The Hindu Business Line : HLL's sales growth slows in Q4; margins expand on price rise

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Mumbai Feb. 20 There were no positive surprises from Hindustan Lever's (HLL) numbers for the final quarter of 2006 with sales of Rs 3,156.1 crore and profit after tax of Rs 483.4 crore. The growth of 6.9 and 10.3 per cent in sales and profits respectively (adjusted for exceptional items) is lower compared to the 11.8 per cent and 19.4 per cent seen in the first nine months of 2006.

However, plans to scale up new ventures such as the Pure-It water business and a renewed thrust on foods promised new growth drivers for the FMCG giant. The company announced a higher dividend payout for 2006 (Rs 6 per share compared to the Rs 5 in 2005), giving investors some cause for cheer.

The home and personal care business saw sales growth slowing to 8 per cent in the quarter, after expanding by 15.7 per cent in the first nine months. According to Mr D. Sundaram, Director- Finance, HLL, this is partly explained by one-off factors such as the delayed onset of winter (which impacted skin care sales) and a base effect in shampoos caused by high launch activity during the same period last year. The foods business accelerated, its revenues growing by 10.8 per cent in the quarter against 8.4 per cent in the first nine months, with both processed foods and ice-creams chipping in with higher growth.

Contrary to expectations, HLL did manage to expand its profit margins in the fourth quarter to 17.2 per cent of sales at the EBIT level despite a sharp upward spiral in prices of inputs such as palm oil. HLL attributes this to "selective price increases, improved mix and robust cost savings initiatives".

Lower ad spend

The company took price increases of 3-7 per cent on select soap and shampoo brands during the quarter. This apart, a go-slow on ad spend, after massive increases so far this year, may also have helped profit growth. HLL's advertising outlay grew by a mere 7 per cent in the December quarter, after a 41 per cent increase in the preceding quarter.

For the full year 2006, HLL managed a 10 per cent growth in overall sales at Rs 12,103.4 crore while sustainable net profits expanded by 13.7 per cent to Rs 1,539.7 crore. Commenting on HLL's growth rates, Mr Harish Manwani, Chairman, said "It is possible to take a short-term quarterly-view of our numbers and businesses or even a medium term view- which would look at one or two years. However, we are taking the long-term view. We have invested over Rs 450 crore (in brand-building) in our businesses over the past two years in order to drive long-term growth."

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