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Key message of HUVR management was its relentless focus on volume growth, and
improvement in market shares. On margin erosion in soaps & detergents business, it stated the
rise in palm oil prices was beyond its expectations, and their pricing actions were more calibrated.
Strong all round volume growth
Management stated that the Indian FMCG market recorded strong all round
growth in both urban and rural market, while the competitive intensity remains elevated. It
indicated that input cost inflation driven by agri commodities and crude oil especially palm oils
was ahead of its expectations. It sustained its new launches and innovations across
categories like 'New Active Wheel Bar: with Power of Lemon and fragrance of Jasmine', 'New
Dove with Fiber Actives', which repairs damage from the hear of hair, "Close-up Fire-Freeze
Tooth paste", with dual sensation. Personal wash brands like 'Lifebuoy', shampoo brands -
'Sunsilk' and 'Clinic Plus', tea brands like 'Red Label', coffee brands like 'Bru', the 'Knorr'
range of soups and noodles and 'Kissan' jams and ketchups all recorded strong double-digit
volume growth.
Margin erosion in soaps is not due to competitive pricing, hence reversible
Management stated that palm oil prices are at all time highs, and the rise was sharper than its
expectations. In the earlier quarters, forward covers, and buying efficiencies masked the cost
escalation, but in the December quarter, the sharp margin erosion soaps & detergents
business to 7.7% ( as compared to 12.8% in 4QFy10, 10.98% in 1QFY11, and 11.7% in
2QFY11) was largely due to a sharper-than-anticipated rise in palm oils. Management stated
that it has taken a more calibrated and gradual price increase in the category, to ensure no
volume impact, which is why the margins were hit in 3QFY11. The pricing actions taken of 5%
in the category, will get fully reflected in 4QFY11, and we believe, this would significantly
improve margins.
Market sentiment could remain weak in the short term, but we remain positive
The 3QFY11 results were 10% below our expectations at the EBITDA levels, and we had
clearly, not anticipated the sharp margin erosion in the soaps and detergents business. But
this margin erosion is not due to competitive pricing, but more due to HUVR's strategic pricing
strategy for a more calibrated price increase, we remain confident that the category's EBIT
margins will gradually revert to the 11-12% range. The positive base effect of yoy margins for
the overall company also will start reflecting in 4QFY11. We are reviewing our numbers soon,
but maintain our Hold recommendation. The company reiterated that it could do buyback of
Rs6.3bn worth of stocks subject to a maximum price of Rs280.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Key message of HUVR management was its relentless focus on volume growth, and
improvement in market shares. On margin erosion in soaps & detergents business, it stated the
rise in palm oil prices was beyond its expectations, and their pricing actions were more calibrated.
Strong all round volume growth
Management stated that the Indian FMCG market recorded strong all round
growth in both urban and rural market, while the competitive intensity remains elevated. It
indicated that input cost inflation driven by agri commodities and crude oil especially palm oils
was ahead of its expectations. It sustained its new launches and innovations across
categories like 'New Active Wheel Bar: with Power of Lemon and fragrance of Jasmine', 'New
Dove with Fiber Actives', which repairs damage from the hear of hair, "Close-up Fire-Freeze
Tooth paste", with dual sensation. Personal wash brands like 'Lifebuoy', shampoo brands -
'Sunsilk' and 'Clinic Plus', tea brands like 'Red Label', coffee brands like 'Bru', the 'Knorr'
range of soups and noodles and 'Kissan' jams and ketchups all recorded strong double-digit
volume growth.
Margin erosion in soaps is not due to competitive pricing, hence reversible
Management stated that palm oil prices are at all time highs, and the rise was sharper than its
expectations. In the earlier quarters, forward covers, and buying efficiencies masked the cost
escalation, but in the December quarter, the sharp margin erosion soaps & detergents
business to 7.7% ( as compared to 12.8% in 4QFy10, 10.98% in 1QFY11, and 11.7% in
2QFY11) was largely due to a sharper-than-anticipated rise in palm oils. Management stated
that it has taken a more calibrated and gradual price increase in the category, to ensure no
volume impact, which is why the margins were hit in 3QFY11. The pricing actions taken of 5%
in the category, will get fully reflected in 4QFY11, and we believe, this would significantly
improve margins.
Market sentiment could remain weak in the short term, but we remain positive
The 3QFY11 results were 10% below our expectations at the EBITDA levels, and we had
clearly, not anticipated the sharp margin erosion in the soaps and detergents business. But
this margin erosion is not due to competitive pricing, but more due to HUVR's strategic pricing
strategy for a more calibrated price increase, we remain confident that the category's EBIT
margins will gradually revert to the 11-12% range. The positive base effect of yoy margins for
the overall company also will start reflecting in 4QFY11. We are reviewing our numbers soon,
but maintain our Hold recommendation. The company reiterated that it could do buyback of
Rs6.3bn worth of stocks subject to a maximum price of Rs280.
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