It's one of India's biggest creators of wealth and most valuable corporations but, after a peek into Hindustan Lever Ltd's (HLL's) first quarter report card for 2002-03, it's becoming increasingly difficult even for diehard backers of this blue-blooded, fast moving consumer goods (FMCG) manufacturer to keep faith. After all, double-digit negative growth is hardly something the Indian subsidiary of Anglo-Dutch consumer goods giant, Unilever, is accustomed to. And it's not just HLL's lack of performance in the January-March period that has investors in this bellwether stock worried; for eight straight quarters now, the Lever juggernaut's top-line has been crawling at a single-digit rate of growth. The earnings are moving upward-thanks largely to a seemingly endless exercise of squeezing out efficiencies from the supply chain, trimming overheads and hawking non-core businesses-but the share price for its part is firmly rooted to the ground it occupied three years ago.

Clearly, the HLL stock is taking a beating, and at the time of writing seemed to be hurtling toward its 52-week low, although analysts and fund managers recommending the scrip as a value buy (the price-earnings multiple today is around 25 against close to 60 in 1999) could just about save the stock from that ignominy.

So what's going wrong at one of India's most respected, most savvy and street-smart marketer? The first answer that comes to mind is: nothing-demand conditions are sluggish, and HLL can do little more than wait for the upturn, and then duly reap the gains. That's plausible, but not the best justification for the woes that plague the Lever top brass simply because once consumer demand looks up, it won't be just HLL that will gain but all the other players in the foods and FMCG business too, who currently are chiselling away at the near-monopoly shares Lever enjoys in many markets.

Indeed, marketshare loss is one of the major reasons for the negative growth HLL is witnessing in categories like hair oil, atta and ice cream. What's more, the much-hyped power brands, which did succeed in notching up double-digit growth last year, haven't been able to prop up the soaps and detergents categories in the January-March period; both registered negative growth, perhaps losing out to smaller, focused rivals like Nirma and Godrej.

That's the biggest headache for HLL: competition from players who, unlike the FMCG behemoth, have their fingers in only a few pies. Lever, on the other hand, straddles both the foods and the FMCG markets, which was a relatively simpler thing to do when demand was buoyant and competition limited. In current conditions, when most major categories are just refusing to grow, and niche competitors are getting their acts together, HLL is finding it difficult to successfully juggle both foods and FMCG. The foods business, which is calling for hefty advertising and promotional expenditure, is losing money, and will continue to do so for some time (ice creams, after eight years, is still in the red). Perhaps there's a case now for Lever to spin off its foods business into a separate company (which actually is how it was before the Brooke Bond merger), and shield the profitable personal care and oral care businesses.

It may be also time for HLL to decide it's time to shift strategy in certain categories, if not totally exit them. A beginning has been made in ice creams: unable to compete in the mass market with Amul, Lever is now focusing almost entirely on the premium end. Chairman Vindi Banga will also have to take a similar view in other categories where HLL continues to lose out: in value-added hair oil to Marico, and in atta to new entrants like Cargill and ITC Agrotech.

Even as HLL decides on which categories it shouldn't be in, it has to move faster with its new ventures. Of the eight new forays identified as part of Project Millennium, only confectionery-which for its part isn't a huge category although growth can be rapid-has taken off nationally. After much planning and deliberation, the ready-to-eat chapati foray has got going, but it will be some time before Banga can take it national. Banga is justified in being cautious with his new ventures, but when his mainline categories are refusing to grow, he has little choice but to step on the accelerator.