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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) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
Net Sales 28,797 29,313 1.8% 54,938 55,738 1.5%
Other Income 774 912 17.9% 1,674 1,934 15.5%
Total expenditure 25,344 25,390 0.2% 48,582 48,431 -0.3%
Operating Profit (EBDIT) 3,453 3,923 13.6% 6,356 7,307 15.0%
Operating Profit Margin (%) 12.0% 13.4%   11.6% 13.1%  
Interest 21 22 0.9% 56 33 -41.9%
Depreciation 330 328 -0.6% 665 660 -0.8%
Profit before Tax & extraordinary income 3,876 4,485 15.7% 7,309 8,548 17.0%
Extraordinary income - 1,199   - 1,425  
Tax 1,008 1,018 1.0% 1,815 1,912 5.3%
Profit after Tax/(Loss) 2,868 4,666 62.7% 5,494 8,061 46.7%
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) 2200.6 2200.6   2200.6 2200.6  
Earnings per share* 5.2 8.5   5.0 7.3  
*(annualised)            
Current P/e ratio (incl. Extraordinary income)   26.4     30.6  

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 Products Key brands 1HFY02
Home & Personal Care    
Fabric wash Surf, Rin, Wheel 5.2%
Skin care Lakme, Pond's, Fair & Lovely 22.1%
Home care Domex, Raid 15.3%
Personal wash Lux, Lifebouy, Liril -4.4%
Oral care Pepsodent, Close-up -3.7%
Hair care Clinic, Sunsilk 7.5%

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 brands 1HFY02
Packet tea Taj Mahal, Lipton, Brooke Bond -14.5%
Culinary products Kissan sauces & noodles -7.1%
Branded staples Annapurna atta & salt -13.0%
Coffee Bru 10.1%
Oil & fats   16.1%
Ice cream Walls -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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