The move is expected to lead to a substantial increase in trading volumes for HLL followed by a better price discovery for the stock, analysts said. HLL, which was the biggest driver on the Bombay Stock Exchange on Monday, has informed the stock exchange that it will consider a proposal to split its Rs 10 face value share into 10 of Re 1 each.

The HLL scrip opened at the upper circuit level of Rs 2,689 on the BSE on Monday and closed at the same level. However, the scrip dipped marginally for a short while during the day to Rs 2,613. At the end of the day, 1.1 lakh shares had changed hands with a buying order for one lakh shares still pending on the bourse.

HLL's paid-up share capital stands at Rs 219.57 crore, comprising 21.95 crore equity shares of Rs 10 face value each. After the stock-split, while the paid-up capital will remain unchanged, the number of shares outstanding will increase to 219.57 crore of Re 1 face value each. Says an analyst: ``Since the stock-split would reduce transaction costs and bring about a more effective price discovery mechanism, traders and investors who have pinned their hopes on HLL would stand to gain. The company has tremendous potential but the high market price was a dissuading factor for most investors keen on investing in the scrip.''

The development has come after much dilly-dallying on the issue with rumours of the same doing the rounds for the past one year. This will make HLL the first non-infotech/non-media company to take on a proposal to reduce the face value of its share from Rs 10 to Re 1. This is in line with an internationally accepted practice to sub-divide the stock in order to make it more affordable.

Stock-splits have been adopted as a means to improve liquidity by companies whose stock prices rule at high levels. Some years back cement major ACC reduced the face value of its share from Rs 100 to Rs 10. So did HDFC. IT and media companies such as Infosys, Wipro and Zee Telefilms have also announced stock-splits in the last one year.

Analysts feel that with the stock-split the speculative interest in the HLL stock, which had in the recent past diverged towards IT and media stocks, would improve. Says Birla Sun-Life head of research K Ramachandran: ``With a substantial improvement in trading volumes, HLL's stock price would increase. My feeling is that in the next six months to one year, the share price of HLL could even double. The retail interest in the stock is expected to go up substantially. Psychologically, small investors prefer to invest in a larger volume of a stock they are interested in and not just purchase smaller lots.''

However, Anand Rathi Securities senior analyst Nirav Sheth differs in his opinion. Says Sheth: ``While trading volumes of HLL would go up, we do not expect the share price to rise sharply. This is because long-term prospects for HLL's earnings are not bright.'' According to Sheth, even though HLL is expected to post about 25 per cent growth in earnings for the calendar year 1999, these are expected to drop to 16 per cent in the next calendar year.

``This is because of a volumes slowdown in mature markets like soaps and detergents which contribute over 50 per cent to the company's turnover. Further, growth-driven markets in personal products, such as deodorants, currently have too small a market size to add substantially to the company's topline growth,'' states Sheth.

HLL, which posted a net profit of Rs 805.71 crore on a turnover of Rs 9,481.85 crore for the calendar year 1998, is expected to post a topline growth of 10 per cent and a bottomline growth of 25 per cent for calendar year 1999. The multinational would thus cross the Rs 1,000-crore mark in its net profit to be announced on Wednesday. After a single-digit growth registered in the third quarter of 1999, the company is said to have flagged off the fourth quarter with a topline growth of about 15 per cent.

INSIGHT

a savvy move
HLL's decision to split the face value of its shares should help to perk up the trading interest in the scrip. Trading volumes, which averaged around 80,000 shares in the last six months, can be expected to go up 10-fold. Analysts expect the scrip to be available at around Rs 300-350 post-split and say that HLL has taken a market savvy step to create shareholder value.

The fact that most of the products in its portfolio are cash-cows, topline growth prospects are not very hot unless the company goes on a major acquisition drive.

Mobis Philipose