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Key takeaways from post results conference call
Consumer demand remains strong, with no signs of downtrading so far; premiumization trend continues.
HUVR has increased innovation in Personal Care and Foods. It has re-launched Lux soap and Vim Bar.
21.8% sales growth in Soaps & Detergents has been driven by pricing. We estimate the pricing element at ~12% in
Detergents and at 9-10% in Soaps. The management indicated that increase in prices does not indicate any let up
in competitive intensity.
2QFY12 has witnessed various innovations, modern trade activation, rural expansion and benefits of an early Diwali
which has boosted volume growth. HUVR has also reaped benefits of direct rural distribution expansion.
HUVR’s ad spends have been flat in 2Q and declined 8% in 1HFY12. Though ad spends have been cut in Soaps &
Detergents, they are in line with the prevailing trends in the industry.
Though input cost environment remains challenging, HUVR would be cautious in taking incremental price increases
– it would not like to lose market share as had happened in 2009.
Revising estimates by 5-8%; maintain Neutral: We are revising our FY12/FY13 EPS estimates by 5-8% to factor in
higher volume growth and margin expansion in Soaps & Detergents. While we expect HUVR to sustain high single digit
volume growth in the medium term, we hold our view of structural adjustment in Personal Care margins in the medium
term. We estimate 16.9% PAT CAGR over FY11-13 post 7.6% CAGR in the last three years. The stock trades at 33x
FY12E EPS of INR11.8 and 28.5x FY13E EPS of INR13.6. Maintain Neutral.
Conference call takeaways: Consumer demand intact; input cost inflation
challenging
The management of HUVR seems cautiously optimistic for 2HFY12, as high inflation
and rupee depreciation are a drag in an environment of sustained consumer demand. We
expect gross margin pressure to sustain while lower ad spends and overheads increase
EBITDA margin and PAT growth. We present below our key takeaways.
Consumer demand intact; no downtrading seen so far: Consumer demand
remains strong, with no signs of downtrading so far. For HUVR, rural demand is
growing faster than urban demand. Premiumization trend continues across categories.
HUVR has grown above market growth rate in most categories except Hair Care.
Increased innovation in Foods and Personal Care: HUVR has increased
innovation in Personal Care and Foods, with the re-launch of Kissan Jam, Knorr
Soupy Noodles (INR5 pack), Pure IT Marvella, Dove Shampoo (INR1 sachet),
Dove Face Wash and Ponds White Beauty Naturals. It has also re-launched Lux
Soap and Vim Bar.
Soaps & Detergents growth driven by pricing; competitive intensity sustains:
21.8% sales growth in Soaps & Detergents has been driven by pricing. We estimate
the pricing element at ~12% in Detergents and at 9-10% in Soaps. The management
indicated that increase in prices does not indicate any let up in competitive intensity.
Volume growth led by innovation, modern trade activation and rural
distribution expansion: 2QFY12 has been an important quarter for various
innovations across segments. In addition, modern trade activation around 15 August
and benefits of an early Diwali have boosted volume growth. HUVR has also reaped
benefits of direct rural distribution expansion by 0.5m outlets in FY11.
Ad spends at competitive levels; cut by ~20% for Soaps & Detergents in
1HFY12: HUVR’s ad spends have been flat in 2Q and declined 8% in 1HFY12.
We estimate that ad spends have declined 20% for Soaps & Detergents but have
increased 10% for Personal Care and Foods. Though ad spends have been cut in
Soaps & Detergents, they are in line with the prevailing trends in the industry.
Input cost environment remains challenging; rupee depreciation impact likely
from 3QFY12: The input cost environment remains challenging, as palm oil prices
are up 20% YoY, crude prices are up 45% YoY and coffee prices are up 52% YoY.
Though there has been some softening in the prices of palm oil and other inputs, this
has been mitigated partially by ~10% rupee depreciation, which will start reflecting
in performance from 3QFY12. Despite the input cost pressure, HUVR would be
cautious in taking incremental price increases – it would not like to lose market share
as had happened in 2009.
2QFY12 Volumes up 9.8%; gross margin down 350bp; adjusted PAT
up 22.3%
Net revenue grew 18% to INR56.1b (v/s our estimate of INR54.2b), led by 9.8% volume
growth. Gross margin contracted 350bp to 46.5% (v/s our estimate of 47.2%), as price
increases did not adequately compensate for input cost inflation. Flat ad spends (down
200bp) and other expenses (down 265bp) enabled 28% growth in EBITDA. PAT
increased 22.3%, as tax rate increased 280bp. Domestic FMCG sales grew 19.8%, the
highest growth in 11 quarters, led by strong volume growth and price increases across
segments.
