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HLL: Ice cream business gets a thrust - Views on News from Equitymaster
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  • Sep 26, 2000

    HLL: Ice cream business gets a thrust

    HLL, the FMCG giant is facing a tough time due to declining topline growth. The company has identified the food segment as a future revenue driver. Currently its food and beverages business contributes nearly 22% to total sales.

    In the food business branded staple is witnessing strong growth quarter over quarter. However a key concern is dampening growth in the ice cream business. HLLs’ ice cream business, which recorded a 10% growth in FY00, posted a 3% decline in the first half of FY01. In order to increase volume sales, HLL has launched various lower price packs and introduced a host of new ice creams. Among them is a unique ‘Ole’ flavour in Cornetto cones, ‘Soft & Creamy’ cups/tubs, ‘Bikimax’ biscuit ice cream sandwich, ‘Feast Mango Zap’ and a rose flavoured water-ice. The company has released a new campaign highlighting health and hygiene benefits of ice cream. Also to reduce system costs, new business processes have been implemented.

    Recently HLL has planned to set up softy kiosks in all major metros to foray into the softy ice cream segment. The concept of branding was largely absent in this segment. HLL’s Kwality Wall's, market leader in the ice cream business, will be the first national player to offer softy at Rs 5 per cone. It has successfully test marketed the product in Chennai and is now set for an all India launch. It has already installed 22 kiosks in Chennai and plans to increase this to around 45-50 in a next few months. It also aims to set up 500 softy kiosks in major metros by the year-end on an investment of Rs 700,000 per kiosk (cumulative investment of Rs 350 m). Although the pay back period from this venture is long it will definitely contribute in HLL’s topline growth.

    Through its softy, HLL seeks to double the size of the organised ice cream market in India in a couple of years, which is currently valued at Rs 10 bn. The per capita consumption of ice cream in India is abysmally low at 250 ml per year through softy compared to 22 litres in US. This offers a huge untapped potential to the company.

    At the current market price of Rs 214, HLL is trading at near to its 52 week low. It gets P/E ratio of 43 times with a market cap to sales ratio of 4 times its first half 2001 annualised earnings. The stock has come down in the past two days considerably due to concern about its topline growth. Increasing oil prices is likely to adversely affect its volume growth due to shifting consumption patterns. However the company’s operating and supply chain efficiencies will enable it to maintain the growth in its profit margins. This in turn will enable the company to achieve satisfactory growth in its bottomline.



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