HINDUSTAN UNILEVER Our contra BUY proven right :: Edelweiss,

Visit http://indiaer.blogspot.com/ for complete details �� ��


HINDUSTAN UNILEVER
Our contra BUY proven right by hat-trick of double digit growth!



􀂃 Revenue and PAT in line; volume growth beats estimate
Hindustan Unilever’s (HUL) Q2FY11 revenue jumped 10.7% Y-o-Y to INR 46.81
bn and core PAT increased 2.6% to INR 5.35 bn. Accelerated 14% volume
growth in the quarter (against a base of 1% volume growth in Q2FY10) is even
better than in Q1FY11 when the company had posted 11% (against a base of
2% volume growth in Q1FY10) volume growth.
􀂃 Enough proof to believe that ‘worst is behind’
Advertising and sales promotion (A&P) spends increased 13% Y-o-Y (30bps Y-o-
Y) but slipped 190bps sequentially. Advertising spending increased 21% Y-o-Y
(90bps) and promotional pressure eased off. 70 bps sequential margins
expansion in the soaps and detergents business (11.7% in Q2FY11 from 11% in
Q1FY11) indicate that margins have bottomed out in Q1FY11 and the worst is
behind in terms of price cuts and promotional pressure.
􀂃 Recent initiatives yielding results
More than 70% of HUL’s products have been relaunched in the past six months
and to strengthen them further the company has embarked on a plan to
dramatically expand its distribution network by adding 500,000 outlets to rural
coverage. These initiatives are yielding results which are reflected in superior
volume growth and market share gain across categories.
􀂃 Outlook and valuations: Positive; maintain ‘BUY’
We were confident of HUL’s underlying business turnaround and prudent cost
control, as highlighted in our May 27th report “Go Contra; Turnaround signals
getting louder”. The stock has outperformed the Sensex by 13% since then and
the company has proven us right by delivering a hat-trick of double digit volume
growth in Q2FY11. We believe this momentum will continue in the coming
quarters with increased focus on new product launches and market share gain in
existing categories. Factoring higher than expected volume growth, anticipation
of lower A&P spending and commodity headwind, we are revising up our EPS
estimates by 3% to INR 10.2 and INR 11.8 for FY11 and FY12, respectively. We
maintain ‘BUY’ recommendation on it. On relative return basis, the stock is
rated ‘Sector Performer’