Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The recent 12% fall in oil prices likely improves the prospect of more moderate cost inflation
after a 21% jump in oil-related costs in 4QFY11. HUVR's advertising expenses to net sales
have been falling over the last three quarters. We upgrade to Buy due to these positive
tailwinds on margins and volume growth.
EBITDA margin falls to 13.5%, the lowest level in 10 years…
HUVR recorded its lowest EBITDA margin over the last decade at 13.5% in FY11 (from
15.5% in FY10). There were three underlying factors for the margin decline: 1) commodity
cost inflation driven by rising palm oil prices and the entire crude oil-linked chain of
chemicals. In 4QFY11, raw material cost to sales was 54.3% vs 50.7% in FY10. 2) Rising
competition has forced HUVR to raise advertisement expenditure to net sales from 13.6% in
FY10 to a peak of 15.7% in 1QFY11 (FY11 average was 14.2%). 3) HUVR’s soaps and
detergents segment margin dropped to its lowest historical level at 7.5% in 4QFY11, from
14.3% in FY10, and down from 29.8% at its peak in 2001.
… but tail winds emerging for margins
Over the past few weeks there has been a broad-based fall in commodity prices, and crude oil
has recorded a 12% fall from its peak. The spike in raw material cost to sales to 54.3% in
4QFY11 from 51% in 1QFY11 looks likely to moderate in future. Besides, HUVR had partially
passed on the cost inflation in 4QFY11 by hiking soap and detergent brand prices, which could
positively impact its margins. HUVR’s advertising expenses to net sales ratio also seems to be
moderating, as competitive conditions, while remaining intense, have stabilised. In 1QFY11,
advertising cost to net sales was 15.7%, which fell to 12.7% in 4QFY11. With volume growth
reviving across categories, we believe FY12 see a decline in this ratio, which would likely be
positive for margins.
We upgrade to Buy, as we lift our earnings by 4%
We expect HUVR’s margins to improve by 90bp, and raise our earnings forecasts by 4% in FY12-
13. We believe there is limited downside to HUVR’s margins structurally and, if cyclical tailwinds,
like cost inflation moderate, we could see further uptick in margins. We upgrade our DCF-based
target price to Rs337 on the back of our forecast changes and, hence, upgrade the stock to Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The recent 12% fall in oil prices likely improves the prospect of more moderate cost inflation
after a 21% jump in oil-related costs in 4QFY11. HUVR's advertising expenses to net sales
have been falling over the last three quarters. We upgrade to Buy due to these positive
tailwinds on margins and volume growth.
EBITDA margin falls to 13.5%, the lowest level in 10 years…
HUVR recorded its lowest EBITDA margin over the last decade at 13.5% in FY11 (from
15.5% in FY10). There were three underlying factors for the margin decline: 1) commodity
cost inflation driven by rising palm oil prices and the entire crude oil-linked chain of
chemicals. In 4QFY11, raw material cost to sales was 54.3% vs 50.7% in FY10. 2) Rising
competition has forced HUVR to raise advertisement expenditure to net sales from 13.6% in
FY10 to a peak of 15.7% in 1QFY11 (FY11 average was 14.2%). 3) HUVR’s soaps and
detergents segment margin dropped to its lowest historical level at 7.5% in 4QFY11, from
14.3% in FY10, and down from 29.8% at its peak in 2001.
… but tail winds emerging for margins
Over the past few weeks there has been a broad-based fall in commodity prices, and crude oil
has recorded a 12% fall from its peak. The spike in raw material cost to sales to 54.3% in
4QFY11 from 51% in 1QFY11 looks likely to moderate in future. Besides, HUVR had partially
passed on the cost inflation in 4QFY11 by hiking soap and detergent brand prices, which could
positively impact its margins. HUVR’s advertising expenses to net sales ratio also seems to be
moderating, as competitive conditions, while remaining intense, have stabilised. In 1QFY11,
advertising cost to net sales was 15.7%, which fell to 12.7% in 4QFY11. With volume growth
reviving across categories, we believe FY12 see a decline in this ratio, which would likely be
positive for margins.
We upgrade to Buy, as we lift our earnings by 4%
We expect HUVR’s margins to improve by 90bp, and raise our earnings forecasts by 4% in FY12-
13. We believe there is limited downside to HUVR’s margins structurally and, if cyclical tailwinds,
like cost inflation moderate, we could see further uptick in margins. We upgrade our DCF-based
target price to Rs337 on the back of our forecast changes and, hence, upgrade the stock to Buy.
No comments:
Post a Comment