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Less-than-expected results at Hindustan Lever

NetScribes/Rajiv Banerjee

The third quarter results announced by Hindustan Lever Ltd (HLL) on Friday were way below market expectations. The FMCG major posted a meagre 0.4 per cent growth in topline, against the market expectation of about 5 per cent. According to analysts, the mediocre results were due to a combination of the overall slow growth in the FMCG industry and intense competition.

Going by these results, analysts have pegged the medium term outlook for the company as negative. "Given the Q3 results, the scrip is expected to see a depreciation of 10-15 per cent over the next three months. The company will have to perform splendidly for the market sentiments to improve," said Piyush Goenka, an analyst at First Global.

Profits for the latest quarter grew by 16 per cent over the previous corresponding quarter to Rs 3.31 billion, against the expectation of around 20 per cent. Net sales for the quarter was at Rs 24.62 billion, just a shade more than the Rs 24.52 billion posted a year ago.

"The mere 0.40 per cent growth in topline indicates that HLL is facing severe competition from other players and that the going has been tough," said Goenka. He added that the product segments of soaps, detergents, personal care and beverages, which account for 70 per cent of HLL's revenues, have let the company down. Competition, from domestic as well as imported products, has accentuated the company's woes.

In the toothpaste segment, HLL is facing strong competition from Smithkline Beecham and Colgate. Nirma and Henkel have turned up the heat in the detergents segment, while Godrej has done the same in soaps.

ORG figures indicate that HLL's share in detergents has come down from 46.6 per cent in December 1999 to 45 per cent in July 2000. Its share in toilet soaps has dipped to 59.5 per cent in July 2000 from 62.7 per cent in December 1999. HLL branded tea market share of 39.1 per cent in December 1999 has dropped to 37.6 per cent in July 2000.

The slowdown in the economy and a fall in rural offtake resulting in the sluggishness in the FMCG sector, have delivered a double blow to the sector leader.

HLL's poor performance has reflected on the performance of the scrip on the stock market. On the Bombay Stock Exchange (BSE), the scrip closed at Rs 184.65 on Friday, a downslide of Rs 8.20 from the previous close of Rs 192.85. A total of 2.6 million shares were traded at the counter on the day. (The results were declared after the markets closed.)

HLL peaked at its all-time high of Rs. 324.90 (pre-split price of Rs 3249) on February 25, 2000 and has been on a downtrend since.

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