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We expect a revenue growth of 14%, and a EBITDA growth of 12% in Q1FY12. The 20% drop in
crude palm oil prices from its peak in 4QFY11 would moderate the cost inflation pressures.
HUVR's EBITDA margins at 13.5% in FY11 is the lowest levels in last 10 years, which could see
gradual improvement
Q1FY11 could see a moderation in volume growth
We expect the full impact of the price hikes taken in Q4FY11 in the Q1FY12, which we
believe would improve its revenue growth to 14% from 10.7% achieved in FY11. However,
the volume growth has been 11-13% for the last 5 quarters in a row, which could see
moderation to 6-7%. Our channel checks suggest that this could be more due to higher base
effect and also volume slowdown in categories like soaps. We expect EBITDA growth of 12%
at Rs7.62bn and a PAT growth of 13% at Rs5.82bn.
EBITDA margins on declining trend since 2002
HUVR EBITDA margins have been broadly declining for 2002 levels of 20% due to a variety
of structural and cyclical factors. In our view, there were three underlying factors for the
margin decline: 1) 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. The escalation of competition in the detergents segment has resulted in price reduction
across most brands in its detergents portfolio. However, the pricing conditions have remained
stable in the last 12 months now. 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) 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.
We see tail winds emerging for margin improvement
Over the past few weeks there has been a broad-based fall in commodity prices, and crude
palm oil has recorded a 20% 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
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We expect a revenue growth of 14%, and a EBITDA growth of 12% in Q1FY12. The 20% drop in
crude palm oil prices from its peak in 4QFY11 would moderate the cost inflation pressures.
HUVR's EBITDA margins at 13.5% in FY11 is the lowest levels in last 10 years, which could see
gradual improvement
Q1FY11 could see a moderation in volume growth
We expect the full impact of the price hikes taken in Q4FY11 in the Q1FY12, which we
believe would improve its revenue growth to 14% from 10.7% achieved in FY11. However,
the volume growth has been 11-13% for the last 5 quarters in a row, which could see
moderation to 6-7%. Our channel checks suggest that this could be more due to higher base
effect and also volume slowdown in categories like soaps. We expect EBITDA growth of 12%
at Rs7.62bn and a PAT growth of 13% at Rs5.82bn.
EBITDA margins on declining trend since 2002
HUVR EBITDA margins have been broadly declining for 2002 levels of 20% due to a variety
of structural and cyclical factors. In our view, there were three underlying factors for the
margin decline: 1) 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. The escalation of competition in the detergents segment has resulted in price reduction
across most brands in its detergents portfolio. However, the pricing conditions have remained
stable in the last 12 months now. 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) 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.
We see tail winds emerging for margin improvement
Over the past few weeks there has been a broad-based fall in commodity prices, and crude
palm oil has recorded a 20% 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
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