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HLL Q3 adjusted net rises 17.72 per cent as margins improve news
Rex Mathew
01 November 2006
FMCG major Hindustan Lever has reported third quarter results, which are slightly better than market expectations. The stock reacted very positively to results yesterday, as bottom line growth appeared way above expectations because of one-time profits. HLL continues to see improved operating margins as prices of major products have gone up and the company has managed to keep input costs under check.

For the quarter ended 30 September 2006, HLL has reported a net profit of Rs520.74 crore, or Rs2.36 per share, an increase of 59.76 per cent over Rs325.96 crore, or Rs1.48 per share, for the previous year quarter. Net operating revenues increased 12.25 per cent to Rs3,066.01 crore from Rs2,731.54 crore a year ago.

The company booked exceptional income of Rs137.74 crore during the quarter — including profit from sale of investments and reversal of earlier provisions adjusted by current write-offs and provisions. Adjusted for these one-time incomes, net profits for the quarter have increased 17.72 per cent to Rs383 crore from Rs325.35 crore a year ago.

HLL had recently merged its subsidiaries — International Fisheries, Lipton India Exports, Merryweather Food Products, TOC Disinfectants and Lever India Exports with the Company besides amalgamating Vashisti Detergents. Doom Dooma and TEI plantation Divisions were de-merged and disposed off. Hence, the results for the quarter are not strictly comparable to those of the previous year quarter.

For the previous quarter ended 30 June 2006, HLL has reported a net profit of Rs380.59 crore on revenues of Rs3,083.23 crore.

Operating profits, or EBITDA - excluding other income, increased 17 per cent to Rs402.88 crore from Rs344.37 crore. Operating margins as a percentage of net revenues improved to 13.14 per cent from 12.61 per cent a year ago. Sequentially, operating margins have declined from 13.45 per cent achieved for the previous quarter.

The improvement in operating margins was mostly on account of lower growth of 7.35 per cent in input costs. Advertisement and marketing expenses jumped 41.46 per cent while staff costs went up modestly by 2.86 per cent. Other operating expenses increased 13.02 per cent over the previous year quarter.

After going through a difficult phase during the FMCG price wars of 2004, the company has changed its strategy to focus on key brands. This has led to substantial increases in advertising and marketing expenses for the last many quarters.

Advertising and Promotion spend moved up to 11.1 per cent of sales in the last quarter from 8.8 per cent of sales in the previous year quarter. However, this strategy has paid off and the company now has better pricing power for its key brands — resulting in improved margins.

Depreciation charges remained almost unchanged and tax provisions increased 21.91 per cent. Other income went up 14.06 per cent to Rs96.81 crore.

Among the major businesses, home and personal products division saw revenues go up by 15 per cent while the foods division clocked a growth rate of 10.7 per cent over previous year quarter.

Soaps and detergents, which contributed 45.44 per cent of net revenues, saw a sales growth of 12.1 per cent over the previous year quarter. Personal products division recorded a growth of 17.11 per cent. Adjusted for the revenues from Nihar hair oil, which was sold off, revenue growth in personal products is 19.6 per cent.

Beverages like tea and coffee products recorded a growth rate of 6.65 per cent while exports went up by 19.88 per cent.

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HLL Q3 adjusted net rises 17.72 per cent as margins improve