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Margins unlikely to move up in near term
Category wise value trends (y-o-y December quarter): Laundry – gaining; soaps – holding (premium segment growing);
skincare – FAL holding, premium end growing; hair – growing; oral care – improved.
Soaps price hikes a possibility (in a calibrated manner), which could impair the current trend of up trading, but unlikely to
result in substantial down trading. Soaps and detergents margins seem to have bottomed out, unless there is further cost
inflation.
Within soaps: Dettol continues to do well, ITC quite active, Santoor is holding market share, smaller players under
pressure. Lux almond has done well in the north; GCPL has been under some pressure. Within laundry: substantial
promotions on Tide Natural going on. Rin is likely the fastest growing within HUL’s portfolio. Within personal products:
uptrading is happening. HUL is investing heavily in market development for new categories. Operating margin for the
overall category is down because of this investment; operating margins excluding A&P would be up. No price war in
shampoo – it’s an attempt to make two consumers to use a sachet instead of one (increased quantity at same price).
For HUL tax rate next year could increase to 23-24% and in FY13 to 25%.
Valuation and risks
Our target price of INR287 is based on c23x Sep-12e EPS. The multiple is a 10% discount to historical average on account
of increased competitive activity affecting bottom line growth. Our FY13e EPS is INR12.8, which represents a 3-year
(FY10-13e) CAGR of 10%. The stock is trading at 24.8x FY12e earnings.
Upside risk: Benign input costs; price war subsides earlier; ability to raise prices to improve margins; and competition
from MNCs in high growth categories lower than anticipated.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Margins unlikely to move up in near term
Category wise value trends (y-o-y December quarter): Laundry – gaining; soaps – holding (premium segment growing);
skincare – FAL holding, premium end growing; hair – growing; oral care – improved.
Soaps price hikes a possibility (in a calibrated manner), which could impair the current trend of up trading, but unlikely to
result in substantial down trading. Soaps and detergents margins seem to have bottomed out, unless there is further cost
inflation.
Within soaps: Dettol continues to do well, ITC quite active, Santoor is holding market share, smaller players under
pressure. Lux almond has done well in the north; GCPL has been under some pressure. Within laundry: substantial
promotions on Tide Natural going on. Rin is likely the fastest growing within HUL’s portfolio. Within personal products:
uptrading is happening. HUL is investing heavily in market development for new categories. Operating margin for the
overall category is down because of this investment; operating margins excluding A&P would be up. No price war in
shampoo – it’s an attempt to make two consumers to use a sachet instead of one (increased quantity at same price).
For HUL tax rate next year could increase to 23-24% and in FY13 to 25%.
Valuation and risks
Our target price of INR287 is based on c23x Sep-12e EPS. The multiple is a 10% discount to historical average on account
of increased competitive activity affecting bottom line growth. Our FY13e EPS is INR12.8, which represents a 3-year
(FY10-13e) CAGR of 10%. The stock is trading at 24.8x FY12e earnings.
Upside risk: Benign input costs; price war subsides earlier; ability to raise prices to improve margins; and competition
from MNCs in high growth categories lower than anticipated.
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