Hindustan Lever, the king of FMCG had stunned the markets in fourth quarter of the year ended December ’00 by reporting a 6% growth in revenues and 24% jump in profits. The company is aggressively carrying out restructuring in its business to boost the revenue growth.
Integration of tea business of Lipton India Exports, strong foray into ice cream business, hiving of fragrance & flavours business in a joint venture with ICI India and Quest International, turnaround in the Modern Foods (which it acquired last year) and targeting to prune the brand portfolio of over 100 to 30 are some of the early restructuring exercise.
Going forward, HLL has identified nine growth engines, which will fuel the sluggish topline growth. The company has already short listed five business areas to enter which include mineral water, confectionery, consumer healthcare, direct to home (e-commerce) and rural markets.
Notwithstanding the slowdown in the Indian economy, HLL has maintained a double-digit growth in profits and sales growth in the range of 3-7% in topline. It is expected to maintain a similar performance in the current year also backed by the initiatives taken by the company recently.
Quarterly result analysis
Year end December (Rs m)
4 yrs CAGR
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Improvements in the business mix and overall supply chain efficiencies is expected to increase operating margins of HLL further in the current year. Also, benefits given in the budget including exemption in excise duty on food preparation based on fruits and vegetables, reduction in duty on toiletries & cosmetics and increase in tea development allowance are expected to move up its margins further in the current year.
However, if the economy growth weakens during the year, topline growth of the company will be certainly impacted (as HLL gets more than 30% of its revenues from rural areas). Already indicators are showing the signs of slowing economy. Growth in industrial production slipped to just 0.6% in February ’01 from 7.2% in November. On the agricultural front (rabi season), the area under cultivation has reduced significantly – 12% for foodgrains and 23% for oil seeds. Overall, the GDP growth rate for FY01 is anticipated to be 5.8% as compared to 6.6% in FY99 and 6.4% in FY00.
At the current market price of Rs 203 HLL is trading at a P/E of 28 times December ’01 projected earnings and a market cap to sales ratio of 4 times. The company is expected to record a growth of 22% in profits and around 6% in revenues for the year 2001. This is considering the fact that the restructuring initiatives taken by the company will help it in boosting the topline growth.
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