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| Reliance, ITC and HLL record impressive bottomline growth, but the stocks remain lacklustre
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| RELIANCE INDUSTRIES
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| Petrochem profits down, refining up
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| Reliance Industries posted a 20 per cent growth in net profits on the back of steady growth in sales.
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| Operating margins were lower by 100 basis points primarily because of higher contribution from exports compelled by lower domestic demand for petro products and some inventory losses in the petrochemicals division.
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| Total investments in the infocom business till date is Rs 4900 crore and the management expects to achieve cash break-even by the end of this fiscal.
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| Revenues, profits and margins
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| Unlike the March quarter, Reliance saw better growth in the refining business compared to its petrochem business. Refining sales were up 7.77 per cent while profits (EBIT) were up 84 per cent. Refining margins were stable at around $5.2 per barrel.
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| On the other hand, the petrochem division saw a decline of 27 per cent in EBIT on a sales growth of 5.68 per cent. Analysts attribute the sharp fall in profits to the petrochemical inventory held at the end of FY03.
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| While operating margins were down from 19.27 per cent to 18.30 per cent, net margins were marginally better on account of a 14 per cent reduction in interest cost due to refinancing of high cost debt.
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| The company has acquired 2.7 million subscribers for its CDMA-based mobile venture and expects the number to go up to 5 million by March 2004.
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| The company has already spent Rs 4,900 crore on the venture till now and in the next three quarters it expects to spend another Rs 1,600-2,000 crore, taking the total investment to Rs 7,000 crore.
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| The company is confident of achieved a cash break-even by the end of the fiscal. Net break-even is also a possibility, says the management.
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| Analysts' views on business outlook
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| Outlook for both refining and petrochemicals business is positive. Analysts seem less nervous about the telecom business. In fact, some are turning bullish, thanks to the reworked strategy which has enabled fast growth in subscriber base.
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| Over a slightly longer-term, in the next two-three years, the gas business should also start yielding good returns.
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| Share price and valuations
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| The RIL counter did not witness much movement after the results. The stock closed at Rs 354 on Friday, a trailing 12-month price-earnings multiple of 11.5.
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| "The key drivers for the Reliance stock going forward will be the HPCL disinvestment," says an analyst.
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| HINDUSTAN LEVER
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| Power brands drive net profits
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| HLL's net profits grew 12.6 per cent to Rs 450.93 crore for the June 2003 quarter. Topline remained stagnant at 3.02 per cent. The company remained under pricing pressure despite a rise in underlying volumes.
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| Revenues, profits and margins
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| Though net sales remained stagnant, other income soared 22.66 per cent to Rs 99.40 crore on the back of treasury and forex gains. Operating profits grew 7.17 per cent to Rs 506.07 crore.
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| "HLL's power brands seem to be working. This is what helped them post a growth though marginal," says Prashant Mulay, equity analyst, Strategic Capital.
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| Operating margins improved marginally. Rural sales improved with an increase in underlying volumes although falling prices hit margins. The power-brand segment of the company recorded impressive volume growth.
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| Analysts' views on business outlook
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| Analysts expect a stable growth rate if rural consumption sustains, which in turn is heavily dependent on monsoons. "A single successful product launch will not be enough to perk up the company. Only structural changes like strategy changes by the parent company can bring in some substantial shift in earnings," says Mulay.
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| There were reports about Unilever's plans to buy HLL's products for global markets. HLL has already started exporting Indian tea.
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| Share price and valuations
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| HLL is currently trading at a P/E of 21.05 based on trailing 12-months earnings. Analysts expect the stock to remain range-bound within a P/E band of 14-15 for the current year earnings. Funds seem to be shifting out of the stock into other restructured, undervalued companies.
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| DR REDDY'S LABORATORIES
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| Rise in SG&A expenses hits net
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| Pharmaceutical major Dr Reddy's Laboratories recorded a below-par performance in the June 2003 quarter. Net profit declined 34 per cent, even though the company registered a marginal growth of 6 per cent in total revenue.
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| Revenues, profits and margins
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| According to US GAAP financial results, Dr Reddy's posted a total revenue (net sales plus other income) of Rs 481.20 crore during the quarter against Rs 453.3 crore in the corresponding quarter of FY03. Net profit fell 33.65 per cent. Both oprating and net margins were down sharply on account of higher expenses.
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The company
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