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Hope of end to dividend tax has HLL shining
February 24, 2003 15:18 IST
Hindustan Lever was the scene of action on Monday as marketmen speculated that the company may come out with a special dividend if dividend tax is abolished in the forthcoming budget.
The scrip of the FMCG giant gained 0.85% to Rs 172.20 on BSE in early afternoon trades as a result. It, however, came off the day's high of Rs 174.30. Around 350,000 Hindustan Lever shares were traded on BSE thus far.
Buoyancy has marked the HLL counter over recent sessions. From Rs 162.75 on 14 February 2003, the scrip has surged 6.1% in six trading sessions to the current Rs 172.70. HLL's market cap rose 5.22%, or Rs 1,871.02 crore (Rs 18.71 billion), to Rs Rs 37,695.60 crore (Rs 376.95 billion) over the last week.
Over the last few months, the stock has seen bouts of buying and selling. It, however, has improved considerably from its 52-week low of Rs 152.80 on 28 October 2002.The low materialised following very disappointing Q3 ended 31 September 2003 results by the company.
However, the scrip's fortunes have picked up of late on expectations of an investors-friendly budget. A key expectation is the abolition of dividend tax (in investors' hands). The market has it that, in case dividend tax is abolished in the budget, HLL may reward shareholders with a special dividend.
HLL has been a consistent and high dividend paying company. In the last 6 years, HLL has rewarded shareholders dividends of 550% (FY 2002), 500% (FY 2001), 350% (FY 2000), 290% (FY 1999), 220% (FY 1998) and 170% (FY 1997).
A FMCG major, HLL has been witnessing slow down in the last couple of years, due to saturation of demand in urban areas and due to difficulties in expanding to rural markets.
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), but a 7% drop in top line to Rs 9,954.85 crore (Rs 99.55 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 2634.5 crore (Rs 26.34 billion). At the profit after tax but before EO level, the company has registered a 9% growth to Rs 542.84 crore (Rs 5.42 billion).
HLL recently made a foray into the direct sales segment with the launch of Hindustan Lever Network. This division will launch five categories of products having Aviance and Lever Home as sub-brands. HLN will initially introduce products in home-care, kitchen-care, laundry-care, male grooming and the food categories. HLL decided to enter the direct sales segment in order to increase its top line.
HLL reckons that its market understanding, technological superiority, capacity to continuously introduce newer products, scale of operations and supply chain efficiencies are its key advantages over the low-cost competition. All these cannot be replicated easily.
In 2002, HLL vigorously pursued its strategy of strengthening its brands to deliver sustainable quality growth in the face of intense competition, a sluggish economy and declining market. HPC power brands beat the market by growing at 3.7%. In fact, for the last three quarters they have grown by 5.8%.
HLL has also continued to improve the profitability of its foods portfolio and has increased gross margins by about 5%, making these businesses increasingly `fit for growth`.
Its new strategy in ice-cream focussing on premium value-added products in metros has started delivering and the business has reduced its losses by almost half.
HLL has made significant progress in divesting non-core businesses
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