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INVESTORS with a long-term investment perspective can consider adding the Hindustan Lever stock to their portfolio, especially during any price decline linked to broad market levels.

The stock trades at a price-earnings multiple of about 25 times its trailing four-quarter earnings.

HLL has reported a better-than-expected topline growth for the March quarter - an indication that it is beginning to benefit from the improving growth environment for FMCGs.

The home and personal care (HPC) business has grown 10 per cent. Rising input prices have magnified the profit decline in the recent quarter. But profits, after shrinking for five successive quarters, are likely to expand from the June quarter, as the base effect from the detergent/shampoo price cuts last March wears off.

Growth across categories compares favourably with the numbers for 2004 and with market growth rates.

Having dusted up and relaunched almost each of its brands in HPC, HLL's product portfolio appears to be in good shape to take on competition. In detergents and shampoos, market share has been retained, as price cuts and relaunches appear to have successfully halted the progress of local brands. Profitability in beverages business could expand sharply on the back of recent restructuring.

With many of HLL's new business forays not making progress, the company now leans heavily on its conventional HPC products for growth. But this is not necessarily negative as there has been a steady improvement in the growth numbers for these categories over the past five quarters.

HLL trading at a premium to Indian companies in the FMCG space is justified by its dominant market shares and large cash chest. A dividend yield of about 4 per cent and the possibility of a higher dividend payout, consequent to the redemption of bonus debentures in December 2004, provide downside protection.

Aarati Krishnan

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