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Hindustan Unilever Limited
Underweight
HLL.BO, HUVR IN
4QFY11 : Low ad spend drives earnings beat
• Low ad spend supported earnings growth: HUL reported net sales,
EBITDA and adjusted PAT growth of 13.5%, 8.6% and 21.8%
respectively for 4Q FY11. Poor gross margin trends (for soaps &
detergents particularly) were offset by lower ad spends and employee
costs during the quarter.
• Healthy volume growth trends in 4Q; likely moderation ahead:
Domestic consumer sales grew 14% led enirely by volume growth of
14%, implying flat price/mix growth during the quarter. However
management noted that it had witnessed some slowdown in the soaps &
laundry segment in recent months, and we expect volume growth rates
to moderate in coming quarters (and also as the base effect catches up),
with price increases keeping overall revenue growth rates at 13-14%.
• Gross margin pressures intensify: Higher prices for palm and crude oil
derivatives (key RM for soaps & laundry) led to a sharp 290bp y/y dip in
4Q gross margin. We expect input cost pressures to continue in 1H
FY12, though price increases should help mitigate them to some extent.
• A&P spend likely to be restrained in the near term considering input
cost pressures; should support margin growth. Overall, the A&P/Sales
ratio declined 180bp y/y to 12.7% during 4Q FY11, moderating
sequentially from 14.8% in 3Q. However on a structural basis we expect
marketing spend to move up in the medium to long term as competitive
challenges persist (e.g. the recent pricing action initiated by P&G in the
shampoo category).
• Share price reaction likely to be positive: We don’t expect any
significant changes to our earnings estimates, which are already at the
high end of consensus. However, we believe consensus could raise its
earnings estimates, which could lead to modest near-term strength in the
stock price, particularly in the current choppy market conditions.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindustan Unilever Limited
Underweight
HLL.BO, HUVR IN
4QFY11 : Low ad spend drives earnings beat
• Low ad spend supported earnings growth: HUL reported net sales,
EBITDA and adjusted PAT growth of 13.5%, 8.6% and 21.8%
respectively for 4Q FY11. Poor gross margin trends (for soaps &
detergents particularly) were offset by lower ad spends and employee
costs during the quarter.
• Healthy volume growth trends in 4Q; likely moderation ahead:
Domestic consumer sales grew 14% led enirely by volume growth of
14%, implying flat price/mix growth during the quarter. However
management noted that it had witnessed some slowdown in the soaps &
laundry segment in recent months, and we expect volume growth rates
to moderate in coming quarters (and also as the base effect catches up),
with price increases keeping overall revenue growth rates at 13-14%.
• Gross margin pressures intensify: Higher prices for palm and crude oil
derivatives (key RM for soaps & laundry) led to a sharp 290bp y/y dip in
4Q gross margin. We expect input cost pressures to continue in 1H
FY12, though price increases should help mitigate them to some extent.
• A&P spend likely to be restrained in the near term considering input
cost pressures; should support margin growth. Overall, the A&P/Sales
ratio declined 180bp y/y to 12.7% during 4Q FY11, moderating
sequentially from 14.8% in 3Q. However on a structural basis we expect
marketing spend to move up in the medium to long term as competitive
challenges persist (e.g. the recent pricing action initiated by P&G in the
shampoo category).
• Share price reaction likely to be positive: We don’t expect any
significant changes to our earnings estimates, which are already at the
high end of consensus. However, we believe consensus could raise its
earnings estimates, which could lead to modest near-term strength in the
stock price, particularly in the current choppy market conditions.
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