[T.S.R:17325] HUL- Surf But Dont Excel

HUL-Blowing Up Bubbles

The true enormity of inflation eating into the bottomline of the largest corporates has become evident with the Q4 results reported by Hindustan Unilever. HUL reported 4QFY11 revenue and PAT growth of 13.5% and 15% respectively. 

n       Volume growth at 14%. HUL reported revenue growth of 13.5% yoy and volume growth of 14% yoy. After single-digit revenue growth in the past seven quarters, soaps and detergents reported revenue growth of 11.4% yoy. Personal products and beverages reported revenue growth of 16.2% and 11.2% respectively.

n       Lower ad-spend arrests steep fall in margins. The company reduced the ad-spend-to-sales by 180bps yoy. However, higher raw material costs saw the EBITDA margin down 50bps yoy. The soaps & detergents segment continued to report dismal profitability, with an EBIT margin fall of 530bps. Higher other income pushed up the net profit 15% yoy.

n       Entry into competitive segments. HUL has entered various competitive segments such as prickly heat powder under the Lifebuoy brand, and health-food drinks and juices under the Kissan brand, under which it has also entered spreads. With other segments facing keener competition, we expect HUL's entry into more competitive segments to further impact margin. 

 Valuation. We value the stock at target price of Rs204, based on target PE of 20x FY12e earnings. Even this valuation is at a 25% premium to the 12-month forward Nifty PE. 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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