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HLL: 4Q extra charge dampens numbers

Jan 22, 2002

FMCG major, Hindustan Lever, has declared a 4.3% growth in topline during the fourth quarter and around 3.5% topline growth (Rs 109,719 m) for the whole year (FY02).

(Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
Net Sales 26,478 27,629 4.3% 106,038 109,719 3.5%
Other Income 855 750 -12.2% 3,451 3,818 10.6%
Total expenditure 21,757 21,864 0.5% 91,397 92,579 1.3%
Operating Profit (EBDIT) 4,722 5,765 22.1% 14,641 17,140 17.1%
Operating Profit Margin (%) 17.8% 20.9%   13.8% 15.6%  
Interest 45 19 -56.9% 131 77 -41.1%
Depreciation 345 394 14.2% 1,309 1,447 10.5%
Profit before Tax & extraordinary income 5,187 6,102 17.6% 16,651 19,434 16.7%
Extraordinary income 0 -636   0 1,004 -
Tax 900 1,102 22.4% 3,550 4,024 13.4%
Profit after Tax/(Loss) 4,287 4,364 1.8% 13,101 16,413 25.3%
Effective tax rate (%) 17.4% 18.1%   21.3% 20.7%  
Net profit margin (%) 16.2% 15.8%   12.4% 15.0%  
No. of Shares (eoy) (m) 2200.6 2201.2   2200.6 2201.2  
Earnings per share* 7.8 7.9   6.0 7.5  
*(annualised)            
Current P/e ratio (incl. Extraordinary income)   26.6   35.4 28.3  

The company has declared a 25.3% growth in FY02 bottomline. This number is including Rs 1 bn extraordinary income the company has accrued in FY02. HLL finished 4QFY02 with a marginal 2% growth in bottomline (including extraordinary expenses of Rs 636 m). This extraordinary charge included additional retirement benefits, asset write offs and income from sale of adhesive business.

During the year, sales grew by 3.5%. FMCG categories registered a growth of 6.2%, led by Home & Personal Care growth of 9.5%. Foods sales declined by 2% due to depressed prices and portfolio rationalisation in Tea. Export sales in core categories grew by 22%. However, overall exports marginally declined due to phasing out of unviable traded portfolio. Sales for December quarter 2001 grew by 4.3% with FMCG categories growing by 7.8%. Home & Personal Care products registered a growth of 10.3%. Foods sales grew by 1.8%. Exports sales were flat.

However, the results are not comparable strictly as during FY02 HLL exited from animal feeds, Quest flavours and the adhesives business. It also merged Lipton India Exports (a 100% subsidiary), Aviance and International Bestfoods with itself. It also integrated personal products folio of Lakme Lever during the year.

Thus, on a like to like basis, HLL sales grew 2.8% in FY02 to Rs 108,744 m. The company's bottomline grew by 21% (excluding extraordinary items) to Rs 15,350 m.

Though the results look lacklustre at first glance, the improvement in operating margins by 180 basis points to 15.6% indicates the company's increasing focus on the quality of its earnings. The focus on 40 key brands and the 'Path to Growth' strategy seem to be working for the company. HLL has also indicated an entry into the bottled water market soon.

The results were a little better than our expectations in terms of topline growth. However, the extra charge in the fourth quarter was not accounted for in our expectations. Thus the actual EPS for the year stands at Rs 7.5 per share as compared to our estimates of Rs 7.8 per share.

At Rs 211 the stock trades at a P/E of 28x FY02 earnings. The weak bottomline growth in 4QFY02 is likely to adversely affect the company's valuations in the short term. However, once the economy recovers HLL looks like a good bet over the long term.


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