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With raw material prices stabilising, and the full impact of calibrated price hikes taken in the
last 2 quarters, we believe HUVR would show yoy margin expansion after 7 quarters of
declines. Management is focused on sustaining volume growth and our channel checks
reveal 7-8% growth in 2QFY12 as well
Our channel checks reveal 2QFY12 volume momentum at 7-8% level
HUVR we gather is sustaining volume growth of 7-8% recorded in 1QFY12 in the current
quarter as well. The commodity-sensitive categories (soaps & detergents) which have
seen price hikes have seen slower growth in the mid and mass market segments.
However, the premium segments of both soaps and detergents business are recording
strong growth. Besides, the personal products category which recorded 19% volume
growth in 1QFY12, is sustaining strong growth in 2QFY12 as well.
Its new innovations in packaged foods like " Knorr- soupy noodles", " Kissan- Creamy
spreads" are performing better than expectations.
HUVR's " Dove" brand is performing strongly across the categories.
The sustained investments in the " Pepsodent" brand in oral with new innovations, and
advertisement campaign has also started bearing sustained results.
Commodity inflationary pressures seems to be moderating
The crude palm oil prices have corrected around 21% from the peak levels. While,
management maintains it had not fully passed on cost escalations, hence the recent
corrections would not significantly benefit them.
We believe the 7.5% EBIT margins recorded in 4QFY11 in the soaps and detergents
business was a reflection of high competitive intensity and peak commodity prices. We did
see improvement in EBIT margins to 9.2% in 1QFY12, and expect gradual improvement in
margin levels going forward.
The average margins recorded for 5 years ended 2010 in soaps & detergents business was
14.33%, which was a significant correction from a average of 22.9% recorded between 2000-
2005. The sharp fall in EBIT margins in to 9.49% in FY11 was due to combined impact of
competitive intensity in detergents, and high commodity prices.
With calibrated price hikes taken in most brands, and drop in industry wide advertisement
spends, we expect the margins to gradually improve.
We expect EPS growth ahead of revenue growth going forward
We are expecting a 120bps improvement in EBITDA margins over the next 3 years, which we
believe would drive a EPS growth of 14.9% which would be ahead of the expected revenue
growth of 13%.
HUVR's volume growth has been in line or ahead of the industry average volume growth for
the last 6 quarters, which indicates the renewed management focus. The level of innovations
in existing categories have been stepped up, and its focus to participate on the growth in the
categories of the future is also sustained.
We reiterate our Buy recommendation with EPS forecasts which are around 3.5% ahead of
consensus estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
With raw material prices stabilising, and the full impact of calibrated price hikes taken in the
last 2 quarters, we believe HUVR would show yoy margin expansion after 7 quarters of
declines. Management is focused on sustaining volume growth and our channel checks
reveal 7-8% growth in 2QFY12 as well
Our channel checks reveal 2QFY12 volume momentum at 7-8% level
HUVR we gather is sustaining volume growth of 7-8% recorded in 1QFY12 in the current
quarter as well. The commodity-sensitive categories (soaps & detergents) which have
seen price hikes have seen slower growth in the mid and mass market segments.
However, the premium segments of both soaps and detergents business are recording
strong growth. Besides, the personal products category which recorded 19% volume
growth in 1QFY12, is sustaining strong growth in 2QFY12 as well.
Its new innovations in packaged foods like " Knorr- soupy noodles", " Kissan- Creamy
spreads" are performing better than expectations.
HUVR's " Dove" brand is performing strongly across the categories.
The sustained investments in the " Pepsodent" brand in oral with new innovations, and
advertisement campaign has also started bearing sustained results.
Commodity inflationary pressures seems to be moderating
The crude palm oil prices have corrected around 21% from the peak levels. While,
management maintains it had not fully passed on cost escalations, hence the recent
corrections would not significantly benefit them.
We believe the 7.5% EBIT margins recorded in 4QFY11 in the soaps and detergents
business was a reflection of high competitive intensity and peak commodity prices. We did
see improvement in EBIT margins to 9.2% in 1QFY12, and expect gradual improvement in
margin levels going forward.
The average margins recorded for 5 years ended 2010 in soaps & detergents business was
14.33%, which was a significant correction from a average of 22.9% recorded between 2000-
2005. The sharp fall in EBIT margins in to 9.49% in FY11 was due to combined impact of
competitive intensity in detergents, and high commodity prices.
With calibrated price hikes taken in most brands, and drop in industry wide advertisement
spends, we expect the margins to gradually improve.
We expect EPS growth ahead of revenue growth going forward
We are expecting a 120bps improvement in EBITDA margins over the next 3 years, which we
believe would drive a EPS growth of 14.9% which would be ahead of the expected revenue
growth of 13%.
HUVR's volume growth has been in line or ahead of the industry average volume growth for
the last 6 quarters, which indicates the renewed management focus. The level of innovations
in existing categories have been stepped up, and its focus to participate on the growth in the
categories of the future is also sustained.
We reiterate our Buy recommendation with EPS forecasts which are around 3.5% ahead of
consensus estimates.
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