A bubbly outlook

Aarati Krishnan

ON AN overall analysis, with the shampoo category recouping its past growth rates, players in this segment probably stand a good chance of pepping up revenue growth this year.

Recent low-priced initiatives would probably aid this effort. But with product price becoming the major selling plank, major players are unlikely to see profit margins stage a material improvement.

Changes in the excise duty structure on shampoos in the coming Budget could have a material impact on both profits and revenue growth. Excise duty on the category has been maintained at 40 per cent (including a basic duty of 16 per cent plus special additional duty of 24 per cent introduced in the 2000 Budget) since 1999. Since excise duty accounts for close to 30 per cent of the selling price, a reduction in the duty level would undoubtedly help players in their price-cutting efforts.

A recovery in rural market growth, which still seems some way off, would be an additional plus factor as and when it happens. In that event, HLL, with its formidable rural distribution reach, will reap the maximum benefit.

From an investment perspective, HLL is the only large listed company in the shampoos market. However, a third of its personal products business, the shampoos segment is still too small a category to make a difference to HLL's overall prospects. Overall, HLL's prospects will hinge on a recovery in the growth rates in products such as soaps and detergents, apart from a reversal in the downward price cycle in commodities such as tea, coffee and oils. Of late, the company's valuations have been impacted by its stagnating topline. With the full year's financial performance due shortly, investors can postpone investments until the fourth quarter performance is out.