Hindustan Unilever Ltd (Q1 FY14)

India Infoline News Service | Mumbai |

Recommend Market Performer rating with a revised 9-mth target price of Rs597

CMP Rs663, Target Rs597, Downside 9.9%

  • Q1 revenues were marginally below our expectations at ~Rs67bn, up by 7% yoy. The growth could have been even better but for mere ~6%/12% yoy growth in HPC and foods segment respectively. HUL reported adjusted underlying volume growth of 4.8% yoy
  • Soaps and Detergents segment witnessed 70bps expansion in EBIT margins at ~13%. Personal products segment margins, however, declined by 90bps to 24.9% due to increased A&P investment and slower growth in Fair & Lovely – a key skincare brand
  • Despite higher adspend and overhead cost, OPM expanded by 100bps to 14.4%, aided by softening key input prices. Adjusted net profit increased by ~4% yoy at Rs8.9bn
  • Recommend Market Performer rating with a revised 9-mth target price of Rs597
Result table (Standalone)
(Rs m) Q1 FY14 Q1 FY13 % yoy Q4 FY13 % qoq
Net sales 66,875 62,502 7.0 63,671 5.0
Material cost (34,828) (33,677) 3.4 (34,326) 1.5
Personnel cost (3,417) (3,329) 2.6 (3,123) 9.4
Advertising cost (8,898) (8,196) 8.6 (8,211) 8.4
Other overheads (10,092) (8,921) 13.1 (9,281) 8.7
Operating profit 9,640 8,378 15.1 8,731 10.4
OPM (%) 14.4 13.4 101 bps 13.7 70 bps
Depreciation (664) (576) 15.3 (614) 8.2
Interest (62) (53) 17.8 (60) 3.5
Other income 2,983 3,472 (14.1) 2,045 45.9
PBT 11,897 11,222 6.0 10,102 17.8
Tax (2,767) (3,957) (30.1) (2,324) 19.1
Effective tax rate (%) 23.3 35.3 - 23.0 -
Extra ordinary items 1,063 6,047 (82.4) 94 1,029.1
Reported PAT 10,193 13,312 (23.4) 7,872 29.5
Adjusted PAT* 8,851 8,546 3.6 7,808 13.4
Ann. EPS (Rs)* 16.4 15.8 25.6 14.4 17.4
Source: Company, India Infoline Research
*Before exceptional items net of tax and prior period tax adjustments

Slower HPC growth restricts topline growth
HUL Q1 FY14 revenues were marginally below our expectations (of ~Rs69bn) at Rs67bn – up by 7% yoy. Adjusted underlying volume growth (adjusted for upstocking last quarter) was at 4.8% yoy against 9% in Q1 FY13. The growth could have been even better but for weakness in discretionary categories, slowdown in skincare brands and lower modern retail sales.

Revenue break-up

Q1 FY14 Q1 FY13 Growth Q4 FY13 Growth
(Rs m) (3) (3) % yoy (3) % qoq
Domestic FMCG - HPC 52,167 49,256 5.9 49,605 5.2
Domestic FMCG - Foods 12,037 10,700 12.5 11,673 3.1
a) Domestic FMCG - Total 64,204 59,956 7.1 61,277 4.8
b) Others 2,670 2,545 4.9 2,394 11.5
Total (a+b) 66,875 62,502 7.0 63,671 5.0
Source: Company, India Infoline Research

The core Soaps and Detergents segment; contributing ~50% to revenues and ~41% to EBIT registered mere 7.7% yoy growth at Rs34.1bn (double digit volume growth in Lifebuoy, Breeze, Dove, Lux and laundry brands Surf, Rin). The revenue growth was impacted by the heavy promotional offers like higher grammages, freebies etc offered by the company for passing on the benefit of softening input prices to consumers. Personal products segment recorded 2% yoy growth in revenues at Rs18.8bn on a high base led by strong growth in hair and oral care segment (strong growth in brands – Ponds, Lakme and Dove). The management has stated that the skin care category is still witnessing a slowdown thereby impacting performance of its key brand Fair & Lovely. Beverages segment registered 15.8% yoy growth in revenues led by double digit growth across all key tea brands. Revenues from the packaged foods segment witnessed slower ~5% yoy increase at Rs4.6bn driven by Kissan and Knorr brands. Ice cream segment however was impacted by slowdown in discretionary spend.

Segment-wise revenue trend
Segments FY12 FY13 FY14
(Rs m) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Soaps & Detergents 25,576 25,961 26,481 28,344 31,631 31,762 31,712 31,914 34,077
Personal Products 15,823 15,562 18,134 16,333 18,471 17,445 20,489
BSE 1,324.00 7.45 (0.57%)
NSE 1,321.60 6.55 (0.50%)

***Note: This is a NSE Chart

 

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