Hindustan Unilever- Strong operating performance :price target: Rs235.00: Macquarie Research

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Hindustan Unilever
Strong operating performance
Event
 HUVR reported better than expected 4Q results, with revenue up 13.3% YoY
to Rs49.6bn driven by 11.4% growth in soaps and detergents and 16.2%
growth in personal products. Adjusted for extraordinary items of Rs880mn,
PAT grew 20% YoY to Rs5.1bn, 5% ahead of our estimates.

Impact
 5th consecutive quarter of double-digit volume growth. HUVR reported
volume growth of 14% in 4Q, aided by aggressive market share defence in
key categories such as laundary, shampoo and other personal products.
Although management is confident of sales growth, pricing elements should
play a greater role in the price/volume component of sales in FY12E.
 Robust performance in key segments. HUVR’s 4Q domestic sales growth
of 14% was driven by volume growth and product mix in personal products
categories. Soaps and detergent (S&D) and personal products (PP) segments
grew 11% and 16% YoY, respectively, backed by volume growth. Beverage,
food and ice cream segments grew 11.2%, 26.6% and 21% YoY respectively.
 EBITDA margin declined 65bp. Accenutated by high commodity inflation
(palm oil and crude oil etc), gross margin declined 287bp. However, the
EBITDA margin declined only 65bp, helped by a 245bp decline in employee
as well as A&P (advertising and promotion) expenses as % of sales.
 Mix trend in segmental margin. S&D EBIT declined 34% YoY as margins
contracted 525bp to 7.5%. PP and beverage EBIT margins improved 325bp
and 181bp, respectively. PP margin expansion was driven by uptrading or
premiumisation. Exports margin also expanded 454bp to 9.8% in 4Q.
 Adjusted PAT grew 20% YoY. Adjusted for exceptional income (Rs880mn)
and prior period tax (Rs63mn), net profit grew 20% YoY to Rs5.1bn. The 97%
increase in other income to Rs560mn also helped profit growth.
Earnings and target price revision
 Will review our earnings and target price post annual investor meet tomorrow.
Price catalyst
 12-month price target: Rs235.00 based on a DCF methodology.
 Catalyst: Commodity cost inflation
Action and recommendation
 We believe the next couple of quarters will be challenging for HUVR, due to
raw material cost inflation and intense competition in a few categories such as
laundry and shampoo. We believe some of the recent initiatives like entering
underpenetrated food categories, premium launches in mature categories and
expanding direct reach are positive steps and will deliver in long term.
 We await more business details and new initiatives from the management in
tomorrow’s investor meet to have a detailed review of our numbers