Hindustan Lever is no longer seen as a defensive play as marketmen are spurning the stock in times of uncertainty.

This is reflected in the fact that the scrip of the FMCG behemoth has shed 9.3% to the current Rs 156.40 from Rs 172.60 on 24 February 2003.

The stock has come off the higher levels over the last few years.

Dealers say the stock is fundamentally weak with no growth being witnessed in the company's business. Growth concerns have dogged the FMCG major for some time now and, the stock, which once used to be known as a defensive stock, is no more considered the same. While HLL lost 9.3% since 24 February 2003, the BSE Sensex dropped 7.7% to the current 3,065 from 3,322.17 (on 24 February 2003). The market is facing an ebb due to fears over war breaking out in West Asia.

A FMCG major, HLL has been witnessing a slowdown over 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 99.54 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 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.

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 results and the business has reduced its losses by almost half. HLL has made significant progress in divesting non-core businesses.

Following the change in dividend tax norms in the Union Budget 2003-2004, whereby the onus of dividend tax has changed from shareholders to companies, the FMCG major will now bear the dividend distribution tax burden of Rs 219 crore (Rs 2.19 billion) and distribute the balance of Rs 388.5 crore (Rs 3.88 billion) to the shareholders, by way of special dividend of Rs 1.765 per share of Re 1 each, over and above the bonus debenture of Rs 6. Accordingly, neither the bonus debentures as "deemed dividend" nor the special dividend would be taxable in the hands of the shareholders.

Earlier, on 9 August 2002, HLL's shareholders had approved the bonus debenture and special dividend scheme that comprised an issue of one bonus debenture of the face value of Rs 6 each for every share of Re 1 each and a special dividend of Rs 2.76 for every share of Re 1 each to be paid simultaneous to the issue of bonus debentures, as a part of the integrated transaction.

BSE code: 506737

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