Major acceleration in volume growth unlikely
HUVR has taken 8-22% price increase in Detergents and 5-12% price increase in Soaps,
which has enabled margin expansion QoQ. We note that input costs will harden QoQ due
to rupee depreciation. However, the recent price increases and low base effect would
ensure that decline in gross margins is lower in the coming quarters. Monsoons have been
positive and recent increase in MSP of wheat and other crops augurs well for rural demand.
In contrast, high food inflation, rising competitive activity and slowdown in the economy
will prevent any major acceleration in volume growth, in our view.
Revising estimates by 5-8%; maintain Neutral
We are revising our FY12/FY13 EPS estimates by 5-8% to factor in higher volume
growth and margin expansion in Soaps & Detergents. We are increasing our volume
growth estimate from 8% to 8.8% for FY12, while retaining our 8% volume growth
estimate for FY13.
We are reducing our gross margin estimates from 48% to 46.2% for FY12 and from
48.3% to 47% for FY13. This follows 420bp decline in gross margin in 1HFY12; the
impact of rupee depreciation is likely to get reflected in the coming quarter. We factor
in 280bp decline in gross margin in FY12 and an increase of 80bp in FY13.
We are reducing our ad spend estimates from 13% to 12.1% for FY12, and from
13.2% to 12.5% for FY13. We are also cutting overheads by 120bp for FY12 and
FY13. Consequently, our EBITDA margin estimates are higher by 30bp for FY12 and
by 50bp for FY13. We revise our PAT growth estimates by 5% for FY12 and by 7.5%
for FY13.
We believe that the volume growth environment remains challenging, given high food
inflation and aggressive pricing and promotions in select categories like Soaps, Shampoos
and Oral Care, and likely slowdown in the economy.
HUVR has the advantage of high ad spends in 3QFY12 due to base effect (14.5% of
sales); however, the base effect advantage will no longer exist from 4QFY12 (ad
spends at 12.5%).
HUVR has seen a sharp re-rating on the back of steady volume growth in the last five
quarters and cost rationalization-led margin recovery in 2QFY12. While we expect
HUVR to sustain high single digit volume growth in the medium term, we hold our
view of structural adjustment in Personal Care margins in the medium term. We
estimate 16.9% PAT CAGR over FY11-13 post 7.6% CAGR in the last three years.
The stock trades at 33x FY12E EPS of INR11.8 and 28.5x FY13E EPS of INR13.6
as against the 5-year average of 24.2x 12-month forward EPS. Maintain Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key takeaways from post results conference call
Consumer demand remains strong, with no signs of downtrading so far; premiumization trend continues.
HUVR has increased innovation in Personal Care and Foods. It has re-launched Lux soap and Vim Bar.
21.8% sales growth in Soaps & Detergents has been driven by pricing. We estimate the pricing element at ~12% in
Detergents and at 9-10% in Soaps. The management indicated that increase in prices does not indicate any let up
in competitive intensity.
2QFY12 has witnessed various innovations, modern trade activation, rural expansion and benefits of an early Diwali
which has boosted volume growth. HUVR has also reaped benefits of direct rural distribution expansion.
HUVR’s ad spends have been flat in 2Q and declined 8% in 1HFY12. Though ad spends have been cut in Soaps &
Detergents, they are in line with the prevailing trends in the industry.
Though input cost environment remains challenging, HUVR would be cautious in taking incremental price increases
– it would not like to lose market share as had happened in 2009.
Revising estimates by 5-8%; maintain Neutral: We are revising our FY12/FY13 EPS estimates by 5-8% to factor in
higher volume growth and margin expansion in Soaps & Detergents. While we expect HUVR to sustain high single digit
volume growth in the medium term, we hold our view of structural adjustment in Personal Care margins in the medium
term. We estimate 16.9% PAT CAGR over FY11-13 post 7.6% CAGR in the last three years. The stock trades at 33x
FY12E EPS of INR11.8 and 28.5x FY13E EPS of INR13.6. Maintain Neutral.
Conference call takeaways: Consumer demand intact; input cost inflation
challenging
The management of HUVR seems cautiously optimistic for 2HFY12, as high inflation
and rupee depreciation are a drag in an environment of sustained consumer demand. We
expect gross margin pressure to sustain while lower ad spends and overheads increase
EBITDA margin and PAT growth. We present below our key takeaways.
Consumer demand intact; no downtrading seen so far: Consumer demand
remains strong, with no signs of downtrading so far. For HUVR, rural demand is
growing faster than urban demand. Premiumization trend continues across categories.
HUVR has grown above market growth rate in most categories except Hair Care.
Increased innovation in Foods and Personal Care: HUVR has increased
innovation in Personal Care and Foods, with the re-launch of Kissan Jam, Knorr
Soupy Noodles (INR5 pack), Pure IT Marvella, Dove Shampoo (INR1 sachet),
Dove Face Wash and Ponds White Beauty Naturals. It has also re-launched Lux
Soap and Vim Bar.
