The Hindu Business Line : HLL annual profit growth slows, sales up

HINDUSTAN Lever Ltd (HLL) continued to bet on the future even as the company today reported a net profit after exceptional items of Rs 1,771.79 crore for year ended December 31, 2003, just 0.11 per cent higher than the previous corresponding Rs 1,769.74 crore.

Backed by volume growth, net sales for last fiscal crept up by 1.84 per cent to Rs 10,138.35 crore (Rs 9,954.85 crore for the year ago period). Profit after tax, but before exceptional items rose by 4.21 per cent to Rs 1,804.33 crore (Rs 1,731.32 crore).

The board has proposed a final dividend of Rs 3 per equity share of Re 1, which together with last July's interim dividend, aggregates to Rs 5.50 per share.

HLL's stock closed lower by Rs 6.65 at Rs 192.80, on the BSE. "There is no growth story," an equity analyst observed after the company's briefing.

Earlier at a press conference, Mr D. Sundaram, Director (Finance), HLL, said, "We are well poised for market challenges and to take on the investments needed to tackle the Indian market."

Officials offered no growth forecast against the backdrop of good monsoon, but said the rural economy seemed promising. According to Mr M.S. Banga, Chairman, HLL, there is a feel good sentiment in urban markets and expectation of strong rabi crop in rural areas.

Asked why the kharif crop had not yielded growth to HLL, he said, typically in recovery from tough years the first flush of rural income goes to repay high cost debt, demand thus manifesting with a lag. "We should be looking at a very good agricultural year," he said.

Despite input cost rise, Mr Banga maintained, HLL's pricing strategy is not wholly driven by commodity price trends.

In December quarter, prices were either held or reduced to foster volumes. The four per cent FMCG sales rise in the quarter was "90 per cent volume-led." The company has invested in improving brand quality through innovation, taken price corrections and strengthened its sales apparatus to deepen rural reach.

Explaining the fall in 2003 advertising and promotions expense to Rs 759.09 crore (Rs 841.86 crore), Mr M.K. Sharma, Vice-Chairman, HLL, said, the company will reduce tactical sales promotions and focus on thematic support through advertising.

With HPC power brands doubling growth rate last year to 6.5 per cent and the same in foods growing by 9 per cent, the power brands concept came in for endorsement. "I don't think the consumer is getting confused, he is welcoming it," Mr Banga said when asked if revival of products through power brand status conveyed an impression of previous neglect or left segments vacated for competition through extreme focus.

"The power brand list is not frozen in time," he said. HLL Network will join the category this year. From power brands, six - Brooke Bond, Wheel, Lux, Lifebuoy, Fair & Lovely and Rin - have become $100 million (around Rs 452 crore) plus brands.

Mr Banga argued, FMCG was by no means a mature market in India and there is great scope to increase consumption. Growth ahead will come from beverages - led by Brooke Bond, Bru, Lipton - and processed foods. HLL's profitability however hinges on its need to defend and grow market position, drive consumption and invest in quality.

Exports in 2003 grew to Rs 1,246.30 crore (Rs 1,221.15 crore), but dipped to Rs 314.67 crore (Rs 368.53 crore) for the December quarter. Officials said outsourcing to Unilever had risen by over 14 per cent, but decline in castor oil price, trade stock correction in the Japanese seafood market and currency flux that side dampened overall performance.

For December quarter, HLL had a net profit of Rs 494.72 crore (Rs 480.57 crore) on net sales of Rs 2,583.48 crore (Rs 2,634.50 crore). There was net exceptional charges of Rs 67.61 crore (Rs 76.33 crore), attributed to "business restructuring and higher retirement benefit charge due to increase in annuity rates by LIC".

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