Hindustan Unilever (Q4 FY14)

India Infoline News Service | Mumbai |

HUL reported 8.9% yoy growth in revenues at Rs69.4bn in Q4 FY14 marginally below our expectations of Rs69.7bn.

CMP Rs581, Target Rs601, Upside 3.6%
  • HUL registered ~9% yoy revenue growth, marginally below our expectations at Rs69.4bn. Underlying volume growth stood at ~3% yoy in line with our expectations

  • Growth could have been even better but for mere ~8% revenue growth in personal products segment. EBIT margins in both Soaps and Detergents and Personal products segments remained under pressure due to intensified competition and lower discretionary spends

  • OPM expanded by 30bps to 15.5%, aided by lower advertising cost. PAT increased by 4% yoy to Rs8.1bn below our expectations of Rs8.7bn due to higher tax outgo. APAT after extraordinary items of Rs660mn increased by ~11% yoy to Rs8.7bn

  • Maintain Market Performer with revised 9-mth target price of Rs601

Result table (Standalone)
(Rs m) Q4 FY14 Q4 FY13 % yoy Q3 FY14 % qoq
Net sales 69,358 63,671 8.9 70,378 (1.4)
Other operational income 1,583 987 60.4 1,856 (14.7)
Total income 70,941 64,658 9.7 68,926 2.9
Material cost (37,308) (34,326) 8.7 (36,601) 1.9
Personnel cost (3,783) (3,123) 21.1 (3,477) 8.8
Advertising cost (8,403) (8,211) 2.3 (9,295) (9.6)
Other overheads (10,671) (9,281) 15.0 (10,593) 0.7
Operating profit 10,776 9,718 10.9 12,268 (12.2)
OPM (%) 15.5 15.3 27 bps 17.4 (190) bps
Depreciation (658) (614) 7.1 (644) 2.1
Interest (53) (60) (11.3) (182) (70.7)
Other income 1,506 1,058 42.3 1,427 5.6
PBT 11,571 10,102 14.5 12,868 (10.1)
Tax (3,510) (2,324) 51.0 (2,475) 41.8
Effective tax rate (%) 30.3 23.0 - 19.2 -
Adjusted PAT 8,061 7,778 3.6 10,393 (22.4)
Adj. PAT margin (%) 11.6 12.2 (59) bps 14.8 (315) bps
Extra ordinary items 660 94 601.7 230 187.5
Reported PAT 8,721 7,872 10.8 10,623 (17.9)
Ann. EPS (Rs) 14.9 14.4 3.6 19.2 (22.4)
Source: Company, India Infoline Research

Slower growth in HPC segment restricts topline growth at 9% yoy

HUL reported 8.9% yoy growth in revenues at Rs69.4bn in Q4 FY14 marginally below our expectations of Rs69.7bn. The growth could have been even better but for slower growth in HPC segment. As expected, underlying volume growth for the quarter stood at ~3% yoy against 6% in Q4 FY13 due to pipeline filling in the base quarter due to transporters' strike.


Revenue break-up
(Rs m) Q4 FY14 Q4 FY13 Growth Q3 FY14 Growth
(3) (3) % yoy (3) % qoq
Domestic FMCG - HPC 54,072 49,605 9.0 55,749 (3.0)
Domestic FMCG - Foods 12,751 11,673 9.2 11,996 6.3
a) Domestic FMCG - Total 66,822 61,277 9.0 67,745 (1.4)
b) Others 2,536 2,394 5.9 2,633 (3.7)
Total (a+b) 69,358 63,671 8.9 70,378 (1.4)
Source: Company, India Infoline Research

The core S&D segment; contributing ~49% to revenues and ~40% to EBIT registered modest ~10% yoy growth at ~Rs35bn (double digit volume growth in Dove, Pears, Lifebuoy, Breeze and laundry brands Surf, Rin). Personal products segment recorded mere 8.3% yoy revenue growth at ~Rs20bn due to slower single digit growth in skin care segment due to overall slowdown in the discretionary spends. Hair care segment registered sustained double digit volume growth led by healthy growth in Dove, Sunsilk, Clinic Plus and TRESemm? (close to become Rs1bn brand within one year of launch). In the oral care segment, Close Up brand continues to grow. However, Pepsodent was impacted by high promotional intensity by peers in the market (HUL had cut down adspend in anticipation of reduction in promotional intensity in the segment). Beverages segment registered slower 7.5% yoy growth led by double digit growth in tea. The growth could have been better but for slowdown in the coffee market (Bru grew ahead of market). Packaged foods segment registered healthy 12.7% yoy to Rs4.2bn driven by Kissan, Knorr, and Kwality Walls. The newly launched Magnum ice cream has received good response and has been rolled out to 4 more cities (already rolled out in 5 cities).


