Selling by FIIs weighs down HLL

Hindustan Lever came under persistent selling from FIIs in the morning on Wednesday, forcing the scrip down by 1.35% to Rs 145.90.

The scrip earlier hit a low of Rs 145.45. In an hour of trading, volumes touched 93,200 shares.

On Tuesday, the scrip was lowered too, having lost 3.2% to Rs 147.80 on BSE on high volumes of 706,000 shares. Average daily volumes on the counter over the last year (to 28 March 2003) were at 550,000 shares.

The stock has taken a beating on the bourses over the last few trading sessions on the back of persistent selling by FIIs. From a high of Rs 183.45 on 26 December 2002, the stock has shed 20.7% to the current Rs 145.90.

"Nothing exciting seems to be forthcoming from the company to propel the stock," a dealer with a local brokerage says. HLL's woes centre around sluggish top line growth amid increasing competition in some of its key businesses like soaps and detergents and weakening consumer spending. The poor monsoon has further affected the company's performance given that the company derives nearly 50% of its revenues from the rural sector.

Although the HLL management is aggressively restructuring its business, the macro environment remains challenging. HLL has adopted a strategy of focusing on a few brands, which it calls power brands, in its various segments of business.

For the full year ended 31 December 2002, HLL recorded a 7% growth in bottom line to Rs 1,755.68 crore (Rs 17.55 billion) on a 7% drop in top line to Rs 9,954.85 crore (Rs 99.54 billion). For the fourth quarter ended 31 December 2002, HLL registered a 7% growth in bottom line to Rs 466.51 crore (Rs 4.66 billion) on a 2% decline in top line to Rs 2,634.5 crore (Rs 26.34 billion). At the profit after tax but before EO level, the company registered a 9% growth in net profit to Rs 542.84 crore (Rs 5.42 billion).

J P Morgan recently downgraded the HLL stock to 'neutral' from 'overweight'. HLL has far lower pricing power now, resulting in a loss in market share in many categories, the brokerage said in its report. While successes in newer categories such as staples could revive growth momentum, a return to historical growth rates of 20% seems difficult, the report said. The increasing competition in highly penetrated categories such as soaps, will keep product prices under pressure, it added.

Meanwhile, HLL recently said that it has postponed its annual general meeting to 13 June 2003 from 30 April 2003. The company has been constrained to postpone the AGM since the dividend payment as well as payment of special dividend on the bonus debentures have been impacted by the proposed changes in the Union Budget for 2003-04. The Budget proposed to replace the provision for taxation of dividend in the hands of shareholders (including tax deduction at source) by dividend distribution tax in the hands of the company at a flat rate of Rs 12.81% (including surcharge).

BSE code: 500696