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HLL: Beats expectations, but sales sluggish - Views on News from Equitymaster
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  • Jul 24, 2001

    HLL: Beats expectations, but sales sluggish

    Hindustan Lever Ltd. (HLL) has reported a net profit growth of 21% in its 2QFY02 to Rs 3,467 m. Net sales growth continue to be slack. Sales have grown by 1.8% during the quarter to Rs 29,313 m. Other income was up 18% to Rs 912 m.

    (Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
    Net Sales 28,797 29,313 1.8% 54,938 55,738 1.5%
    Other Income 774 912 17.9% 1,674 1,934 15.5%
    Total expenditure 25,344 25,390 0.2% 48,582 48,431 -0.3%
    Operating Profit (EBDIT) 3,453 3,923 13.6% 6,356 7,307 15.0%
    Operating Profit Margin (%) 12.0% 13.4%   11.6% 13.1%  
    Interest 21 22 0.9% 56 33 -41.9%
    Depreciation 330 328 -0.6% 665 660 -0.8%
    Profit before Tax & extraordinary income 3,876 4,485 15.7% 7,309 8,548 17.0%
    Extraordinary income - 1,199   - 1,425  
    Tax 1,008 1,018 1.0% 1,815 1,912 5.3%
    Profit after Tax/(Loss) 2,868 4,666 62.7% 5,494 8,061 46.7%
    Effective tax rate (%) 26.0% 22.7%   24.8% 22.4%  
    Net profit margin (%) 10.0% 15.9%   10.0% 14.5%  
    No. of Shares (eoy) (m) 2200.6 2200.6   2200.6 2200.6  
    Earnings per share* 5.2 8.5   5.0 7.3  
    Current P/e ratio (incl. Extraordinary income)   25.6     29.6  

    The results were better than expectations of most analysts. The expectations for turnover ranged between negative growth to flat growth. The bottomline growth also has exceeded market expectations. But the results are not exactly comparable with the second quarter last year.

    The company has earned an extraordinary income of Rs 1,199 m during the quarter. This is as a result of sale of its Quest Flavours and Fragrances business to Lakme Lever Ltd. (LLL), a subsidiary company, consequent to an agreement entered into with the ICI Group. Lakme Lever has since been renamed Quest international and HLL's shareholding in Quest now stands reduced to 49% from 100% earlier.

    If we add this extraordinary income, HLL's profits shoot up by 63% in this quarter YoY. There are other reasons because of which the results may be incomparable. The company has integrated its tea exports business of Lipton India Exports, a 100% subsidiary. It has also integrated the personal products business of Lakme Lever. It had also sold of its animal feeds business to the Godrej Group, the extraordinary gains (Rs 226 m) were accounted for in the first quarter of FY02.

    Sales of domestic FMCG grew by 3.2%. Home and personal Care products sales grew by 8.7% led by good growth in skin, hair wash and household care categories. Sales of foods categories declined by 11% largely due to planned restructuring of tea portfolio as well as adjustments to pipeline stocks arising from a reorganisation of the foods distribution systems. FMCG exports grew by 12.7%. Non-FMCG exports declined by 12.8% due to a planned reduction in unviable traded exports.

    On a consolidated half yearly basis, HLL has recorded a 1.5% growth in turnover and a 21% growth in bottomline (excluding extraordinary incomes). Including extraordinary income from sale of the Quest business and animal feeds business, HLL's profits have shot up 47% YoY during 1HFY02. Consequently, HLL has resolved to pay Rs 2.5 per share as interim dividend (250%).

    Based on these results, at Rs 217 HLL trades at a P/e multiple of 36 x its annualised 1HFY02 performance (excluding extraordinary income). Given the expectations of a good monsoon the company's performance may perk up in the later half of the year, especially with regard to turnover growth. However, HLL trades at a premium to its contemporaries at current prices.



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