Hindustan Lever hit a 52-week low on Tuesday and is currently down 1.3% at Rs 140.70 over its last week's close.
Around 370,000 Hindustan Lever shares were traded on BSE so far. The stock has witnessed a sustained decline on the bourses over the past few months on the back of persistent selling by FIIs. From a high of Rs 183.45 on 26 December 2002, the stock has shed 23.3% to the current Rs 140.70.
HLL's woes centre around a sluggish top line growth amid increasing competition in some of its key businesses like soaps and detergents as also declining consumer spending. The FMCG industry has been in the midst of a slowdown for the last couple of years due to weak consumer demand. The poor monsoon has further impacted the company's performance given that the company derives nearly 50% of its revenues from the rural sector.
Some hope was entertained for the company's Q1 ended 31 March 2003 results due to growing signs of a recovery in retail sales over the last few months. But these too have dissipated as a result of the impact of the soon to be imposed VAT. The confusion regarding implementation of VAT has led to retailers' de-stocking, as there is no clarity on whether they would get VAT credit for the inventory that they hold at the end of March. As a result, there has been an inventory run-down, which is likely to affect sector sales in the March 2003 quarter, analysts say.
In the quarter ended 31 December 2002, the FMCG sector showed signs of reversal with retail sales growing by 3.2% y-o-y after being in the negative for the trailing five quarters.
A local brokerage, HDFC Securities, predicts an 8% rise in HLL's Q1 ended 31 March 2003 net profit to Rs 382.60 crore (Rs 3.82 billion) on a 1.5% fall in net sales to Rs 2,345 crore (Rs 23.45 billion). HLL's beverages portfolio has been witnessing a decline and the trend will continue this quarter as well. Oral care and detergents are also expected to register declines.
The monsoon in the current year will prove a key factor in HLL's fortunes, as the company derives about 50% of its revenues from the rural sector.
HLL has adopted a strategy of focusing on a few brands, which it calls power brands, in its various segments of business.
HLL last week announced that it was acquiring the cooked shrimp and pasteurised crabmeat business, part of the frozen foods business of the Amalgam group of companies. The move is part of the FMCG major's plans of phasing out unviable traded marine exports over the last two years. The business, which was already on wet lease with HLL since January 2000, contributed about Rs 200 crore (Rs 2 billion) to the company's export turnover in 2002, according to a company press release. The acquisition is effective from 1 April 2003, and covers four processing units - at Aroor and Kuthiathode in Kerala, Pamarru in Andhra Pradesh and Rabale in Maharashtra.
Meanwhile, HLL has received the approval of the Reserve Bank of India - the final nod required to issue and allot bonus debentures and pay special dividend to the non-resident shareholders. This is pursuant to the scheme of arrangement already approved by the shareholders and sanctioned by the Mumbai High Court last year. HLL had applied to the RBI in December 2002 under the provisions of FEMA 1999.
BSE code: 500696
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