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HLL: 3QFY02 topline beats estimates

Oct 16, 2001

FMCG bellwether, Hindustan Lever, has beaten expectations on the turnover growth front. As per the numbers available, the company's turnover has shown an impressive 7% growth in topline. This is in contrast to a flattish growth in topline during the first half of FY02 (up 1.5% YoY).

(Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
Net Sales 24,619 26,352 7.0% 79,557 82,090 3.2%
Other Income 919 1,134 23.4% 2,593 3,068 18.3%
Total expenditure 21,062 22,284 5.8% 69,644 70,715 1.5%
Operating Profit (EBDIT) 3,557 4,068 14.4% 9,913 11,375 14.7%
Operating Profit Margin (%) 14.4% 15.4%   12.5% 13.9%  
Interest 32 25 -20.6% 88 58 -34.2%
Depreciation 299 393 31.3% 964 1,053 9.2%
Profit before Tax & extraordinary income 4,145 4,784 15.4% 11,453 13,332 16.4%
Extraordinary income - 215   - 1,640  
Tax 833 1,007 20.9% 2,648 2,919 10.2%
Profit after Tax/(Loss) 3,312 3,992 20.5% 8,806 12,053 36.9%
Effective tax rate (%) 20.1% 21.1% 377.7% 23.1% 21.9% 12,052.20
Net profit margin (%) 13.5% 15.1%   11.1% 14.7%  
No. of Shares (eoy) (m) 2200.6 2200.6   2200.6 2200.6  
Earnings per share* 6.0 7.3   5.3 7.3  
Current P/e ratio (incl. Extraordinary income)   31.1     30.9  

The company's bottomline has surged 21% (including extraordinary income) during 3QFY02. However, if we exclude the Rs 215 m extraordinary income, which HLL received after consideration of provision of estimated costs for discontinuance of the thermometer operations (Rs 71.60 m) and a one time reduction in tax liability Rs (286.70 m) arising from the amalgamation of International Best Foods and Aviance Limited with the company, then the bottomline has actually grown by only 14%.

The company's turnover has grown because of the merger with Aviance and International Bestfoods. However, as per the HLL management, on a like to like basis, after netting off the impact of business transfers, the sales growth works out to 5.8% for the quarter and 2.5% for the 9 month period. Even this is way above analyst community expectations.

The rebound in growth came on the back of an 8.3% growth in FMCG business during the quarter. The food business grew by 7% during the same period. The gross margins in the food business have grown by 160 basis points during the year. This is lower than the 390 basis point improvement till 1HFY02. This is because the overall performance of the food business has been dented by the International Bestfoods merger. For a detailed performance report segment wise, take a look at the tables below.

Sales growth
FMCG Products Key brands 1HFY02 3QFY02
Home & Personal Care      
Fabric wash Surf, Rin, Wheel 5.2% 10.0%
Skin care Lakme, Pond's, Fair & Lovely 22.1% 6.0%
Personal wash Lux, Lifebouy, Liril -4.4% 1.0%
Oral care Pepsodent, Close-up -3.7% 4.0%
Hair care Clinic, Sunsilk, Lux 7.5% 12.8%
In the related development, the HLL board also passed the 'debenture plan' under which it would issue 1 debenture of Rs 6 face value for every 1 share of HLL. These debentures would carry an interest rate of 9% and be redeemed in three years.

For a detailed note on this please refer HLL: Bonanza for shareholders

Sales growth
Foods business Key brands 1HFY02 3QFY02
Culinary products Kissan sauces & noodles -7.1% 7%
Branded staples Annapurna atta & salt -13.0% 4%
Oil & fats   16.1% 8%
Ice cream Walls -3.9% -7%
HLL has managed to comeback strongly this September quarter in a difficult environment and silenced all its critics once again. The analyst community (including us) were again caught napping. If this momentum continues in the future too, the stock is likely to see an upward re-rating. At Rs 226 the stock trades at a P/E of 29x FY02 expected earnings. Despite the growth in turnover in 3QFY02, we would like to remain conservative and maintain our projections of 2.5% growth in turnover for FY02.

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