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Hindustan Unilever (HUVR)
Consumer products
It’s still gloomy. HUL’s inability to fully neutralize input cost pressures will likely hurt
gross margins in FY2012E. Adspends moderation possible; however, meaningful cut not
probable, in our view, given the high market fragmentation. Disproportionate and
frequent price increases in skincare (to cross-subsidize, in our view) could potentially
lead to market share losses. 3Q results disappointed line by line. The only positive –
contribution of personal care in overall profits is increasing. SELL.
Quote from HUL’s results press release:
“Input cost inflation continued to rise during the quarter. Cost of goods sold went up by
220 bps, as a result of steep rise in material costs, especially in commodity sensitive
categories.”
Now on results
HUL reported net sales of Rs50.2 bn (+12%, KIE Rs51.2 bn), EBITDA of Rs6.2 bn (-13%, KIE Rs7.3
bn) and PAT of Rs5.9 bn (-2%, KIE Rs6.4 bn).
Underlying volume growth of 13% (5% growth in base) during 3Q was in line with our
estimates of 13%. We highlight that substantial part of this volume growth is still consumer
inducements-driven, which poses a threat to brand equity scores, in our view.
EBITDA margins declined 360 bps due to (1) input cost inflation not neutralized by price
increases -- gross margin decline of 220 bps, (2) higher adspends -- 70 bps, (3) higher other
expenditure -- higher freight costs, in our view -- 80 bps.
We are surprised at the margin compression despite
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 which is up 25%)
likely higher production at third party units in fiscal zones (as evidenced by higher ‘purchase
of traded goods’) and likely savings from margin-accretive ingredients in key products.
On a segmental basis, soaps and detergents reported sales growth of 6%, personal products
20% and foods 19% on a low base (1% sequentially). S&D EBIT margin decline of 570 bps to
7.7% was entirely for gross margin compression in soaps, in our view. Personal products EBIT
margin declined 310 bps to 28.8% which was entirely adspends driven, in our view.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindustan Unilever (HUVR)
Consumer products
It’s still gloomy. HUL’s inability to fully neutralize input cost pressures will likely hurt
gross margins in FY2012E. Adspends moderation possible; however, meaningful cut not
probable, in our view, given the high market fragmentation. Disproportionate and
frequent price increases in skincare (to cross-subsidize, in our view) could potentially
lead to market share losses. 3Q results disappointed line by line. The only positive –
contribution of personal care in overall profits is increasing. SELL.
Quote from HUL’s results press release:
“Input cost inflation continued to rise during the quarter. Cost of goods sold went up by
220 bps, as a result of steep rise in material costs, especially in commodity sensitive
categories.”
Now on results
HUL reported net sales of Rs50.2 bn (+12%, KIE Rs51.2 bn), EBITDA of Rs6.2 bn (-13%, KIE Rs7.3
bn) and PAT of Rs5.9 bn (-2%, KIE Rs6.4 bn).
Underlying volume growth of 13% (5% growth in base) during 3Q was in line with our
estimates of 13%. We highlight that substantial part of this volume growth is still consumer
inducements-driven, which poses a threat to brand equity scores, in our view.
EBITDA margins declined 360 bps due to (1) input cost inflation not neutralized by price
increases -- gross margin decline of 220 bps, (2) higher adspends -- 70 bps, (3) higher other
expenditure -- higher freight costs, in our view -- 80 bps.
We are surprised at the margin compression despite
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 which is up 25%)
likely higher production at third party units in fiscal zones (as evidenced by higher ‘purchase
of traded goods’) and likely savings from margin-accretive ingredients in key products.
On a segmental basis, soaps and detergents reported sales growth of 6%, personal products
20% and foods 19% on a low base (1% sequentially). S&D EBIT margin decline of 570 bps to
7.7% was entirely for gross margin compression in soaps, in our view. Personal products EBIT
margin declined 310 bps to 28.8% which was entirely adspends driven, in our view.
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