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HUL: Strong comeback - Views on News from Equitymaster

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HUL: Strong comeback
Feb 14, 2008

Performance summary
  • Topline grows by 13% YoY during CY07 led by the 12.3% YoY growth in HPC sales and 20.2% YoY in growth in Foods sales.
  • For CY07, the margins are stable at 13.7%.

  • In CY07, the bottomline is up 15% YoY excluding the extraordinary item.

  • Recommends a dividend of Rs 3 per share (dividend yield of 1.5%). The company pays a total dividend of Rs 9 per share for 2007.

    Financial view
    (Rs m) 4QCY06 4QCY07 % change CY06 CY07 % change
    Net sales 31,561 36,874 16.8% 121,034 137,178 13.3%
    Expenditure 26,561 31,232 17.6% 104,553 118,321 13.2%
    Operating profit (EBDITA) 5,000 5,642 12.8% 16,481 18,857 14.4%
    EBDITA margin (%) 15.8% 15.3%   13.6% 13.7%  
    Other income 1070 1597 49.3% 3,545 4,627 30.5%
    Interest 18 26 41.0% 107 255 137.4%
    Depreciation 342 369 7.8% 1,302 1,384 6.3%
    Profit before tax 5,709 6,844 19.9% 18,617 21,845 17.3%
    Extraordinary item 278 775   3,157 1,564 -50.5%
    Tax 875 1305 49.1% 3,220 4,155 29.0%
    Profit after tax/(loss) 5,112 6,314 23.5% 18,554 19,255 3.8%
    Net profit margin (%) 16.2% 17.1%   15.3% 14.0%  
    No. of shares (m) 2,207 2,178   2,207 2,178  
    Diluted earnings per share (Rs)*         8.84  
    Price to earnings ratio (x)*         23.2  
    * On a 12-month trailing basis

    What has driven performance in CY07?
    • HUL reported a topline growth of 13% YoY during CY07 with FMCG growing by 13.7% YoY and exports reporting a 5% YoY growth. HPC sales grew 12.3% YoY and Foods sales grew by 20.2% YoY. It reported a volume growth of 8.4% YoY in 4QCY07 and 6% YoY in CY07. Robust growth in soaps and detergents (13.9%) and personal care (9.3%) led to the double-digit growth in HPC division. In the soaps and detergent category, the brand Dove (had launched hair care products in CY07) fueled growth. The company’s Ponds products are also doing well. 1 m consumers have already tried their product, and growth potential in this category is immense. The company has identified skin and hair care category as the future growth drivers.

      Rs m 4QCY06 4QCY07 % change CY06 CY07 % change
      Domestic FMCG-HPC 22,868 27,066 18.4% 88,514 99,436 12.3%
      Domestic FMCG-Foods 4,906 5,718 16.6% 18,408 22,119 20.2%
      Total FMCG 27,774 32,784 18.0% 106,922 121,554 13.7%
      Exports 3,473 3,437 -1.1% 12,789 13,423 5.0%
      Others 314 653 108.2% 1,106 2,201 98.9%
      Total 31,561 36,874 16.8% 120,817 137,178 13.5%

    • Ice creams and beverages too registered strong double-digit growth. Processed Foods continued to do well with strong performance by Knorr post its relaunch in 3 new ranges. The company has merged Modern Foods (India) with itself. Toothpastes and tea are two categories that have lost market share during the last year. The company’s water business now reaches 4 m consumers in 210 towns across 10 states. CY08 is likely to be the year of large investments in this category as the company rolls out this product nationally. The topline is marginally above our estimates.

    • Though for the quarter the company witnessed marginal decline in the operating margins on account of higher costs (as % of sales), for CY07, the margins were stable at 13.7%. Though cost inflation continues to be a worry, cost savings, product mix improvement, and price increase have aided the margins. On the segmental PBIT basis, beverages, ice creams, exports and others segments witnessed a decline in margins. Foods, soaps and detergent divisions did well on the PBIT front in CY07. Cost savings and selective pricing mitigated the impact of escalating costs. The company continues to spend on advertisement and brand-building and these costs were higher by 12% YoY in CY07. The margins are in line with our estimates.

    • Excluding the extraordinary items (profit from sale of property, reduction in liability for retirement benefits arising from impact of revised interest rates and lower annuity costs and restructuring costs), the bottomline in 4QCY07 has grown by 15% YoY. In CY07, the bottomline is up 15% YoY. Higher interest and tax outgo (on account of completion of some tax free holidays) has hampered the growth to that extent.

    • On a consolidated basis, topline has grown by 12% YoY in CY07 with standalone contributing 98.6% to the total sales. On bottomline front, it is up 16% YoY excluding the extraordinary items.

      All round picture:
        % contribution to sales Revenue growth PBIT growth PBIT margin (%) PBIT margin (decline)/gain (basis points)
      Soaps and Detergents 45.9% 13.9% 35.1% 15.6% 240
      Personal Products 26.4% 9.3% 12.2% 28.2% 70
      Beverages 11.0% 15.2% 11.1% 15.1% (60)
      Foods (includes Oils and Fats, Culinary and Branded Staples ) 3.9% 39.7% 92.3% 3.5% 100
      Ice Creams 1.2% 17.2% -22.5% 8.5% (440)
      Exports 9.7% 5.0% -25.2% 3.5% (140)
      Others (includes Chemicals, Agri, Plantations etc) 2.1% 58.3% 66.8% -39.5% (200)

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