Hindustan Unilever Ltd (Q3 FY13)
Operating margins contracted by 120bps to 13.5% mainly due to sharp 100bps/60bps increase in adspend and staff cost.
Jan 23, 2013 11:01 IST India Infoline News Service
CMP Rs482, Target Rs513, Upside 6.6%
Source: Company, India Infoline Research
Revenues below expectations
HUL Q3 FY13 revenues were below our expectations (of ~Rs66bn) at Rs64.3bn – up by mere 10.1% yoy due to slower 15% yoy growth in domestic FMCG business. Underlying volume growth was lower at 5% yoy compared to 7% in Q2 FY13 and 9.1% in Q3 FY12, due to price hikes in sachets, slowdown in ‘Wheel’, weakness in discretionary categories and lower modern retail sales.
Revenue break-up
Source: Company, India Infoline Research
The core Soaps and Detergents segment; contributing ~48% to revenues and ~36% to EBIT registered 19.8% yoy growth at Rs31.7bn (double digit volume growth in Surf and Rin). Personal products segment recorded 13% yoy growth in revenues at Rs20.5bn primarily led by strong growth in skin care segment (double digit growth in brands - Ponds, Vaseline, Dove). The management stated that the skin care category is witnessing a slowdown. We believe price hikes taken in Fair and Lovely (by Re1 to Rs8 taken during Q2 FY13) and Dove sachets will take more 3-4 months to be successfully absorbed by the market. The growth could have been better but for the slower growth in shampoo segment due to intense competition. Beverages segment registered 18.2% yoy growth in revenues led by premium tea and coffee (strongest quarter for tea). Revenues from the packaged foods segment witnessed slower 7.7% yoy increase at Rs3.3bn driven by Kissan (double digit growth in Knorr on a low base – market still witnessing slowdown).
Segment-wise revenue trend
- Q3 revenues were below our expectations at ~Rs64bn, up by mere 10% yoy led by ~15% yoy growth in HPC segment. Domestic FMCG business witnessed a lower underlying volume growth of 5% against 7% in Q2 FY13
- Personal products segment witnessed 140bps expansion in EBIT margins at 28.3%. Soaps and Detergents segment margins, however, contracted by 100bps to 12.4%
- Operating margins contracted by 120bps to 13.5% due to sharp rise in advertising cost. Adjusted net profit registered ~16% yoy increase at Rs8.7bn driven by higher other income
- As per the new royalty agreement with Unilever, royalty payment will increase from current 1.4% of turnover to 3.15% in a phased manner effective February, 2013 till March 2018
- We maintain Market Performer rating with a revised 9-mth target price of Rs513 (earlier Rs544)
Result table (Standalone)
| (Rs m) | Q3 FY13 | Q3 FY12 | % yoy | Q2 FY13 | % qoq |
| Net sales | 64,337 | 58,443 | 10.1 | 61,554 | 4.5 |
| Material cost | (34,191) | (30,799) | 11.0 | (32,695) | 4.6 |
| Personnel cost | (3,427) | (2,741) | 25.0 | (3,305) | 3.7 |
| Advertising cost | (8,222) | (6,902) | 19.1 | (7,690) | 6.9 |
| Other overheads | (9,821) | (9,408) | 4.4 | (9,652) | 1.8 |
| Operating profit | 8,677 | 8,593 | 1.0 | 8,213 | 5.6 |
| OPM (%) | 13.5 | 14.7 | (122) bps | 13.3 | 14 bps |
| Depreciation | (593) | (568) | 4.3 | (577) | 2.8 |
| Interest | (75) | (5) | 1,573.3 | (63) | 19.0 |
| Other income | 3,549 | 1,913 | 85.5 | 3,042 | 16.7 |
| PBT | 11,557 | 9,933 | 16.3 | 10,615 | 8.9 |
| Tax | (2,771) | (2,271) | 22.0 | (2,561) | 8.2 |
| Effective tax rate (%) | 24.0 | 22.9 | - | 24.1 | - |
| Adjusted PAT | 8,786 | 7,662 | 14.7 | 8,053 | 9.1 |
| Adj. PAT margin (%) | 13.7 | 13.1 | 55 bps | 13.1 | 57 bps |
| Extra ordinary items | (73) | (124) | (41.2) | 16 | - |
| Reported PAT | 8,714 | 7,538 | 15.6 | 8,069 | 8.0 |
| Ann. EPS (Rs) | 16.3 | 14.2 | 14.6 | 14.9 | 9.1 |
Revenues below expectations
HUL Q3 FY13 revenues were below our expectations (of ~Rs66bn) at Rs64.3bn – up by mere 10.1% yoy due to slower 15% yoy growth in domestic FMCG business. Underlying volume growth was lower at 5% yoy compared to 7% in Q2 FY13 and 9.1% in Q3 FY12, due to price hikes in sachets, slowdown in ‘Wheel’, weakness in discretionary categories and lower modern retail sales.
Revenue break-up
| (Rs m) | Q3 FY13 | Q3 FY12 | Growth | Q2 FY13 | Growth |
| (3) | (3) | % yoy | (3) | % qoq | |
| Domestic FMCG - HPC | 50,708 | 43,963 | 15.3 | 48,131 | 5.4 |
| Domestic FMCG - Foods | 10,877 | 9,640 | 12.8 | 10,626 | 2.4 |
| a) Domestic FMCG - Total | 61,585 | 53,604 | 14.9 | 58,758 | 4.8 |
| b) Others | 2,752 | 4,840 | (43.1) | 2,796 | (1.6) |
| Total (a+b) | 64,337 | 58,443 | 10.1 | 61,554 | 4.5 |
The core Soaps and Detergents segment; contributing ~48% to revenues and ~36% to EBIT registered 19.8% yoy growth at Rs31.7bn (double digit volume growth in Surf and Rin). Personal products segment recorded 13% yoy growth in revenues at Rs20.5bn primarily led by strong growth in skin care segment (double digit growth in brands - Ponds, Vaseline, Dove). The management stated that the skin care category is witnessing a slowdown. We believe price hikes taken in Fair and Lovely (by Re1 to Rs8 taken during Q2 FY13) and Dove sachets will take more 3-4 months to be successfully absorbed by the market. The growth could have been better but for the slower growth in shampoo segment due to intense competition. Beverages segment registered 18.2% yoy growth in revenues led by premium tea and coffee (strongest quarter for tea). Revenues from the packaged foods segment witnessed slower 7.7% yoy increase at Rs3.3bn driven by Kissan (double digit growth in Knorr on a low base – market still witnessing slowdown).
Segment-wise revenue trend
| Segments | FY11 | FY12 | FY13 | ||||||||
| (Rs m) | Q1 | Q2 | |||||||||
