Food sector: HLL trims growth - Views on News from Equitymaster

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Food sector: HLL trims growth

Aug 14, 2001

The Indian food and beverages sector reported a reasonable performance in the June quarter considering the difficult market conditions. In a sample that comprised Hindustan Lever, SmithKline Beecham, Nestle, Cadbury, Britannia and Tata Tea, the topline recorded a 4% growth but the sample bottomline surged by nearly 44%.

(Rs m)June Q01June Q02Change
Net sales 41,116 42,719 3.9%
Other Income 866 1,069 23.5%
Expenditure 35,850 36,619 2.1%
Operating Profit (EBDIT) 5,267 6,100 15.8%
Operating Profit Margin (%)12.8%14.3%
Interest 160 129 -19.3%
Depreciation 599 623 4.0%
Profit before Tax 5,374 6,418 19.4%
Tax 1,490 1,631 9.5%
Extraordinary net income 240 1,138 374.8%
Profit after Tax/(Loss) 4,124 5,925 43.7%
Net profit margin (%)10.0%13.9%
Diluted No. of Shares (eoy) (m)2462.22462.2
Diluted Earnings per share*6.79.6
*(annualised)
Current P/e ratio24.5

The huge 44% jump in net profits however, includes Rs 1,138 m that these companies earned as extraordinary income. If we take out the extraordinary income effect from the bottomline, the growth is around 23% YoY. A large part of the extraordinary income has been contributed to the sector sample by HLL.

The sector's operating margins improved by 150 basis points to 14.3%. This came on the back of cost cutting and improving efficiencies. With tough market conditions facing them, the sector stalwarts seemed to have concentrated on controlling costs and reducing the debt burden to maintain bottomline growth.

Excluding HLL's numbers, the topline growth for the sample was a much better 8.8% and the bottomline growth stood at nearly 30% (excluding extraordinary income). This data further underlines the belief that since HLL has achieved a sizeable scale of operations, going forward, it may not find it easy to achieve double digit topline growth, unless it chooses to grow inorganically.

With the rain gods smiling, a better second half of FY02 is not ruled out. Thus these numbers may look better towards FY02 close. At the current market caps, the sector sample trades at a P/e of 24.5 times annualised June quarter earnings.

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