HLL, ITC, Dabur come out tops in ad expenditure

Pradip Kumar Dey
FE Research Bureau

MOST of the companies are trying hard to sell their products in competitive conditions. This is apparent from the rise in the ratio of advertisement expenses to sales for 240 major private sector companies (sales above Rs 9 crore) during 2000-01. The ratio marginally rose from 2.23 per cent in 1999-00 to 2.24 per cent in 2000-01,which suggests that expenditure on advertisement rose faster than sales during the year.

Advertisement expenses comprise sales promotion also. For the purpose of our study, sales means sales income net of excise duties. In absolute terms, the 240 major companies earned a net sales income of Rs 1,60,350 crore in 2000-01 as against Rs 1,41,548 crore in 1999-00 (a rise of 13.3 per cent). The advertisement expenses of these companies worked out to Rs 3,594 crore in 2000-01 as against Rs 3,165 crore in the previous year (a rise of 13.6 per cent).An attempt has been made here to see the shifting ranks in the ratio of advertisement expenses to sales for 20 industries in the two years.

The selected industries are auto & ancilleries (13),cement & prod.(11), cotton textiles (6), computers (30), communications (2), electrical goods (14), engineering others (18), fertilisers (3), food products (8), diversified (11), hotels (5), iron & steel (2), paints (3), paper & products (4), pharmaceuticals (19), other chemical products (22), sugar & breweries (5), tea & coffee (5), tyres & tubes (6) and others(53). The “others” category has not been considered for analysis.

There are other companies in the private corporate sector which have been incurring a high expenditure on advertisement in relation to sales. However, the present study is confined to only 240 major companies for which data are available for 1999-00 and 2000-01 (April-March).In terms of the amount spent on advertisement during 2000-01, the top notcher in the list of 240 major companies was Hindustan Lever (Rs 696.58 crore).

The pecking order in the top 10 companies after Hindustan Lever was:ITC (Rs 183.32 crore), Dabur (Rs 146.07 crore), Bajaj Auto (Rs 129.91 crore), Nestle (Rs 128.46 crore), Godrej Indus (Rs 85.64 crore), Britannia Industries (Rs 85.29 crore), Marico Indus (Rs 79.82 crore),Telco (Rs 71.89 crore) and Smithkline Bee Con.(Rs 69.36 crore). Among the 240 companies, 97 companies have witnessed a fall in the advt.expenses-sales ratio, while 140 companies have shown a higher ratio in 2000-01 as compared with 1999-00.

The remaining three have an equal ratio in both the years. A significant fall was observed in the case of Wyeth Lederle (12.43 per cent in 1999-00 to 10.72 per cent in 2000-01), Hind Lever (7.28 per cent to 6.57 per cent), Pidilite Industries (5.16 per cent to 4.01 per cent), ITC Hotel (4.23 per cent to 3.01 per cent), Digital India (5.30 per cent to 2.62 per cent), Tata Coffee (2.89 per cent to 1.51 per cent) and Rhone-Poulenc (1.70 per cent to 0.60 per cent). Similarly, a significant improvement in 2000-01 was observed in the case of Dabur (12.00 per cent in 1999-0 to 13.19 per cent in 2000-01), Gillette India (9.15 per cent to 10.89 per cent), Godrej Industries (6.16 per cent to 10.75 per cent), Torrent Pharma (6.26 per cent to 9.49 per cent), Birla VXL (4.96 per cent to 8.82 per cent), Agro Tech Foods (4.47 per cent to 7.57 per cent), Whirlpool India (3.60 per cent to 5.24 per cent), Sun Ceramics (2.66 per cent to 4.39 per cent), Tata Chem (1.26 per cent to 3.45 per cent) and Pentasoft Techno (0.80 per cent to 1.71 per cent). About 12 per cent of the 240 companies have incurred advertisement expenses amounting to 5 per cent or more of their sales income. Another 42 per cent companies had incurred advertisement expenses ranging between 1.01 per cent and 5 per cent of their sales. The remaining 46 per cent companies had spent 0.01 per cent to 1.00 per cent of their sales income on advertisement.

In the sector-wise analysis,the ratio of advt.expenses to sales had declined from 1999-00 to 2000-01 in the case of tea & coffee (1.60 per cent in 1999-00 to 1.06 per cent in 2000-01), other chemical products (4.66 per cent to 4.55 per cent), cotton textiles (1.97 per cent to 1.46 per cent), tyres & tubes (2.25 per cent to 1.88 per cent), sugar & breweries (5.55 per cent to 5.12 per cent), paper & products (0.73 per cent to 0.67 per cent) and communications (1.20 per cent to 1.15 per cent). An improvement in the ratio from 1999-00 to 2000-01 was witnessed in the case of food products (6.09 per cent in 1999-00 to 7.49 per cent in 2000-01), pharmaceuticals (4.51 per cent to 4.85 per cent), cement & prod (0.98 per cent to 1.06 per cent), hotels (2.59 per cent to 2.74 per cent), electrical goods (1.73 per cent to 2.08 per cent), computers (1.03 per cent to 1.06 per cent), fertilisers (0.11 per cent to 0.13 per cent), engineering others (2.59 per cent to 2.93 per cent), auto & ancilleries (1.51 per cent to 1.74 per cent), iron & steel (0.12 per cent to 0.13 per cent), paints (2.78 per cent to 3.38 per cent) and diversified (0.62 per cent to 0.64 per cent).

The highest and lowest advt.expenses-sales ratios for the year 2000-01 were recorded in the case of food products and fertilisers respectively. It is interesting to observe the shifts in rank according to advt.expenses-sales ratio among the 20 industries between 1999-00 and 2000-01.

In 1999-00,the top five industries in that order were: food products, sugar & breweries, other chemical products, pharmaceuticals and hotels. In 2000-01, the top five were: food products, sugar & breweries, pharmaceuticals, other chemical products and paints. Four industries namely food products, sugar & breweries, other chemical products and pharmaceuticals figure in the list of top five industries for both the years.

The maximum and minimum positive changes in advt.expenses were noticed in the case of computers (57.4 per cent) and other chemical products (0.9 per cent) respectively. Except tea & coffee, cotton textiles, tyres & tubes and sugar & breweries, all the other industries had a positive change in advertising expenditure.

From the above analysis, one thing is clear that the higher growth rate in advertisement expenses may not have led to higher growth rate in sales. In other words, one may not achieve immediate higher sales despite spending a higher amount on advertisement.

This may happen later. But for some industries such as food products, computers, paints, higher advertisement expenditure is essential to achieving higher sales.