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Hindustan Unilever (HUVR)
Consumer products
It is still a case of either (sales), or (profits). Volume growth of 14% (+1% in base)
during 2Q was in line (our est. 13%). EBITDA declined 8% due to higher royalty and
mould costs. We are not enthused by consumer inducements-driven volume growth
which poses a threat to brand equity scores, in our view (compelling sustained higher
ad support). We highlight that HUL’s adspends’ linkage to gross margins is fairly high—
and not linked to market demands alone, as perceived by the Street
2QFY11 results: Optical illusion of double-digit volume growth, other income boost to PAT
HUL reported net sales of Rs46.8 bn (+11%, KIE Rs47.7 bn), EBITDA of Rs5.6 bn (-8%, KIE Rs6.9
bn) and PAT of Rs5.3 bn (+7%, KIE Rs5.8 bn)
Underlying volume growth of 14% (1% growth in base) during 2Q was in line with our
estimates of 13%. We highlight that a substantial part of this volume growth is still consumer
inducements-driven, which poses a threat to brand equity scores, in our view.
We reiterate that despite higher brand investments, HUL’s core volume growth is just ~6-7%
(adjusting for low base)
Gross margin was broadly maintained (modest 30 bps decline) due to:
Likely higher throughput in own units in fiscal-benefit zones (company has expanded
capacities in Himachal and Uttaranchal prior to March 31, 2010—as evidenced by higher
depreciation)
Higher production at third party units in fiscal zones (as evidenced by higher ‘purchase of
traded goods’)
Likely savings from margin-accretive ingredients in key products
On a segmental basis, soaps and detergents reported sales growth of 6%, personal products
15% and foods 26% on a low base (4% sequentially). Personal products margin decline of
330 bps to 23% was disappointing—despite favorable base and lower number of new launches.
Soaps and detergents PBIT declined 8%, margins declined 190 bps to 11.7%
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