ET Awards 2019: Not drawing up contingency plan, says HUL's Sanjiv Mehta
“We are not creating a strategy for recession now. As a business, we are ready for the demand to pick up and it is not that we are putting the shutters down,” said HUL chairman. “The slowdown has to first slow. Then you have to stop slowing down. ...
“We are not creating a strategy for recession now. As a business, we are ready for the demand to pick up and it is not that we are putting the shutters down,” said HUL chairman Sanjiv Mehta, winner of the Business Leader of the Year Award in this year’s edition of the Economic Times Awards for Corporate Excellence. “The slowdown has to first slow. Then you have to stop slowing down. And then you have to reverse. So, at this stage, it is difficult to predict whether we have reached the bottom or not.”
HUL, long considered a proxy for consumer sentiment across the socio-economic spectrum, will continue to plough money into the Indian economy.
“As a business, we are not going to shy away from investments,” said Mehta, 59. “We should not do anything which perpetuates a slowdown.”
The maker of Lux soap and Rin detergent has launched an initiative, known internally as Project Nakshatra, under which it will either build new manufacturing units or expand existing ones with multi-product lines to reach consumers faster and cheaper.
Confidence in Govt’s Ability
“We are going to enhance the number of products that we manufacture closer to the market significantly,” said Mehta. “There will be more products being manufactured and it will be rejigged so that they are located closer to the main demand space.”
Mehta said the benefits of recent government measures needed to be taken into consideration. These include corporate tax cuts, capital infusions for banks and nonbanking financial companies and a renewed focus on minimum support prices and farmers.
“The government is absolutely conscious of the need to pick up economic growth,” he said.
Mehta expressed confidence in the government’s ability to revive the economy.
“We don’t run the business on a quarter-to-quarter basis. We should not panic. And there might be a couple of quarters more before it picks up, but we are still growing,” he said. “We should not get into a trap of driving down the sentiment, which can then become a self-fulfilling prophecy kind of thing, but remain confident that we have a government with a very clear mandate.”
Mehta has been in the Unilever system for more than two decades, albeit outside India, until he took over HUL in September 2013. During his tenure, HUL's market capitalisation has nearly trebled to Rs 4.42 lakh crore. The additional Rs 3 lakh crore in value exceeds the combined market cap of rivals Colgate, Dabur, Marico and Godrej Consumer Products.
The Indian business has also outpaced Brazil to become the second largest market behind the US in terms of sales for the Anglo-Dutch consumer products giant Unilever. In addition, HUL’s operating margins are at their highest ever at 22.9%, up nearly 7 percentage points in the past six years.
“We wanted a scenario where we are no longer margin dilutive to Unilever and also ensure that investors who put their faith in HUL get adequately rewarded," said Mehta who credits the company’s ‘Winning in Many Indias’ strategy for the turnaround.
Under WIMI, the company reorganised its go-to-market operations from the traditional four sales branches to 14 consumer clusters and also added a fifth branch in central India to accelerate sales in a relatively underpenetrated but highgrowth market.
Following the introduction of the goods and services tax (GST) in July 2017, the company has also reduced distribution centres by a fourth to save costs.
The Indian fastmoving consumer goods (FMCG) market grew 7.3% in the September quarter, compared with 16.2% in the year earlier, according to a Nielsen report. Rural consumption, which accounts for about a third of the market and had been outpacing urban sales growth, came under stress in the past three quarters. It grew at a seven-year low of 5%, sharply decelerating from 20% a year ago.
Mehta has been with Unilever for 26 years. He worked in about 20 countries in three different regions — South Asia, Southeast Asia and the Middle East and North Africa — before his India stint. Since Mehta took over HUL, which accounts for nearly 9% of Unilever’s sales, India’s consumer goods sector has been seeing a series of disruptions, from two consecutive bad monsoons to demonetisation woes and short-term trade issues after the introduction of GST.
Mehta said he was no stranger to such troubles.
“When I was chairing the business in Bangladesh, the second Gulf War happened and there was a lot of angst against western multinationals,” he said. “Then, I was in North Africa and Middle East when the Arab Spring happened. So, different scenarios, circumstances and different parts of leading businesses, to many an extent, train you for the challenges that might be thrown at you.”