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Weakness prevails in HUL counter after Q3 results

Capital Market/ 10:04 , Jan 23, 2013

Hindustan Unilever tumbled 4.59% to Rs 459.45 at 10:00 IST on BSE, extending Tuesday's 2.88% fall triggered by the company's muted volume growth in Q3 December 2012 and an increase in royalty payments to its foreign parent Unilever Plc.

Meanwhile, the BSE Sensex was up 52.27 points, or 0.26%, to 20,033.84.

On BSE, 8.51 lakh shares were traded in the counter as against an average daily volume of 1.57 lakh shares in the past one quarter.

The stock hit a high of Rs 461.45 and a low of Rs 447.25 so far during the day. The stock had hit a record high of Rs 579.60 on 16 October 2012. The stock had hit a 52-week low of Rs 375.10 on 31 January 2012.

The stock had underperformed the market over the past one month till 22 January 2013, falling 8.55% compared with the Sensex's 3.84% rise. The scrip had also underperformed the market in past one quarter, sliding 15.39% as against Sensex's 6.32% rise.

India's largest FMCG company by sales has an equity capital of Rs 221.51 crore. Face value per share is Re 1.

Hindustan Unilever's (HUL) net profit rose 15.59% to Rs 871.36 crore on 10.1% increase in net sales to Rs 6433.69 crore in Q3 December 2012 over Q3 December 2011. The result was announced during trading hours on Tuesday, 22 January 2013. The stock fell 2.88% to Rs 481.55 on that day.

HUL said that during the quarter, its domestic consumer business grew at 15% with underlying volume growth of 5%. Both home and personal care (HPC) and foods & beverages (F&B) registered double digit growth. HUL said its soaps and detergents segment grew 20%, personal products segment grew 13%, beverages segment grew 18% and packaged foods segment grew 8%.

The company said the operating context remained challenging during the quarter with input costs holding firm and high competitive intensity. Advertising and promotions (A&P) was stepped up and maintained at competitive levels, higher by 132 crore (+100 basis points) in the quarter. Despite that, profit before interest and tax (PBIT) grew by 13% and PBIT margin improved by 40 basis points (bps). Profit after tax but before exceptional items, PAT (bei), grew by 15% to Rs. 873 crore during the quarter.

Meanwhile, HUL said that its board approved a proposal to enter into a new agreement with Unilever Plc (and entities of the Unilever Group) for the provision of technology, trademark licenses and other services to HUL.

HUL currently has a Technical Collaboration Agreement (TCA) and a Trade Mark License Agreeement (TMLA) with Unilever. The TCA provides for payment of 1% royalty on net sales of specific products manufactured with technical inputs developed by Unilever. The TMLA provides for the payment of trademark royalty at the rate of 1% of net sales on specific brands, where Unilever owns the trade mark and HUL is the licensed user. The total impact of both these agreements is a royalty cost of 1.4% of turnover.

HUL will enter into a new agreement, effective 1 February 2013, with Unilever for the provision of technology, trade mark license and other services.

The new agreement envisages that the existing royalty cost of 1.4% of turnover will increase, in a phased manner, to a royalty cost of 3.15% of turnover no later than the financial year ending 31 March 2018, i.e. a total estimated increase of 1.75% of turnover.

The increase in royalty cost, in the period from 1 February 2013 to 31 March 2014 is estimated to be 0.5% of turnover, and thereafter in a range of 0.3% to 0.7% of turnover in each financial year, leading up to a total estimated royalty cost increase of 1.75% of turnover compared to existing arrangements, no later than the financial year ending 31 March 2018.

The board of HUL is satisfied that appropriate due diligence has been done and that the new arrangements reflect fair payment for the services and benefits that HUL will continue to receive. The new arrangements are consistent with the Government of India policy related to the payment of royalty, the company said in a statement.

HUL is India's largest FMCG company with over 35 brands spanning 20 distinct categories such as soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, and water purifiers. HUL is a subsidiary of Unilever Plc, one of the world's leading suppliers of fast moving consumer goods with strong local roots in more than 100 countries across the globe. Unilever has about 5.49% shareholding in HUL (as on 31 December 2012).


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