Soaps & Detergents growth driven by pricing; competitive intensity sustains:
21.8% sales growth in Soaps & Detergents has been driven by pricing. We estimate
the pricing element at ~12% in Detergents and at 9-10% in Soaps. The management
indicated that increase in prices does not indicate any let up in competitive intensity.
Volume growth led by innovation, modern trade activation and rural
distribution expansion: 2QFY12 has been an important quarter for various
innovations across segments. In addition, modern trade activation around 15 August
and benefits of an early Diwali have boosted volume growth. HUVR has also reaped
benefits of direct rural distribution expansion by 0.5m outlets in FY11.
Ad spends at competitive levels; cut by ~20% for Soaps & Detergents in
1HFY12: HUVR’s ad spends have been flat in 2Q and declined 8% in 1HFY12.
We estimate that ad spends have declined 20% for Soaps & Detergents but have
increased 10% for Personal Care and Foods. Though ad spends have been cut in
Soaps & Detergents, they are in line with the prevailing trends in the industry.
Input cost environment remains challenging; rupee depreciation impact likely
from 3QFY12: The input cost environment remains challenging, as palm oil prices
are up 20% YoY, crude prices are up 45% YoY and coffee prices are up 52% YoY.
Though there has been some softening in the prices of palm oil and other inputs, this
has been mitigated partially by ~10% rupee depreciation, which will start reflecting
in performance from 3QFY12. Despite the input cost pressure, HUVR would be
cautious in taking incremental price increases – it would not like to lose market share
as had happened in 2009.
2QFY12 Volumes up 9.8%; gross margin down 350bp; adjusted PAT
up 22.3%
Net revenue grew 18% to INR56.1b (v/s our estimate of INR54.2b), led by 9.8% volume
growth. Gross margin contracted 350bp to 46.5% (v/s our estimate of 47.2%), as price
increases did not adequately compensate for input cost inflation. Flat ad spends (down
200bp) and other expenses (down 265bp) enabled 28% growth in EBITDA. PAT
increased 22.3%, as tax rate increased 280bp. Domestic FMCG sales grew 19.8%, the
highest growth in 11 quarters, led by strong volume growth and price increases across
segments.
Major acceleration in volume growth unlikely
HUVR has taken 8-22% price increase in Detergents and 5-12% price increase in Soaps,
which has enabled margin expansion QoQ. We note that input costs will harden QoQ due
to rupee depreciation. However, the recent price increases and low base effect would
ensure that decline in gross margins is lower in the coming quarters. Monsoons have been
positive and recent increase in MSP of wheat and other crops augurs well for rural demand.
In contrast, high food inflation, rising competitive activity and slowdown in the economy
will prevent any major acceleration in volume growth, in our view.
Revising estimates by 5-8%; maintain Neutral
We are revising our FY12/FY13 EPS estimates by 5-8% to factor in higher volume
growth and margin expansion in Soaps & Detergents. We are increasing our volume
growth estimate from 8% to 8.8% for FY12, while retaining our 8% volume growth
estimate for FY13.
We are reducing our gross margin estimates from 48% to 46.2% for FY12 and from
48.3% to 47% for FY13. This follows 420bp decline in gross margin in 1HFY12; the
impact of rupee depreciation is likely to get reflected in the coming quarter. We factor
in 280bp decline in gross margin in FY12 and an increase of 80bp in FY13.
We are reducing our ad spend estimates from 13% to 12.1% for FY12, and from
13.2% to 12.5% for FY13. We are also cutting overheads by 120bp for FY12 and
FY13. Consequently, our EBITDA margin estimates are higher by 30bp for FY12 and
by 50bp for FY13. We revise our PAT growth estimates by 5% for FY12 and by 7.5%
for FY13.
We believe that the volume growth environment remains challenging, given high food
inflation and aggressive pricing and promotions in select categories like Soaps, Shampoos
and Oral Care, and likely slowdown in the economy.
HUVR has the advantage of high ad spends in 3QFY12 due to base effect (14.5% of
sales); however, the base effect advantage will no longer exist from 4QFY12 (ad
spends at 12.5%).
HUVR has seen a sharp re-rating on the back of steady volume growth in the last five
quarters and cost rationalization-led margin recovery in 2QFY12. While we expect
HUVR to sustain high single digit volume growth in the medium term, we hold our
view of structural adjustment in Personal Care margins in the medium term. We
estimate 16.9% PAT CAGR over FY11-13 post 7.6% CAGR in the last three years.
The stock trades at 33x FY12E EPS of INR11.8 and 28.5x FY13E EPS of INR13.6
as against the 5-year average of 24.2x 12-month forward EPS. Maintain Neutral
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