FMCG major, Hindustan Lever (HLL), has declared an unprecedented 10% decline in 1QFY03 topline. The decline has come in the wake of a continuing slide in several key markets like personal wash, oral care and tea. The management also indicated that a move to improve gross margins of the foods business through improved realisations and efficiencies, also impacted volumes.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before tax
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (eoy) (m)
Diluted earnings per share*
However, despite the depressing topline, the highlight of HLL's performance has been improving realisations. The company's operating margins increased by 390 basis points to 16.7% through improved product portfolio, focus on operating efficiencies and cost controls and restructuring benefits. This improvement came despite a 13.9% increase in advertising and promotion spends.
a) Domestic FMCG
The higher operating margins coupled with a Rs 747 m extraordinary income in the form of profit on sale of the seeds business to India Seed Holdings Limited, helped HLL finish the first quarter of FY03 with a healthy 26% growth in bottomline.
a)(Increase)/decrease in stock in trade
b) Consumption of raw/packing materials
c) Purchase of goods
d) Cost of Goods Sold (a+b+c)
e) Staff Cost
f) Advertising & Promotions
g) Other expenditure
Total expenditure (d+e+f+g)
A look at the table below reveals that all of HLL's product categories saw a decline in sales. However, except for foods, all other categories turned in a higher profit. This indicates that HLL's continued focus on quality earnings is yielding results. Once HLL's portfolio churning gets over and the economy recovers, it will be well geared to take advantage of its restructuring initiatives.
The big picture
% contribution to 1QFY03 sales
PBIT growth (%)
- Soaps and Detergents
- Personal Products
- Foods (includes Oils and Fats, Culinary and Branded Staples )
Though we continue to favour HLL's prospects going forward, based on the management's credibility and focus, the fall in topline growth underlines the difficult market environment. At Rs 223 the stock trades at 29x annualised 1QFY03 earnings, market cap to sales of 5.2x.
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