, developed markets are a drag. This is perhaps the reason why investors are willing to pay twice the value for the Indian subsidiary Hindustan Unilever than the parent. The same is true for Swiss company Nestle.

The Indian business managed by Hindustan Unilever, the 51% subsidiary of Unilever, is expected to cut advertising and promotion expenditure along with the parent. Unilever needs to apply different tactics here. While cost control globally is likely to save 1.3billion for the year, it is not an effective strategy in a growing market like India. Unilever needs to invest more in India and other emerging markets to grow volumes.

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Stockbroking firm Edelweiss Capital has given a peek into the Indian subsidiaries performance based on the conference call held by Unilever::

Volumes robust; price hikes and lower A&P (advertising and promotion) expense aid performance Volume growth was particularly strong in India in March ending quarter on back of the relaunches of Rin and Wheel laundry detergents. HUL has delivered consistent double-digit volume growth and judicious price increases have helped step up in performance. In Home Care, India saw double-digit growth, while Tea continued its growth momentum. Unilever, however, plans to re-visit A&P expenses and has guided to a lower figure (as a % of sales) in CY11. As per Mr. Gopal Vittal, executive director, home and personal care, HUL, the company will try to cut A&P spend by 5-7% in FY12. Also, Dabur’s domestic business and P&G Hygiene cut ad spends by 18% and 15%, Y-o-Y, respectively, in March quarter.