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HUL: The extraordinary effect - Views on News from Equitymaster

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HUL: The extraordinary effect

Apr 28, 2008

Performance summary
  • Reports a topline growth of 19% YoY in 1QCY08.
  • EBITDA margins decline to 10.7% (11.4% in 1QCY07) on account of higher ad and other expenses.

  • Excluding the extraordinary items, the bottomline grows by 13% YoY. Other income falls by 15% YoY.

    Financial view
    (Rs m) 1QCY07 1QCY08 % change
    Net sales 31,843 37,939 19.1%
    Expenditure 28,224 33,862 20.0%
    Operating profit (EBDITA) 3,620 4,077 12.6%
    EBDITA margin (%) 11.4% 10.7%  
    Other income 908 773 -14.9%
    Interest -51 -201 293.7%
    Depreciation 329 363 10.3%
    Profit before tax 4,148 4,688 13.0%
    Extraordinary item 590 25  
    Tax 809 905 11.9%
    Profit after tax/(loss) 3,929 3,808 -3.1%
    Net profit margin (%) 12.3% 10.0%  
    No. of shares (m) 2206.8 2178.0  
    Diluted earnings per share (Rs)*   8.79  
    Price to earnings ratio (x)*   28.1  
    * On a 12-month trailing basis

    What has driven performance in 1QCY08?
    • Net Sales grew by 19.1% YoY on the back of strong FMCG business growth of 19.4% YoY. HPC Business grew by strong 20.4% YoY. Strong growth across all categories was witnessed. Its flagship brands ‘Surf’, ‘Rin’ and ‘Wheel’ in the laundry segment led to the growth of the segment by 20% YoY. Personal wash segment was driven by ‘Lifebuoy’. ‘Dove’, ‘Fair and Lovely’, ‘Ponds’, ‘Lux’ and ‘Sunsilk’ aided the 24% YoY growth in the quarter in the personal care segment.

    • Foods segment reported a 15% YoY growth. Beverages grew by 16% YoY, while processed foods and ice-cream category witnessed a 15% YoY rise. In February 2008, the company launched the ‘Amaze’ range of nutritional foods from the parent Unilever’s portfolio. Exports rose by 13% YoY. Water business has now been extended to 170 key towns across 19 states. Though currently at a nascent stage, the company is bullish on this segment.

    • The company witnessed marginal decline in the operating margins to the tune of 60 basis points. While raw material and labour cost remained stable as a % of sales, higher ad spends and other expenses led to the underperformance. The company continues to invest in brands and hence higher ad spends. On the segmental PBIT basis, soaps, personal products, exports and foods witnessed increase in margins. However, other segments margins fell as compared to 1QCY07.

    • Excluding the extraordinary items (structuring costs and profit on sale of properties) the bottomline in 1QCY08 has grown by 13% YoY. Other income was lower by 15% YoY.

      All round picture
        % contribution to sales Revenue growth PBIT growth PBIT margin (%) PBIT margin (decline)/gain (basis points)
      Soaps and Detergents 45.1% 19.9% 34.3% 13.4% 140
      Personal Products 26.4% 23.5% 24.7% 24.7% 30
      Beverages 11.2% 15.8% -9.5% 11.6% -320
      Foods (includes Oils and Fats, Culinary and Branded Staples ) 3.9% 15.5% -76.2% 1.1% 440
      Ice Creams 1.0% 14.1% -337.7% -7.8% (1,160)
      Exports 10.4% 12.9% 33.9% 4.4% 70
      Others (includes Chemicals, Agri, Plantations etc) 2.0% 48.1% 87.5% -40.4% -850

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