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HLL scrip expected to stay put despite 23 per cent net rise

NetScribes/Mahesh Shetty

Despite a 23 per cent rise in FMCG giant Hindustan Lever's net profit for the year ended December 31, 2000, leading brokerages remain bearish on the scrip. Analysts say the company's topline growth and profitability remain areas of concern.

DSP-Merrill Lynch and Dalal & Broacha Stock Broking have recommended a 'sell' on the stock, while KR Choksey Shares and Securities Ltd has recommended a 'hold'. Motilal Oswal Securities has asked investors to reduce exposure to the stock.

On Thursday, HLL reported a 22.5 per cent rise in net profit to Rs 13.10 billion for 2000, compared to Rs 10.70 billion last year. Sales rose 4.5 per cent to Rs 106.04 billion.

"The surge in topline this time came from export growth, while the improved profitability came from cuts in staff costs, not from real product profitability," said Piyush Goenka at the Bombay-based First Global.

While leading domestic mutual funds like SBI Mutual Fund and local brokerages like KR Choksey had bought into the HLL stock over the past two trading days, this is expected to be a short-term buying. The scrip is seen languishing at lower levels in the coming days.

On Friday, the HLL scrip was trading at Rs 216.40 on the Bombay Stock Exchange, down from its previous close of Rs 218.90.

"Most of that growth came from HLL's premium segment sales with soaps and detergents," said an analyst at a leading European investment bank in the city.

"This year's numbers are steady, but they are not very far from what we were expecting," said Avinash Gorakshakar of Emkay Shares and Securities. "Other income has added substantially to the bottomline," he added.

Other income rose 8.5 per cent to Rs 3.45 billion from Rs 3.18 billion last year. Most of this was from free cash reserves invested in the money markets.

Things are not going to be easy for the company in the next two quarters, with the drought in the North and the Gujarat earthquake expected to affect demand growth. Analysts believe there is a definite competitive pressure on a large range of HLL's brands, especially in the rural markets.

Last year, outgoing chairman K B Dadiseth had unveiled HLL's new plan for growth - Project Millennium. The plan outlined nine new areas of growth ranging from a rural business systems project to Internet-based initiatives. The company recently committed to invest Rs 1.5 billion on a capacity expansion programme. It has plans to set up new plants in Goa, Silvassa and Uttar Pradesh, adding 240,000 tonnes per annum to its existing capacity.

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