Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lower A&P aid margin
HUL’s pre-exceptional earnings growth of 21.8% YoY has been the
highest over the last 9 quarters, however, the gross profit growth
(revenues – RM costs) of 6.8% was the lowest over the last 17 quarters.
The dichotomy is explained by lower A&P and staff costs. Double digit
volume growth for the 5th straight quarter has been the biggest positive
from the results but the management has hinted at this trend softening.
Full impact of price cuts, higher RM prices and a higher effective tax rate
would be visible in FY12 which will continue to keep earnings growth in
single digits for FY12.
4QFY11 results ahead of expectations
HUL’s 4QFY11’s PAT grew 21.8% YoY Rs5.14bn – 22% higher than our
expectations driven by much lower than expected A&P expenditure and
higher volume growth. Reported profit at Rs5.9bn was higher due to one –off
gains on sale on properties and reduction in the provisions for retirement
benefits. Effective tax rate was lower at 20.4% but the management guides
for the same to move up to 23-24% by FY12.
Volume growth trend encouraging on a high base
For the previous 4 quarters, HUL has been reporting 10%+ volume growth
over a weak base, however, the 4QFY11 volume growth of 14% on the base
of 11% in 4QFY10 raises confidence on the volume growth.
Gross margin trend a negative but A&P saves the day
HUL’s RM costs as a % of net revenues increased by 290bps YoY – the highest
levels in the last 10 quarters. We also believe a part of the higher raw
material impact is yet to be factored in. Additionally, the impact of price cuts
in shampoos would also be visible from 1QFY12 onwards. Lower A&P (-
180bps YoY), staff costs (-73bps YoY) restricted the ebitda margin impact to
60bps YoY. We have built in a flat (14.3% of net sales) as the A&P for FY12.
At 27xFY12CL earnings valuations demanding
While we expect earnings growth to recover in FY12 and FY13, we believe
that the stock is overvalued at 26.8xFY12CL in the context of a c.12-13%
earnings cagr. Full impact of higher raw material prices / shampoo price cut
will be an earnings headwind for FY12 and so will be the effective tax rate
going up from 21.4% in FY11 to 23%+ in FY12 as manufacturing facilities
gradually start pulling out from the 100% income tax benefit zone. Continued
lower A&P spend would be a risk tour recommendation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lower A&P aid margin
HUL’s pre-exceptional earnings growth of 21.8% YoY has been the
highest over the last 9 quarters, however, the gross profit growth
(revenues – RM costs) of 6.8% was the lowest over the last 17 quarters.
The dichotomy is explained by lower A&P and staff costs. Double digit
volume growth for the 5th straight quarter has been the biggest positive
from the results but the management has hinted at this trend softening.
Full impact of price cuts, higher RM prices and a higher effective tax rate
would be visible in FY12 which will continue to keep earnings growth in
single digits for FY12.
4QFY11 results ahead of expectations
HUL’s 4QFY11’s PAT grew 21.8% YoY Rs5.14bn – 22% higher than our
expectations driven by much lower than expected A&P expenditure and
higher volume growth. Reported profit at Rs5.9bn was higher due to one –off
gains on sale on properties and reduction in the provisions for retirement
benefits. Effective tax rate was lower at 20.4% but the management guides
for the same to move up to 23-24% by FY12.
Volume growth trend encouraging on a high base
For the previous 4 quarters, HUL has been reporting 10%+ volume growth
over a weak base, however, the 4QFY11 volume growth of 14% on the base
of 11% in 4QFY10 raises confidence on the volume growth.
Gross margin trend a negative but A&P saves the day
HUL’s RM costs as a % of net revenues increased by 290bps YoY – the highest
levels in the last 10 quarters. We also believe a part of the higher raw
material impact is yet to be factored in. Additionally, the impact of price cuts
in shampoos would also be visible from 1QFY12 onwards. Lower A&P (-
180bps YoY), staff costs (-73bps YoY) restricted the ebitda margin impact to
60bps YoY. We have built in a flat (14.3% of net sales) as the A&P for FY12.
At 27xFY12CL earnings valuations demanding
While we expect earnings growth to recover in FY12 and FY13, we believe
that the stock is overvalued at 26.8xFY12CL in the context of a c.12-13%
earnings cagr. Full impact of higher raw material prices / shampoo price cut
will be an earnings headwind for FY12 and so will be the effective tax rate
going up from 21.4% in FY11 to 23%+ in FY12 as manufacturing facilities
gradually start pulling out from the 100% income tax benefit zone. Continued
lower A&P spend would be a risk tour recommendation.
No comments:
Post a Comment