Hind Lever plans share buyback

MUMBAI, MARCH 25: Hindustan Lever (HLL) has proposed an enabling resolution to shareholders for a buy-back of its own shares at a future d...

MUMBAI, MARCH 25: Hindustan Lever (HLL) has proposed an enabling resolution to shareholders for a buy-back of its own shares at a future date — a move perceived by analysts as one to stem the drop in its share price which has been underperforming the Sensex over the last one year.

Bajaj Auto last week said that it will consider a buy-back proposal in its forthcoming board meeting on Monday. Companies are permitted to buy back their own shares involving a financial outlay of up to 25 per cent of the total paid-up capital and free reserves per year, without exceeding this limit in any financial year.

In a notice of the annual general meeting (AGM), HLL has said that it has no immediate plans for buy-back of its own shares in the near future. However, the resolution is being proposed so that, if and when, the company decides to progress buy-back of shares at a future date, the lack of an enabling provision does not become an impediment.

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A share buy-back would result in higher earnings for the company through a better utilisation of its high reserves and a higher return on net worth, feel analysts. Said an analyst: “Though I do not see any downward correction in HLL’s share price, the move will definitely stem any drop. In the last few years, HLL was busy with the M&A activity, which is where most of its reserves was deployed. Now that the rate of M&A activity has slowed down and the company moves into a consolidation phase, it is understandable that the company would want to divert excess funds into buying back its own shares.”

HLL’s reserves and surplus stand at Rs 1,883.19 crore, up from Rs 1,493.45 crore in 1998. Earnings per share have risen to Rs 48.62 in 1999 from Rs 36.70 in the previous year. Return on net worth has improved from 48.89 per cent to 50.87 per cent.

Even in difficult market conditions, HLL reported a 32.8 per cent growth in net profit on a seven per cent increase in net sales for the year ended December 1999. Net profit stood at Rs 1,069.94 crore and net sales at Rs 10,142.49 crore. The company’s robust bottomline growth is mainly attributable to cost-cutting and efficient operational management at its core.

Hindustan Lever is also moving a resolution at the AGM so that its chairman, vice-chairman and whole-time directors will get 15 per cent higher remuneration in line with market trends. The salary of the chairman will increase by 15 per cent from the current level of Rs 2.6 lakh per month. Whole-time directors, at present, draw a following the passing of a special resolution to this effect at the company’s AGM.

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The company has stated in an AGM notice to shareholders: “Changes in the business environment, particularly greater integration of the Indian economy with the global markets and easier migration of managerial resources from one part of the world to other has necessitated that the company follows a competitive remuneration policy in order to retain and reward talent in line with the market.”