Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindustan Unilever Limited
Underweight
HLL.BO, HUVR IN
Q3FY11: Margin pressures intensify; Retain UW
• Growth continues to lag expectations. Earnings growth continues to remain
very unpredictable and was below expectations in 3QFY11. HUL reported Net
Sales, EBITDA and adjusted PAT growth of 11.6%, -8% and -2% respectively
for 3QFY11. Poor gross margin trends (for soaps & detergents particularly) and
higher advertising spends were the key deviation from our estimates.
• Gross margin pressures intensify. Higher prices for palm oil derivatives (a
key RM for soaps) led to sharp 220bp y/y dip in 3Q gross margins. HUL has so
far chosen to take calibrated price hikes and we believe this approach will not
be sufficient to mitigate input cost push and will result in margin pressures even
in coming quarters. It is important to note that besides palm oil, other key costs
like LAB and packaging material have also started to move up which may
further weigh on margin growth going forward.
• Volume growth sustained on higher A&P spend. Strong sales growth for
personal care segment led to underlying domestic volume growth of 13%,
implying price/mix decline of 1.5%. Healthy volume offtake was supported by
higher marketing spends (+17% y/y) on existing products and new launches.
A&P/sales moved up 70bp y/y and 100bp q/q to 14.8% during the qtr.
• Weak performance of soaps & detergents was the key negative as this
category reported lowest ever EBIT margins of just 7.7% (-570bp y/y, -400bp
q/q) due to higher palm oil costs and lower laundry pricing. Even personal
products segment reported its lowest ever Dec qtr margins at 28.8% (-310bp
y/y) impacted by higher brand spends.
• Maintain UW. While volume growth has held up well, we expect it to moderate
as base effect catches up in coming qtrs. We expect A&P/sales to remain firm at
13-14% in the near term and input cost pressures to step up incrementally. As
we build in lower margin performance, our EPS estimates for FY11/12E are
revised down by 2-4%. Retain UW with a revised PT of Rs270.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindustan Unilever Limited
Underweight
HLL.BO, HUVR IN
Q3FY11: Margin pressures intensify; Retain UW
• Growth continues to lag expectations. Earnings growth continues to remain
very unpredictable and was below expectations in 3QFY11. HUL reported Net
Sales, EBITDA and adjusted PAT growth of 11.6%, -8% and -2% respectively
for 3QFY11. Poor gross margin trends (for soaps & detergents particularly) and
higher advertising spends were the key deviation from our estimates.
• Gross margin pressures intensify. Higher prices for palm oil derivatives (a
key RM for soaps) led to sharp 220bp y/y dip in 3Q gross margins. HUL has so
far chosen to take calibrated price hikes and we believe this approach will not
be sufficient to mitigate input cost push and will result in margin pressures even
in coming quarters. It is important to note that besides palm oil, other key costs
like LAB and packaging material have also started to move up which may
further weigh on margin growth going forward.
• Volume growth sustained on higher A&P spend. Strong sales growth for
personal care segment led to underlying domestic volume growth of 13%,
implying price/mix decline of 1.5%. Healthy volume offtake was supported by
higher marketing spends (+17% y/y) on existing products and new launches.
A&P/sales moved up 70bp y/y and 100bp q/q to 14.8% during the qtr.
• Weak performance of soaps & detergents was the key negative as this
category reported lowest ever EBIT margins of just 7.7% (-570bp y/y, -400bp
q/q) due to higher palm oil costs and lower laundry pricing. Even personal
products segment reported its lowest ever Dec qtr margins at 28.8% (-310bp
y/y) impacted by higher brand spends.
• Maintain UW. While volume growth has held up well, we expect it to moderate
as base effect catches up in coming qtrs. We expect A&P/sales to remain firm at
13-14% in the near term and input cost pressures to step up incrementally. As
we build in lower margin performance, our EPS estimates for FY11/12E are
revised down by 2-4%. Retain UW with a revised PT of Rs270.
No comments:
Post a Comment