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Rising FMCG demand lifts HLL profit

Rising FMCG demand lifts HLL profit

Author | Source: The Economic Times | Wednesday, Nov 01,2006 8:02 AM

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Rising FMCG demand lifts HLL profit

Hindustan Lever (HLL), the Rs 11,000-crore consumer products giant, capitalised on rising consumer demand to post a 17.7% increase in profit after tax (before exceptional items) to Rs 383 crore in the quarter ended September '06.

Sales during the period were up 12.2% to Rs 3,066 crore, while domestic FMCG sales were up 14.2% to Rs 473.8 crore. HLL shares closed up 2.1% at Rs 233.6 on Tuesday.

Its largest segment by sales, soaps and detergents, which contribute to 45% of turnover, grew by 12% during the quarter. The company cited good performances from Lux, Pears, Dove and Hamam, while Lifebuoy reported modest growth.

In detergents, Surf and Rin led the growth. HLL's ace is its personal products category, which contributes to 28% of sales but 48% of segment profits. This segment is benefiting from the growing demand for premium products, as an increasingly upscale consumer spends on personal care.

Sales grew by 17.1% in the quarter over the same period last year. Variants of Fair & lovely like Menz Active, Skin Clarity were launched and it also launched a face wash under the Ponds brand.

While the home and personal care segments did well, the foods segment had a mixed quarter. Beverages' sales were up by 6.6% to Rs 345.5 crore, reversing the decline in the June '06 quarter. Processed foods sales were up by 19% to Rs 97.3 crore, while ice-cream sales were up by 47% to Rs 34 crore.

HLL's sales growth in the quarter was largely due to higher volumes and a favourable product mix, with price playing a smaller role. Of the 14.2% domestic FMCG sales growth, volume and price mix contributed 10.8% to it.

In HPC, while value growth was 15%, volume growth was 11.9%. Aiding this volume growth is the FMCG sector growth, which is estimated to be about 10% in the September quarter. Another is HLL sustaining the tempo on the advertising and promotion (A&P) front.

It spent about Rs 345 crore in the June '06 quarter on this account, and maintained it at Rs 340 crore in the current quarter. That's a 41.5% increase and now contributes to about 12.3% of FMCG sales, up from 10% in the same period last year.

“The direction in which advertising and promotion spends are heading will remain upwards,” said finance director, HLL, signalling this as a level of ad spend to sales that HLL was comfortable with.

HLL's profitability during the quarter improved, with operating profit margins improving to 13.1% from 12.6%. This was despite higher advertising expenses. The company was able to contain the impact of higher input costs through cost savings measures. Price hikes and a better product mix played a role too.

“With input inflation as an on-going challenge, the business remains focused on driving cost saving initiatives and effecting selective price increases,” said Harish Manwani, chairman, HLL in a company release.

This quarter's performance includes the impact of the merger of some of HLL's subsidiaries like Lipton India Exports, Lever India Exports and also a group company Vashisti Detergents. That has had some impact on performance. Net sales, after adjusting for these mergers, were up by 12.3% to Rs 3,044 crore, while profit after tax was up by 14.1% to Rs 329 crore.

Exceptional items during the quarter were significant, with a net exceptional income of Rs 137.7 crore compared with Rs 61 lakh in the previous corresponding quarter. As a result, net profit (including exceptional income) increased by 59.8% to Rs 520.7 crore.

Key items were sale of a portion of its holding in Tata Chemicals, which netted Rs 120.8 crore and Rs 66.8 crore due to reversal of provisions for employee-related costs.

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