• OCTOBER 30, 2003

HLL: Topline revival continues...

FMCG major, Hindustan Lever, continues to improve on its revenue growth. The company has declared just over 4% growth in topline during the September quarter. However, a higher interest outgo (relating to the 9% debentures to shareholders) has seen profit before tax dip by a marginal 1.5%. The company has earned Rs 351 m as net extraordinary income, enabling it to post a 7% bottomline growth.

(Rs m)3QFY033QFY04Change9mFY039mFY04Change
Net Sales23,67524,6754.2%73,20475,2842.8%
Other Income1,0621,0640.2%2,8383,47022.3%
Total expenditure19,05419,8604.2%59,88761,5032.7%
Operating Profit (EBDIT)4,6214,8154.2%13,31713,7813.5%
Operating Profit Margin (%)19.5%19.5% 18.2%18.3%
Profit before Tax & extraordinary income5,3515,269-1.5%15,06415,9896.1%
Extraordinary income-68351-1,148351-69.4%
Profit after Tax/(Loss)4,1334,4327.2%12,89212,771-0.9%
Effective tax rate (%)21.5%22.5% 22.0%22.3%
Net profit margin (%)17.5%18.0% 17.6%17.0%
No. of Shares (eoy) (m)2201.22201.2 2201.22201.2
Earnings per share (Rs)*7.58.1 7.87.7
Current P/e ratio (incl. Extraordinary income) (x) 22.2 23.1

On a like to like basis, the company's revenues have grown by nearly 7% during 3QFY04. The growth has been led by skin care (up 43%), colour cosmetics (up 34%) and toothpaste (11%). HPC power brands grew by 7.7%. The company's beverages business (tea, coffee) has revived with a strong 9% growth. Infact, the Brooke Bond mother brand grew by a strong 22%.

Results on like to like basis
(Rs m)3QFY033QFY04Change9mFY039mFY04Change
Net sales22,62324,1596.8%69,82373,0984.7%
PBIT margin (%)20.2%20.0% 18.9%19.3%
Net margin (%)18.7%16.9% 17.1%17.1%

While soaps and detergents (43% of revenues) showed a marginal growth (0.7%) in revenues, the personal products business grew by a healthy 15%. The company's food business saw an 18% dip in revenues, but this was largely due to the hive off its oil & fats business (Dalda) to Bunge. The business however, reported lower losses at PBIT levels and margins continued to improve. In foods, culinary products (Kissan and Knorr) grew strongly by nearly 23%. Overall, processed foods grew by 21% YoY.

Sales break-up
(Rs m)3QFY033QFY04Change9mFY039mFY04% change
Domestic FMCG - HPC15,58816,3945.2%47,45449,6804.7%
Domestic FMCG - Foods (incl. ice-creams)4,8854,750-2.8%15,55414,748-5.2%
Domestic FMCG - Total20,47321,1443.3%63,00864,4282.3%
b) Exports2,8012,9445.1%8,8759,3165.0%
c) Others40058746.6%1,3201,54016.7%

The company's ice cream business could not recover from the transporters' strike setback and reported a 6% dip in revenues and higher losses at the PBIT level. Exports were up 5% and were largely led by beverages exports (27% growth).

Segment revenue snapshot
(Rs m)3QFY033QFY04% change9mFY039mFY04% change
Soaps and Detergents 10,647 10,725 0.7% 32,562 32,841 0.9%
Personal Products 5,057 5,825 15.2% 15,200 17,217 13.3%
Beverages 2,703 2,937 8.7% 9,138 8,755 -4.2%
Foods (includes Oils and Fats,
Culinary and Branded Staples )
1,842 1,503 -18.4% 5,216 4,944 -5.2%
Ice Creams 232 218 -6.2% 900 777 -13.7%
Exports 2,801 2,944 5.1% 8,875 9,316 5.0%
Others (includes Chemicals,
Agri, Plantations etc)
864 851 -1.6% 2,619 2,330 -11.0%
Total Segment Revenue 24,147 25,003 3.5% 74,511 76,180 2.2%
Less : Inter segment revenue 283 82 -71.0% 714 290 -59.4%
Net Segment Revenue 23,864 24,921 4.4% 73,796 75,890 2.8%

HLL's stable operating margins are in line with the management strategy. At the analyst meet held post 2002 results, the management had clarified that they were satisfied with the operating margins levels reached and will focus on growing the revenues in 2003. The results are in line with the stated strategy.

The big picture...
% contribution
to sales
Revenue growthPBIT growthPBIT margin
PBIT margin
growth (basis points)
Soaps and Detergents43.1%0.9%-4.9%23.3% (140)
Personal Products22.6%13.3%16.9%34.3% 106
Beverages11.5%-4.2%-5.0%18.8% (17)
Foods (includes Oils and Fats,
Culinary and Branded Staples )
6.5%-5.2%--0.8% 349
Ice Creams1.0%-13.7%-7.5% 1,238
Exports12.2%5.0%-34.4%4.1% (243)
Others (includes Chemicals,
Agri, Plantations etc)
3.1%-11.0%--4.1% (134)
*Based on 9mFY04 numbers

The company's higher interest outgo is a result of interest to its debenture holders. The extra-ordinary income represents net of profit on sale of its oil & fats business to Bunge (Rs 562 m), loss arising out of disposal of mushroom undertaking (Rs 190 m) and loss on fixed assets arising out of restructuring of Bangalore culinary products factory (Rs 87 m).

At the current price of Rs 179 the stock trades at 23x annualised 9mFY04 earnings. From the results it is clear that HLL's strategy of streamlining its brands and businesses is paying off. Revenue growth continues to show an uptrend. Also, profitability has improved in the last 3 years. As and when the demand revival kicks in, HLL is likely to be a key beneficiary of the same. It is a good long term growth story.

Cost break-up
As a % of sales3QFY033QFY049mFY039mFY04
Material consumption35.4%38.4%38.3%38.6%
Purchase of goods14.6%13.7%13.7%14.6%
Staff costs6.4%5.6%6.2%6.1%
Advertising & promotions11.4%9.2%9.3%7.8%
Other expenses14.8%15.4%14.3%14.5%

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