Hindustan Unilever - Recovery in Sight; Result Update Q3FY15 :: Edelweiss

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Hindustan Unilever’s (HUL) Q3FY15 headline numbers came in slightly below our estimates due to slower volume growth of 3% YoY (delayed winter, blackout period), 120bps YoY impact on sales due to lower excise benefits and one-time INR385mn staff cost. Partial benefit of softer commodity prices improved gross margin (up 124bps YoY) and EBITDA margin (up ~70bps YoY). We continue to like HUL’s strategy of proactively passing on partial benefits to consumers unlike in FY09 when it had lost market share due to delayed action as also strengthening brand equity (A&P spends at 4-quarter high augurs well for broadcasters). Margins are likely to improve significantly in Q4FY15 and FY16E.

Blackout, price cuts trip S&D; packaged foods a yummy delight

Soaps and detergents’ (S&D) sales growth moderated to 6% YoY due to blackout period to clear the pipeline of higher priced inventory and price cuts (5%; details inside). Personal care sales growth at 6.5% YoY (high base of 12.4% YoY) was impacted by delayed winter. Excluding one-time staff cost impact, EBITDA jumped 11.7% YoY. Packaged foods clocked fifth consecutive quarter of double digit YoY growth.

Key takeaways from conference call

Growth led by low unit price packs. Excluding impact of delayed winter and blackout period, volumes grew ~5% YoY. HUL has gained market share in ~90% of its portfolio. Negative impact of fading excise benefit likely to dent sales in ensuing 2 quarters as well. Rural growing ahead of urban, but sustainability needs to be seen. More work needs to be done on Pepsodent; deo category has seen some recovery post new launches. Clocked double digit growth in Surf, Fair & Lovely, Pond’s, Lakme, hair care, packaged foods and Pureit.

LINK
https://www.edelweiss.in/research/Hindustan-Unilever--Recovery-in-Sight;-Result-Update-Q3FY15/28073.html