FMCG major, Hindustan Lever Limited (HLL), has recorded a 29% jump in bottomline in its 1QFY02. The jump in bottomline was largely aided by an extraordinary income of Rs 226 m on account of profit arising from the transfer of interest in the Animal Feeds business to the Godrej group. If we exclude this extraordinary income, the net profit growth is around 20.7%. The turnover growth of the company was also not anything to write home about. During the March quarter, HLL recorded a marginal 1.1% growth in sales, which is low compared to its sales growth 4QFY01 (4.6% in 2QFY01, 0.4% in 3QFY01 and 6% in 4QFY01). Other income grew 13.5% reflecting efficient treasury management of surplus funds.
The results include an estimated business restructuring cost of Rs 62.5 m charged in the quarter, compared to Rs 300 m in the same quarter last year.
HLL’s domestic FMCG product sales grew modestly. In the Home and Personal Care business, fabric wash grew by 6.6% and skin care grew by 10.6%. Home Care continued its strong growth record (up 18.2%) . While the overall personal wash sales declined (down 6%), sales of power brands (read part of key profitable 30 brands) in this category grew by 5%. Hair category sales were flat while oral care sales declined by 7.8%. In the Foods business, HLL witnessed a decline in packet tea sales (down 13.9%) due to planned rationalisation of the unviable products in the portfolio. Oils and fats (up 18.5%) and coffee (up 9.5%) recorded strong growth. During the quarter, HLL has reorganised the foods distribution system by integrating the sales system of branded staples and International Bestfoods Limited with the distribution system for culinary products (namely ’Kissan’) and oils and fats. HLL maintains that this is expected to bring significant synergies in the longer term through improved reach for all foods products as well as provide a critical mass for the same. The sales of culinary products (down 12.3%) and branded staples (down 13.5%) declined during the quarter due to the reorganisation mentioned above. Ice cream sales were flat.
Faced with difficult market conditions and a slowdown in turnover growth HLL had announced at an analyst meet earlier that it is looking to reduce its number of brands from 110 plus to 30 in the next few years. This was because these 30 brands contributed more than 100% to its bottomline. The other odd 80 brands ate away at its profits. Added to that the company had identified 4 new product segments for giving an impetus to its turnover growth. These include over the counter healthcare products, water, confectionery and business through the internet.
In a related development the company has decided to merge International Bestfoods and Aviance with itself. Earlier the company had spun off its fragrance division to a joint venture with ICI and Quest International.
At the current market price of Rs 217, HLL is trading at 35.2 times its annualised 1QFY02 earnings. Concerns about its slowing topline growth has adversely affected the company’s stock price in the past few months. The company’s market cap to sales ratio of 4.5 times is still below its historic 5-6 times.