HLL: Habitual outperformer - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

HLL: Habitual outperformer

Mar 7, 2001

The Sensex has come down to a level from where it began the new millennium. Since the beginning of the year 2001, the BSE Sensex gained marginal 0.9%. Not surprisingly, HLL, the FMCG major accumulated a gain of more than 12% during the same period. The FMCG giant, HLL is always perceived to be a defensive stock in the investors mind. The company is known for its consistent performance year over year with a long-term vision. It has successfully changed its image of soaps and detergent company to a food product company. The segment now contributes around 9% of its turnover (5% in 1996).

During the year the concern over HLLís stagnant topline growth was overcome by outstanding growth rates in its food product portfolio. In the food segment branded staples witnessed a strong growth of 26% for the year ended December í00. The soaps and fabric care segment grew by 16% and 10% respectively. The turnover breakup given here reflects the difference.

Turnover breakup
(Rs m)FY00FY01Change
Soaps & Detergents 39,650 40,840 3.0%
Personal Products 17,700 18,680 5.5%
Beverages 14,780 15,460 4.6%
Foods 7,180 7,780 8.4%
Ice Cream 1,710 1,640 -4.1%
Exports 13,540 17,790 31.4%
Chemicals & Others 6,860 3,850 -43.9%
Total 101,420 106,040 4.6%

HLLís slackening ice-cream business too witnessed a smart recovery in the second half of the year 2000 with a volume growth of 10%. Launching of low price softy kiosks in major metros has helped in reviving the business.

The companyís intention to focus on 30 key brands, which currently contribute more than 100% to its profits, is likely to drive its future growth. Such a move will enable the company to focus its marketing strength on few brands. It is also exiting from non-core areas. It has recently diluted 74% stake in Goldmohur Foods & Feeds Services in favour of joint venture with Godrej Agrovet. Further, integration of tea export business of Lipton India Exports Ltd. is expected to add significantly to its bottomline, as it is a high margin business. These are the few examples of the managementís long-term vision with strong growth strategies, which has again reinforced the confidence in the stock.

The company has also benefited maximum from the changes announced in the current budget. All food preparations based on fruits and vegetables have been given complete exemption from excise duty (including products of common use like sauces, jams, ketchup and pickles). The increase in tea development allowance, reduction in excise duty on toiletries and cosmetics, removal of 10% surcharge on corporate tax and reduction in dividend tax to 10% (from 20%) are expected to give a fillip to HLLís net profits growth in FY02 (expected growth 22%). Further, the custom levy on imports of edible oil and tea has been increased to protect the domestic industry. In short the budget has provided windfall gains to HLL.

At the current market price of Rs 227 HLL is trading at a P/E multiple of 31 times its FY02 projected earnings, with a market cap to sales ratio of 4.4 times. Historically, the company has traded in the P/E range of 45-50 times. HLLís current valuations are among the highest in the industry. This could indicate that the markets are anticipating a revival in the performance of the company. We have projected an earnings growth of 22% on the sales revenues in the range of Rs 113 bn (growth of 6%) for FY02. The companyís high valuations reflect the well-diversified business model, its size and more importantly the confidence of investors in the stock.

Equitymaster requests your view! Post a comment on "HLL: Habitual outperformer". Click here!


More Views on News

HUL Announces Quarterly Results (2QFY22); Net Profit Up 10.5% (Quarterly Result Update)

Oct 20, 2021 | Updated on Oct 20, 2021

For the quarter ended September 2021, HUL has posted a net profit of Rs 22 bn (up 10.5% YoY). Sales on the other hand came in at Rs 130 bn (up 11.7% YoY). Read on for a complete analysis of HUL's quarterly results.

HUL's Marketcap Tops Rs 6 Tn. Key Factors Driving the Stock (Views On News)

Aug 21, 2021

HUL became the fifth Indian company to achieve the milestone of a Rs 6-tn market capitalisation.

HUL 2020-21 Annual Report Analysis (Annual Result Update)

Jul 26, 2021 | Updated on Jul 26, 2021

Here's an analysis of the annual report of HUL for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of HUL. Also includes updates on the valuation of HUL.

Adani Wilmar IPO to Hit the Market Soon. Should you Apply? (Views On News)

Nov 29, 2021

The parent company of the brand Fortune is set to raise Rs 45 bn from the market.

What Happens if ITC Hives off ITC Infotech? (Views On News)

Nov 20, 2021

The cigarette to hotel conglomerate is reportedly mulling the demerger of its software business at a valuation of around Rs 250 bn.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

How to Find Your Next 10-Bagger in this Market (Profit Hunter)

Nov 19, 2021

The #1 make or break factor in your portfolio you shouldn't ignore.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 1, 2021 11:31 AM