Search the Internet          Tips  Sites: Finance, Investment

HLL scrip likely to continue southwards

NetScribes/Hemen Kapadia & Rajiv Banerjee

Twelve months down the line and fast moving consumer goods major Hindustan Lever Ltd continues its southward journey on the Bombay Stock Exchange. The fundamentals and the technical perspective still provide a very negative outlook for the scrip. Though the giant is fighting to regain lost market share in all its product categories through a restructuring exercise, industry experts and analysts aren't impressed.

The HLL scrip, which seemed to have reached its nadir on October 30, 2000, when it touched Rs 173.65, is again on a descent after recovering momentarily. The scrip is currently trading at Rs 183.85 on the BSE. The scrip has shed 7 per cent since May 31.

HLL posted a 4 per cent topline growth and a 22 per cent bottomline growth for the financial year ending March 31, 2000.

Analysts said that HLL's topline would continue to remain sluggish in the coming few years as the company fights to become lean and mean to counter competition.

"The going will be tough for HLL in the coming years as it fights a combination of poor rural offtake for its products and stiffer competition from rivals," said a fund manager with Pranav Securities, a Bombay-based brokerage firm. He added that HLL would continue to grow at about only 15 per cent CAGR for the next few years.

Even for the first quarter of 2001-2002, the company posted a 29.29 per cent rise in net profits over the previous quarter. However, the bottomline has been boosted substantially by other income and interest costs. Despite the sharp rise in the bottomline, the topline grew by a meagre 1.09 per cent year-on-year.

Hence, the conclusion is that the topline has not affected any increase in the bottomline as poor rural off-take, sluggish economy took their toll on the FMCG monolith.

On February 16, HLL announced that it would concentrate only on 30 brands and not on the entire portfolio of 110. This decision is testimony to the fact that 1999-2000 has seen HLL losing market share in all product categories. Ironically, its wide brand portfolio was its biggest strength, though it later proved to be a bane since managing numerous brands across all segments became difficult in view of the huge advertising costs involved and stiff competition.

International equity research firm Merrill Lynch, in its report on HLL, says that despite the company's wide distribution reach and price range, it has been losing market share to local/regional players, which have been competing aggressively on prices.

HLL's most profitable segments of soaps, shampoos and detergents, have been severely hit by players like Godrej and P&G.

HLL's share in soaps, 62 per cent at the beginning of fiscal 1999-2000, had dropped to 59.1 per cent by the end of the fiscal.

Shampoos registered a dip from 69.7 per cent to 67.1 per cent. Detergents fell from 46.5 per cent in the first quarter of 1999-2000 to 45.2 by the end of the fourth quarter. While the above figures may show a dip of 1-2 per cent in the categories, they are significant given the saturation in the FMCG sector and competitors snapping at HLL's heels.

With half the sales coming from the rural market, HLL finds itself dependent on that market's growth. Weak monsoons last year in Gujarat, Madhya Pradesh and Rajasthan, which are amongst the richest states in India and bring in sizable revenues for HLL, have dented business.

Lower consumer spending in Gujarat due to the recent quake, has also affected the demand for HLL's products. However, the normal monsoons predicted this year by the metereological department could provide the much needed impetus to rural demand. However, the benefits would accrue only after a couple of quarters.

From a technical point of view, HLL, on a monthly chart, has already formed a lower top and lower bottom formation and looks set to decline significantly from its current levels.

From a daily perspective, HLL peaked at an all-time high of Rs 324.90 on 25 February, 2000, and has been in a downtrend since. This downtrend was further accentuated when the scrip broke down from a support line (demand line) in April 2001, which saw HLL fall sharply to the Rs 177 level.

The short and medium term mechanical indicators are in a sell mode after reflecting tremendous negative divergence showing that the scrip could probably fall even further from its current levels. HLL does have support at the Rs 170-175 level, which would probably succeed in putting temporary brakes on its decline. For the investment purposes also, the outlook remains pretty bleak and the scrip does seem set for a long-term decline.

Money

Business News

Tell us what you think of this report