HLL’s on comeback trail in ’05

HLL’s on comeback trail in ’05

Author | Source: The Economic Times | Tuesday, May 16,2006 7:00 AM

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HLL’s on comeback trail in ’05

Hindustan Lever's (HLL) '05 annual report reveals a company that is getting back on its feet after a few years of troubled times. While the results for '05 have given enough indication of this, a perusal of its '05 annual report only reinforces it further. There are improvements visible in volume growth, value growth and in cash flow generation.

At the operational front, the detergents segment is the most interesting one, considering the keen competition for market share between the company and Procter & Gamble. HLL's volumes have risen by 11% to 10.3 lakh tonne, while sales have risen by 15.6%.

The difference is due to price hikes but it is evident that HLL seems to only have benefited from P&G's assault. A worry yet is the slow growth in the soaps segment, as the volume gr-owth was barely 1% during '05. The soap market, according to HLL, has been dipping for two years and showed some recovery in '05. The fact that sales was up by 7% to Rs 2,543 crore is due to price rises and changes in the product mix.

A key segment for HLL which has been doing well for years now is personal products, and volume growth here was about 26% but this volume is reported in number of pieces sold. So it is not really representative, as a larger proportion of low unit price packs could for example distort growth.

Still, it gives some idea of growth, and sales growth in this segment was 22%, indicating that volume growth in tonnage terms would have been lesser. The other category which did well in '05 was packet tea, where volume sales grew by 15%. The processed fruits and vegetables business, like sauces and jams, did well with a 13% growth. Other food segments were largely flat.

One aspect which investors would be keen on knowing, but was not available earlier, was the excise benefit due to the setting up of units in tax havens. In '05, gross sales grew by about 10% to Rs 11,975 crore, but excise declined by 4.8% to Rs 915 crore, and as a result net sales grew by 11.4%.

Lower excise, thus, added nearly 140 basis points to its topline growth, but it must be noted that lower excise could also be partly a result of the deduction available due to service tax on advertising and other budget related announcements too. Finally, HLL is renowned for being a cash-generating machine.

During '05, cash generated from operations, which represents the operating cash flow after meeting its working capital requirement, grew significantly. During '05, this figure for HLL grew by 39% to Rs 2,099 crore. A key change this year is on the working capital front, with efficient working capital management throwing up cash of Rs 511 crore during the year. In '05, HLL managed to extract savings from all three components of the working capital cycle - debtors, creditors and inventories.

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