Hind Lever Chemicals (HLCL) is a 50% subsidiary of the Hindustan Lever Ltd. (HLL). The company, originally Stephan Chemicals got its new name when the fertiliser and the bulk chemical business of HLL was transferred to the company and the detergent business of the latter (‘Wheel”) was transferred to HLL.
HLCL is engaged in the manufacture of Di–ammonium Phosphate (DAP) and Muriate of Potash (MOP) apart from single super phosphate (SSP) which are phosphatic fertilisers. This business accounts for almost 85% of its turnover. The balance accrues from sodium tri polyphosphate (STPP) which is an ingredient in detergents. Almost half of the company STPP’s production is sold to HLL. This is a very profitable profit and accounts for almost over 40% of the company’s product.
Despite being in a commodity business where often price cuts and credit terms drive volumes, HLCL has been reasonably successful in building its brand ‘Paras’. The company enjoys dominant market share of almost 75% in the states of West Bengal and Bihar in the phosphatic fertiliser segment.
Over the last two year’s the company has been meeting demand for DAP through imports. Infact imports accounted for almost 100% of its sales by volumes in 1998(the company produced 263,063 tonnes of DAP but sold 594,322 tonnes the gap being met through imports).
Last year, the company put in place an additional capacity for 400,000 tonnes of DAP. This would help HLCL reduce its imports of DAP and meet the already existing market demand through its domestic capacity.
Perhaps the only grey area is the lack of clarity on the Government policy, which announces price revisions at random. This leads to fluctuations in HLCL’s quarterly performances, which in turn leads to fluctuations in the stock price as well.
Overall, the company financial performance has been very sound. While the company’s turnover has grown by 84% for the year ended December 2000, the net profit has increased by over 25%. This was primarily due to the new capacity which came on stream last year. Overall over the last four years the turnover and the net profits have grown at a compounded rate of over 45% and 46% respectively. The company’s return on equity has also averaged over 23% over the last three years.
The stock currently quotes at Rs 264 (52 week range: 645/218) which implies an earning multiple of 6.8 tomes its 1999 earnings. This is the lowest multiple at which the stock has quoted at over the last three years. The market capitalisation to sales multiple works out to 2.5 times.
Overall HLCL is a very well managed company available at a reasonable valuations.