HLL's 2QFY01: Old habits die hard - Views on News from Equitymaster

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HLL's 2QFY01: Old habits die hard

Jul 28, 2000

India's largest consumer products company Hindustan Lever (HLL) has reported a YoY 27% jump in its net profits to Rs 2.9 bn on a marginal topline growth of 5% in the 2QFY01. The higher growth in the profit was mainly due to 71% reduction in the interest expenses and improvement in the operating margins. The topline growth of the company was powered by higher growth rate in the branded staple food business. However the sales growth has been dampened by flat ice cream sales and a decline in oils and fats business.

(Rs m)2QFY002QFY01Change
Sales 27,528 28,800 4.6%
Other Income 555 777 39.9%
Expenditure 24,527 25,340 3.3%
Operating Profit (EBDIT) 3,000 3,460 15.3%
Operating Profit Margin (%)10.9%12.0%
Interest 70 20 -71.3%
Depreciation 427 330 -22.8%
Profit before Tax3,0593,88727.1%
Tax 791 1,010 27.7%
Profit after Tax/(Loss) 2,268 2,877 26.9%
Net profit margin (%)8.2%10.0%
No. of Shares (eoy) (m) 2,196 2,196
Diluted number of shares 2,196 2,196
Diluted Earnings per share*4.15.2
*(annualised)

During the first half its home & personal care business grew by 6%, tea business rebounded with a healthy growth of 16% and popular foods surge ahead with impressive growth of 29%. The company is driving growth through leading market upgradation by focussing support and innovation behind its key brands. It has launched several new products during the second half in its key categories. The prominent among them are Lux skincare range, Lipton Ice tea, Dalda Active, Aim toothpaste, Impulse deodorant range and new flavours in Kisan ketchup.

The company continued its growth story by improving its ROCE to 63.1% in 1HFY01 (58.7% in 1HFY00) and RONW to 48.8% (47.3% in 1HFY00). As part of its project millennium it has plans to identify new sources of business like the laundry business and beauty saloons opened by it in the current year. It will help the company in generating volume growth. Further as part of its vision to meet the everyday needs of the people everywhere, the company has plans to strengthen its rural focus by reaching the interiors of Indian village.

HLL's future growth will be boosted by efficient supply chain management which will help the company in improving its profit margins. This will be achieved through marketing cost efficiencies, global sourcing, rural coverage and reduction in the freight cost. The company's major challange lies in improving its volume growth and building operational efficiencies which will in turn help it to improve shareholder's wealth further.

At the current market price of Rs 237, HLL is trading at a PER of 45 times its 2QFY01 annualised earnings with a market cap to sales ratio of 4.5 times. The reason for its premium valuations are its ability to grow quarter over quarter with innovative new products and cost efficiencies in the scenario of increasing competition.

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