Segment-wise revenue trend
Segments FY13 FY14
(Rs m) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Soaps & Dets 31,631 31,762 31,712 31,914 34,077 33,808 33,979 34,971
Personal Products 18,471 17,445 20,489 18,311 18,834 19,503 23,039 19,833
Beverages 6,541 7,196 7,929 8,081 7,574 8,354 8,500 8,690
Packaged Foods 4,370 3,663 3,301 3,723 4,579 3,980 3,728 4,197
Others 2,640 2,884 2,902 2,502 2,791 3,049 2,766 2,958
Total 63,651 62,949 66,334 64,532 67,854 68,694 72,011 70,649
Source: Company, India Infoline Research

Segment-wise EBIT trend
Segments FY13 FY14
(Rs m) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Soaps & Dets 3,852 4,536 3,937 3,830 4,393 4,739 4,509 4,217
Personal Products 4,757 4,226 5,789 4,717 4,682 4,449 6,592 4,958
Beverages 950 1,031 1,404 1,362 1,387 1,417 1,373 1,630
Packaged Foods 248 9 (26) 140 384 133 (134) 230
Others (43) 21 (186) (181) (31) 46 (135) (251)
Total 9,763 9,822 10,917 9,868 10,815 10,784 12,205 10,785
Source: Company, India Infoline Research
 

Operating margins expand by 30bps aided by lower advertising cost

Operating margins expanded by 30bps to 15.5% led by 80bps decline in advertising cost as percentage of sales. The expansion could have been even higher but for sharp rise in key input prices like PFAD and ~50bps/80bps increase in staff/overhead cost. We believe competitive intensity in the key categories (like soaps, detergents, shampoos and oral care) will compel HUL to increase adspend in the coming quarters, which will keep margins under check.


Cost analysis
As a % of net sales Q4 FY14 Q4 FY13 bps yoy Q3 FY14 bps qoq
Material cost 53.8 53.9 (12) 52.0 178
Personnel cost 5.5 4.9 55 4.9 51
Advertising cost 12.1 12.9 (78) 13.2 (109)
Other overheads 15.4 14.6 81 15.1 33
Total costs 86.7 86.3 46 85.2 154
Source: Company, India Infoline Research

EBIT margins in both Soaps and Detergents and Personal product segment remained under pressure due to intensified competition and lower discretionary spends. Beverages and packaged foods segments witnessed 190bps/170bps expansion in margins at 18.8%/5.5% respectively. Packaged foods segment reported 64.4% yoy increase in profit at Rs230mn (loss of Rs134mn in Q3 FY14).


Net profit below expectations

Other income for the quarter increased by 42% yoy to Rs1.5bn. Net profit registered mere 3.6% yoy growth at Rs8.1bn - below our expectations of Rs8.7bn mainly due to higher tax outgo. The management expect effective tax rate to increase by 250-300bps for FY15. Adjusted net profit after exceptional items of Rs660mn increased by 10.8% yoy to Rs8.7bn.


Extraordinary items
Particulars Q4 FY14 Q4 FY13
Profit from sale of surplus properties 156 -
Reduction in provision for retirement benefits 508 104
Restructuring costs (3) (10)
Total 660 94
Source: Company, India Infoline Research

To witness ~12% earnings CAGR over FY13-16E; maintain Market Performer

HUL has identified 13 new segments like handwash, body wash, face wash, tea bags, soups, fabric conditioners, hair conditioners etc as segments of the future. Currently these are in investment phase but are growing at 2x-3x the company' growth rate. HUL is also investing in the channel of tomorrow i.e. organized retail, whose contribution to sales is already 15% and is expected to grow to 25% over the next several years.

Going ahead, we believe requirement of higher adspend on account of severe competition in core categories, currency depreciation and firm input prices could put pressure on operating margins. In a slowing macroeconomic environment it will be difficult for HUL to take price hikes (as demand remains weak). We expect HUL to witness revenue / earnings CAGR of ~12% respectively over FY13-16. At the current market price of Rs581, the stock is trading at 28x FY16E EPS of Rs20.7. Maintain Market Performer rating with a revised 9-mth target price of Rs601 (earlier Rs597).


Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14E FY15E FY16E
Revenues 2,52,064 2,74,083 3,08,728 3,51,748
yoy growth (%) 16.0 8.7 12.6 13.9
Operating profit 40,038 44,753 50,688 57,899
OPM (%) 15.9 16.3 16.4 16.5
Pre-exceptional PAT 31,883 36,388 39,581 44,855
Reported PAT 37,967 38,675 39,581 44,855
yoy growth (%) 41.1 1.9 2.3 13.3
EPS (Rs) 14.7 16.8 18.3 20.7
P/E (x) 39.4 34.5 31.7 28.0
Price/Book (x) 47.0 38.3 33.8 30.1
EV/EBITDA (x) 30.9 27.6 24.3 21.1
Debt/Equity (x) 0.0 0.0 0.0 0.0
RoE (%) 103.1 122.3 113.3 113.9
RoCE (%) 141.4 162.5 154.8 155.5
Source: Company, India Infoline Research
 

***Note: This is a NSE Chart

 

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