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Hindustan Lever - Cornerstone of every portfolio - Views on News from Equitymaster
 
 
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  • Jun 24, 2000

    Hindustan Lever - Cornerstone of every portfolio

    Some companies outperform the market sometimes. What however makes the difference is beating the market, especially when the overall sentiment is bearish. Hindustan Lever (HLL) is one such company, which has outperformed the market in the past three months.

    The company is effecting a stock split in the ratio of 10:1 effective 18th July. The move is aimed at increasing the liquidity in the stock. Another advantage of the split would be to make the stock accessible to retail investors who are presently unable to invest in it due to its high cost.

    As can be seen from the table during the period April 2000 till date while BSE Sensex declined by 6.6%, HLLís scrip witnessed exactly the reverse trend. Also since past one year, the stock price jumped up by 19.4% compared to an increase of 13.6% in BSE Sensex. So if a person has invested only in HLL rather than investing in BSE Sensex stocks he would have earned an additional 6%.

    Price Performance
    Price as on
    Particulars 01-Mar-00 23-Jun-00 % change
    BSE-Sensex 5,052.9 4,721.7 -6.6%
    HLL 2,635.2 2,806.4 6.5%
    Cadbury 560.6 566.6 1.1%
    Nestle 373.0 370.7 -0.6%
    Britannia 580.0 575.4 -0.8%
    Colgate 156.7 176.4 12.6%
    SmithKline Consumer 398.1 336.0 -15.6%

    HLL is one of the best wealth creators of investors. Although the topline growth of the company is slowing down, the company has been able to double it net profits every four years. This has been made possible by inorganic growth and increasing efficiencies despite the fact that increasing competition has put pressure on realizations. In future however the company would have to look at generating inorganic growth to continue on its high growth curve. HLL with its cash profits of more than Rs 11 bn is in an ideal position to acquire brands and companies to fuel its future growth.

    Among the FMCG companies, HLL has the highest ROCE and RONW, which is a remarkable achievement given its large size.

    Excellent Returns
    Particulars HLL Cadbury Nestle Britannia Colgate SBCH
    RONW 56.1% 20.0% 37.9% 29.4% 17.4% 37.1%
    ROCE 57.3% 36.0% 50.4% 27.6% 32.0% 48.7%

    Hindustan Lever forms the core of many portfolios. The reasons are apparent. While the interest in technology stocks had hurt valuations in the recent past, HLL has bounced back with a familiar poise. To the owners of the stock it is no coincidence. For those aspiring to build sound portfolios this is but just another instance of the stockís strong fundamentals.

     

     

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