Hindustan Lever's performance may never have attracted more attention than it does now with its share price reflecting a change in investor expectations. A rise of 26% in a year to Rs 164, when the sensex itself has grown by leaps and bounds may not seem unusual, but not if we are talking about India's largest FMCG company which has been going through a patch of rough weather.
HLL's new chairman Harish Manwani, in his first interaction with the media, had said that he preferred the company's results to do all the talking. The first such opportunity presents itself when the company presents its results for the second quarter ended June'05. The quarter saw FMCG companies show improved in growth in retail sales during the April-June quarter.
The company too will show an improvement in growth during the quarter, continuing the uptick in performance that was seen in the previous quarter. The key highlight is that HLL has gained market share across product categories, including detergent cakes, washing powder, scourers, toothpastes, said analysts.
Sales grew by 0.8% in May'05 against a decline of 0.4% in April'05 and a 3.2% growth in the first quarter of CY05. “This muted growth has been registered on a higher base, compared with the past few months,” an ICICI Securities report says. Washing powder sales, which contribute 15% to the turnover, grew by 14.9% year-on-year, led by Wheel and Rin. Shampoo sales jumped 14.4%, the highest sales growth over the past 15 months driven by a volume growth of 45%.
Market share in packaged tea rose by 60 bps month-on-month to 30.2% though sales fell by 1.5%, compared to the overall category sales fall of 3.7%. Toilet soaps growth slipped to its lowest in over a year with sales falling 4.1% in May '05. HLL's portfolio mix has been shifting from Lux (eighth month of sales decline) to Lifebuoy.
The base impact of the price cuts has reduced, volumes are growing. Analyst estimates put sales growth during the quarter between 6% and 8% over a year ago to Rs 2,700-2,800 crore, while some believe that it may be as high as 10%. During the March '05 quarter, sales rose by 6.5%.
HLL's margins have been under pressure due to rising material costs, but its efforts to reduce costs and mitigate the impact by hiking prices are expected to have a salutary effect. Margins have come down in recent quarters, but this quarter is expect to see some stabilisation on this front.
To some extent, the ramping up of operations at tax exempt locations in Himachal Pradesh and Uttaranchal will benefit the company. Net profit growth is expected to be about 13-15% to around Rs 280 crore during the quarter.
This should be viewed in the backdrop of net profit in the June'04 quarter falling by 56% due to an aggressive promotion campaign in shampoos and detergents, which saw prices decline but advertising spends increase, affecting profit margins. Since volumes have been growing and there have been some product price increases in recent months, an improvement in profit growth can be expected.