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Hind Lever Chem: Concession driven

Nov 16, 2000

Hind Lever Chemicals (HLCL) has reported a 215% growth in third quarter profits (vis-à-vis the third quarter profits of last year). The sales have however dropped almost 18% in the current quarter. The total pre–tax profits of Rs 204.2 m include an amount of Rs 130.4 m being the differential amount of price concession for the period April to June 2000. If one were to exclude this, there has actually been a de–growth in the pre tax profits on a year on year basis.

(Rs m)3QFY003QFY01Change
Sales 3,695 3,033 -17.9%
Other Income 2 0 -99.5%
Expenditure 3,592 2,772 -22.8%
Operating Profit (EBDIT) 103 260 152.8%
Operating Profit Margin (%)2.8%8.6% 
Interest 11 35 229.2%
Depreciation 19 21 13.8%
Profit before Tax 76 204 170.3%
Other Adjustments   
Tax 11 -  
Profit after Tax/(Loss) 65 204 215.0%
Net profit margin (%)1.8%6.7% 
Earnings per share* 18.80 59.21  
(annualised)   

HLCL, a 50% subsidiary of the Hindustan Lever Ltd. (HLL), is engaged in the manufacture of Di–ammonium Phosphate (DAP) and Muriate of Potash (MOP) apart from single super phosphate (SSP) which are phosphatic fertilisers. This business accounts for almost 85% of its turnover. The balance accrues from sodium tri polyphosphate (STPP) which is an ingredient in detergents. Almost half of the company’s STPP production is sold to HLL. This is a very profitable product and accounts for almost over 25% of the company’s profit. Even in the current quarter the STPP business continued to make good contributions to HLCL’s business.

The fertiliser business has however not had such a smooth sailing. The company enjoys dominant market share of almost 75% in the states of West Bengal and Bihar in the phosphatic fertiliser segment. By the company’s own admission, the recent floods in West Bengal and Bihar have affected the fertiliser offtake.

Ironically, this has happened at a time when the company put in place an additional capacity for 400,000 tonnes of DAP and reduced meeting the demand for DAP from imports. (In 1999 imports, accounted for over 76% of its sales by volumes.)

If one were to go by the annualised earnings of the current quarter, the stock quotes at a multiple of 3 times (CMP: Rs 183). It is however, important to remember that the main season for the sale of fertiliser is during the December quarter and at present one is not sure of the prospects of the rabi crop.

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