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HLL: Showing strength

Jul 31, 2003

FMCG major HLL has reported enthusing results for the June quarter. The company has reported a 3% topline and a 12.6% net profit growth (excluding extraordinary items). The company's operating margins have improved by 70 basis points during the quarter.

(Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 Change
Net Sales 26,144 26,934 3.0% 49,529 50,609 2.2%
Other Income 817 994 21.7% 1,776 2,407 35.5%
Total expenditure 21,422 21,874 2.1% 40,833 41,643 2.0%
Operating Profit (EBDIT) 4,722 5,061 7.2% 8,696 8,966 3.1%
Operating Profit Margin (%) 18.1% 18.8%   17.6% 17.7%  
Interest 25 13 -46.7% 60 31 -47.9%
Depreciation 316 315 -0.3% 700 623 -11.1%
Profit before Tax & extraordinary income 5,199 5,727 10.2% 9,712 10,719 10.4%
Extraordinary income 469 0 - 1,216 0 -100.0%
Tax 1,194 1,217 2.0% 2,169 2,381 9.8%
Profit after Tax/(Loss) 4,473 4,509 0.8% 8,759 8,339 -4.8%
Effective tax rate (%) 23.0% 21.3%   22.3% 22.2%  
Net profit margin (%) 17.1% 16.7%   17.7% 16.5%  
No. of Shares (eoy) (m) 2201.2 2201.2   2201.2 2201.2  
Earnings per share* 8.1 8.2   8.0 7.6  
*(annualised)            
Current P/e ratio (incl. Extraordinary income)   21.1     22.8  

HLL's personal products division reported an enthusing 7% topline growth led by strong performance of key brands like Lakme (53% growth), Ponds (23%) and Fair & Lovely (8%). This also led to a 16% EBIT growth for the segment during the quarter. The company's soaps and detergents segment, which accounts for over 43% of HLL's revenues, reported nearly 2% revenue growth.

Sales break-up
(Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 % change
Domestic FMCG - HPC 17,474 18,089 3.5% 31,868 33,289 4.5%
Domestic FMCG - Foods (incl. Ice Cream) 5,219 5,083 -2.6% 10,670 9,998 -6.3%
a) Domestic FMCG 22,693 23,172 2.1% 42,538 43,287 1.8%
b) Exports 3,055 3,216 5.3% 6,074 6,372 4.9%
c) Others 396 547 38.0% 917 950 3.7%
Total 26,144 26,934 3.0% 49,529 50,609 2.2%

The company's domestic foods business saw over 2% dip during the quarter. The company has attributed this to the 10 day transportation strike in April, which espcially affected its ice cream business. Consequently, ice cream revenues dipped by 11% during the quarter. Culinary products (Kissan, Knorr) sales recorded an impressive increase of 19%. Exports were up 5% during the quarter.

Results on like to like basis
(Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 % change
Net sales 26,032 26,934 3.5% 49,038 50,609 3.2%
PBIT 4,667 5,062 8.5% 8,532 9,222 8.1%
PAT 4,020 4,509 12.2% 7,598 8,338 9.7%

On a like to like basis, HLL has reported a 3.5% topline growth. The company's bottomline is up 12.2%. On a consolidated half year basis, HLL's sales are up 3.2% YoY and the net profit growth is nearly 10% in 1HFY04.

Though beverages turnover (tea, coffee) was down nearly 10% during 1HFY04, the profitability of the segment improved. The PBIT margin for beverages improved from 18.5% in 1HFY03 to over 20% in 1HFY04.

The big picture…
  % contribution to sales Revenue growth PBIT growth PBIT margin (%) PBIT margin growth
(basis points)
Soaps and Detergents 43.3% 1.3% -1.0% 22.9% (53)
Personal Products 22.1% 11.5% 14.3% 34.1% 83
Beverages 11.4% -9.6% -2.2% 20.1% 151
Foods (includes Oils and Fats, Culinary
and Branded Staples )
6.7% 2.0% - -0.1% 429
Ice Creams 1.1% -16.3% - 17.4% 2,170
Exports 12.5% 4.9% -23.7% 5.5% (206)
Others (includes Chemicals, Agri,
Plantations etc)
2.9% -15.8% - -2.1% 49

On the whole, HLL continues its drive to rationalise businesses in order to improve the quality of its earnings. The company has been successful on two counts. One, it has successfully managed to either hive off or sold its non core businesses. As a result, FMCG brands which now account for over 85% of total 1HFY04 sales. The other success is the improving profitability in the foods businesses. Also, the company has profitably managed to grow the intensely competitive soaps & detergents, as well as personal care segments.

At Rs 173 the stock trades at 21x our expected FY04 earnings, market cap to sales ratio of 3.6x. Short term prospects continue to be marred by difficult market conditions, but HLL's strategy remains on course for the long term. We are enthused by the company's determination to dominate India's FMCG space.


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