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HLL: A curtain raiser

Oct 16, 2001

FMCG bellwether, Hindustan Lever, is set to announce its third quarter results today. We take a quick glance at what has happened so far in FY02 and also preview what to expect.

(Rs m)2QFY012QFY02Change1HFY011HFY02Change
Net Sales28,79729,3131.8%54,93855,7381.5%
Other Income77491217.9%1,6741,93415.5%
Total expenditure25,34425,3900.2%48,58248,431-0.3%
Operating Profit (EBDIT)3,4533,92313.6%6,3567,30715.0%
Operating Profit Margin (%)12.0%13.4%11.6%13.1%
Profit before Tax & extraordinary income3,8764,48515.7%7,3098,54817.0%
Extraordinary income-1,199-1,425
Profit after Tax/(Loss)2,8684,66662.7%5,4948,06146.7%
Effective tax rate (%)26.0%22.7%24.8%22.4%
Net profit margin (%)10.0%15.9%10.0%14.5%
No. of Shares (eoy) (m)2200.62200.62200.62200.6
Earnings per share*
Current P/e ratio (incl. Extraordinary income)26.430.6

Hindustan Lever (HLL) had reported a net profit growth of 21% in its 2QFY02. However, net sales growth continued to be slack (up 1.8%). On a consolidated half yearly basis, HLL had recorded a 1.5% growth in turnover and a 21% growth in bottomline (excluding extraordinary incomes).

Sales growth
FMCG ProductsKey brands1HFY02
Home & Personal Care
Fabric washSurf, Rin, Wheel5.2%
Skin careLakme, Pond's, Fair & Lovely22.1%
Home careDomex, Raid15.3%
Personal washLux, Lifebouy, Liril-4.4%
Oral carePepsodent, Close-up-3.7%
Hair careClinic, Sunsilk7.5%

The data emanating from ORG-MARG has not been too good for HLL between July - September, 2001. The company's soap business continues to get hit. Based on the trends available, HLL is likely to post a topline growth in line with the past two quarters (up 1.5%-2%). HLL's bottomline growth is likely to be in the range of 19%-20%.

Sales growth
Foods business Key brands1HFY02
Packet teaTaj Mahal, Lipton, Brooke Bond-14.5%
Culinary productsKissan sauces & noodles -7.1%
Branded staplesAnnapurna atta & salt-13.0%
Oil & fats16.1%
Ice creamWalls-3.9%

However, as chairman Banga said the other day, one should also look at margin expansion to guage performance. However, this looks unlikely for the soaps and detergents business. With downtrading starting to affect food processing companies as well, the margin expansion may not be possible in this quarter, unlike in 1HFY02, when overall margins in HLL's food business were up 350 basis points.

More than the results, this time the focus would be on the 'debenture plan', a plan to return funds to shareholders. This is likely to improve HLL's RONW in the coming years. But more on this, post the management's meeting today.

At the current price of Rs 224 the stock trades at P/E of 29x FY02 expected earnings (including extraordinary incomes).

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