Hindustan Lever found favour with a US-based hedge fund on Wednesday, and this prompted a major rise in the scrip.

In fact, for the scrip of the FMCG behemoth to rise 4.45% (as it did on Wednesday) to Rs 146.75 is quite a rare occasion. The scrip was pushed up by buying by FIIs from an early low of Rs 140.25. Volumes reached over 10 lakh shares on the counter on BSE.

With the current rise, the stock has climbed 8.7% from its 52-week low of Rs 135 on 9 May 2003. In the one year priior to that, the scrip of HLL lost 36% from its 52-week high of Rs 212 on 14 May 2002 to its 52-week low of Rs 135 on 9 May 2003.

As per market talk, an unnamed US-based hedge fund has been active on the counter on Wednesday.

Some operators were also active in HLL, dealers say. But notably, funds were buying in heavyweights like HLL, RIL, Tisco, and State Bank of India today to keep the Sensex upbeat. There's a feeling that the monsoon will prove satisfactory this year, thus improving prospects for FMCG companies. As it is, a large part of HLL's revenue (60-65%) comes from the rural segment.

Macroeconomic factors seem stable and unchanged at the moment, so the stock is not really being propelled by these . But perhaps, reports that the company is foraying into the Rs 2,500-crore (Rs 25 billion) biscuit segment and that its herbal segment sales are expected to touch Rs 300 crore (Rs 3 billion) in the next five years are prompting some amount of buying in HLL.

HLL has, for most part of the previous fiscal, been weighed down by concerns that the FMCG sector has reached maturity in terms of growth and, from here on, potential seemed low. The National Council of Applied Economic Research in its India Market Demographics Report 2002 on the FMCG sector has said that the toilet soaps, washing cakes and washing powders segments have reached a saturation point. Around 48% of HLL's revenue comes from the detergent and soaps segment. This is likely to bear heavily on the company.

Already, HLL's sales have been sluggish following a slowdown in the economy. To further add to the woes, the proposed introduction of the uniform Value Added Tax regime from 1 June 2003, at the rate of 12.5%, replacing the sales tax levied by various state governments, is expected to hit sales further. Due to VAT, many dealers have cut down existing inventories and are postponing fresh intake till the time there is more clarity on VAT. The impact of VAT, in fact, will be more seriously felt in the current quarter.

HLL showed a 10.65% fall in net profit to Rs 382.92 crore (Rs 3.82 billion) in the first quarter ended 31 March 2003. Net sales declined marginally by 0.55% to Rs 2,367.50 crore (Rs 23.67 billion) from Rs 2,380.66 crore (Rs 23.8 billion) in MQ 2002.

Net profit turned out on the lower side of expectations, though. A capitalmarket.com poll of six FMCG analysts had forecast a 6.6% to 10.8% fall in net profit to between Rs 382 crore (Rs 3.82 billion) to Rs 400 crore (Rs 4 billion). Top line was expected at between Rs 2,324.5 crore (Rs 23.24 billion) and Rs 2,488 crore (Rs 24.88 billion).

As on 31 March 2003, the promoters' holding in HLL was 51.56%, while the public, domestic institutions and foreign institutional investors held 21.32%, 13.66% and 12.64% stake in the company, respectively.

BSE code: 500696