HLL has posted a turnover of Rs 27.5 bn (up 11% YoY) and a net profit of Rs 2.26 bn (up 25% YoY) for the second quarter ended 30th June 1999. The company has declared an interim dividend of Rs 12 per share. It has improved its market share in most of the product categories it operates in.
Hindustan Lever Limited (HLL) is the largest consumer products company in India. HLL's business portfolio comprises soaps, detergents, personal products, food products and frozen desserts.
Despite the dull domestic economic conditions, HLL has been able to post a healthy rise in turnover. The surge in agricultural production (up by over 7% in FY99), boosted incomes in rural India, and consequently spurred the demand for the company's products. HLL, which had launched a rural thrust program a few years back, 'Project Bharat', in anticipation of a surge in rural demand, seems to be reaping the benefits of being the first mover.
Operating margins at HLL moved up from 10.3% to 11.4% in the second quarter. While net sales moved up by 10.8%, expenditure increased by only 9.9%. The other factor that contributed to the growth in operating margins was the 36% jump in other income to Rs 560 mn.
The Russian crisis and the difficult international trading conditions adversely affected the exports of rice, hygiene and personal care products and beverages. HLL has however managed to post a growth in export turnover by entering new markets and introducing new products.
The current spurt in demand for the company's products is aided by low inflation and higher rural incomes. However, given the volatility in domestic agricultural production, it is uncertain whether growth at HLL would continue to be led by the rural markets. Moreover, if inflation resurfaces, the fall in purchasing power might prove to be a stumbling block for the company. In such a scenario, the company would generate profits by cost cutting rather than price increases.
However, HLL is well positioned to capitalise on the growth opportunities that would emerge if there were a general economic upturn. As in the past, given the company's cash chest, growth by pursuing an aggressive merger and acquisition strategy is always a possibility.
The stock has been rated as a 'BUY' by analysts because of its high management quality, and strong brands. Moreover, the company's successful marketing thrust into the rural markets, which has given it access to a largely untapped market of approximately 650 mn people, has also lent support to this rating.
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