Visit http://indiaer.blogspot.com/ for complete details HINDUSTAN UNILEVER 2QFY11: Volumes up 14%; EBIDTA margin down 170bp; Other income, lower tax enables 5% PAT growth; Neutral
HUL (HUVR IN, Mkt Cap US$14.9b, CMP Rs306, Neutral) 2QFY11 sales grew 11.6% to Rs47.6b (est Rs47b) while Adj PAT grew 5% to Rs5.25b (est Rs4.9b).
- Volumes grew 14% (est 10%) on a low base (1% in 2QFY10), realization are -2.4% indicating pricing pressures (we had estimated flat realizations).
- Gross margin expanded 40bp to 50% (est. 49%) mainly due to higher growth in high margin Personal Products, even as input cost pressure in Soaps and pricing pressure in Detergents sustained.
- Ad-spend grew 13% to Rs6.5b; up 20bp YoY to 13.6% (down 180bp QoQ). Other expenses increased 28% YoY (13% QoQ) mitigating the impact of lower ad spends. EBITDA margins contracted 170bp to 13.6% (est. 13.6%); EBITDA de-grew 1% to Rs6.5b (est Rs6.4b).
- Financial other income increased 62% to Rs762m (est. 650m); 200bp decline in tax rate enabled Adj PAT growth of 5.2%.
Soap and Detergents: Net sales up 6%, EBIT margin contract 190bp; recent run-up in Palm Fatty acid prices a worry
- Soaps and detergents (45% of sales) reported 6% growth in sales and 8% decline in EBIT, resulting in 190bp margin decline.
- Management highlighted that both Laundry and Personal Wash grew ahead of the market signaling some market share gain.
- In Laundry, all three brands reported volume growth, with Rin growing in double digits. Personal Wash segment grew across portfolio.
- We estimate that Soaps and Detergents has reported realization de-growth YoY as the recent price increases are lower than price cuts taken in 2HFY10.
- We expect margin pressure to further intensify as Palm Fatty Acid prices are up ~25% in the past one month (~70% higher on YoY basis). However we note that, LAB prices are benign. Recent price increases in toilet soaps are grossly insufficient to neutralize the impact of recent spike in input costs
Personal Care: Sales up 15%; EBIT Flat; EBIT Margin down to 23%; Oral care and Skin competition to further impact margins
- Net sales at Rs13.6b were up 15% YoY while PBIT was flat at Rs3.1b resulting in EBIT margin contraction of 330bp.
- We re-iterate our caution on the volatility in Personal Products margin trend; 2QFY11 margins of 23% are one of the lowest for 2Q in past 4 years.
- Management highlighted that 15% sales growth was led by double digit volume growth; growth was led by Shampoo (double digit growth), Skin Care and Facial Cleansing (sales up 100%).
- We believe that personal care margin pressure could further intensify on account of 1) Likely P&G entry in Toothpaste segment 2) Reduction in entry level prices by P&G and other MNC’s in skin care segment. Aggressive entry by P&G in toothpaste and growing aggression in skin can aggravate margin pressure in coming periods.
Foods sales up 13% YoY; high Tea prices impact margins
- Food, Beverages and Ice cream reported 13.2% increase in sales and 14.1% in EBIT. Growth was led by Processed Foods (up 26%) on back of noodles launch.
- Beverages sales are up 9%; margins contracted 160bp YoY to 15.4% as HUL was unable to fully pass on the higher tea prices.
- Continuing processed foods sales increased 26%; EBIT stood at Rs100m. Ice creams sales increased 9% YoY, while EBIT stood at Rs55m.
Valuation & view: Competitive intensity and input cost pressure to intensify; marginal upgrade in estimates likely; Neutral
- We believe that HUL will continue to face strong headwinds on account of 1) Likely increase competitive activity in Toothpaste and Skin Creams 2) 25% increase in Palm Fatty acid prices in past one month and 3) Higher base as volume growth in 2HFY10 was 8% v/s 1.5% in 1HFY10.
- Although competitive activity in soaps and detergents is unlikely to increase further, toothpaste entry of P&G and aggressive price points by P&G and other MNC’s in skin care can impact profit margins in most profitable product segment (Personal care has EBIT margin of 24% during 1HFY11 as against 14% for overall company).
- We would review our estimates post tomorrow’s concall (Concall # +91 22 4444 9999) to get more clarity on (1) Source of volume growth and sustainability in 2HFY11, (2) Reason for sharp contraction in Personal Products margins, (3) Likely trend in Ad-spend and (4) Reason for decline in Tax rate.
- On current estimates the stock trades at 27.1x FY12E EPS of Rs11.3. Neutral.
No comments:
Post a Comment