X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Hindustan Unilever: Slow start to the year - Views on News from Equitymaster
StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Hindustan Unilever: Slow start to the year
Jul 21, 2015 | Updated on Jul 23, 2015

HUL declared results for the quarter ended June 2015. The company reported a revenue growth of 5% YoY during the quarter while profits remained flat. Here is our analysis of the results.

Performance summary
  • Standalone revenues rise by 5% YoY led by the company's personal products and packaged food businesses. The soaps and detergents division (which forms about half of the company's revenues) grew by 0.2% YoY.
  • Operating profits rise by 14% YoY as margins expand to 18.6% as compared to 17.1% in same period of last year. Margin expansion largely due to lower input costs.
  • Lower other income coupled with lesser exceptional income leads to a profit before tax growth of 4% YoY. Adjusting for one time items, profit before tax is up by 7% YoY.
  • Net profits rise by 0.2% YoY.

Standalone financial performance
(Rs m) 1QFY15 1QFY16 Change
Net sales 77,163 81,051 5.0%
Expenditure 63,998 65,987 3.1%
Operating profit (EBDITA) 13,165 15,064 14.4%
EBDITA margin (%) 17.1% 18.6%  
Other income 2,021 1,086 -46.3%
Depreciation 667 749 12.3%
Interest 63 1 -98.9%
Exceptional items 396 98 -75.4%
Profit before tax 14,853 15,498 4.3%
Tax 4,285 4,907 14.5%
Effective tax rate 29% 32%  
Profit after tax/(loss) 10,568.5 10,591.4 0.2%
Net profit margin (%) 13.7% 13.1%  
No. of shares (m) 2,163.1 2,163.8  
Diluted earnings per share (Rs)*   20.1  
Price to earnings ratio (x)   44.3  
(*On a trailing 12-month basis)

What has driven performance in the quarter ended June 2015?
  • Revenue growth for the company was largely led by the personal care products division which grew by 11.4% YoY. In the quarter gone by, it formed about 29.7% of total sales as compared to 28.1% in the same quarter last year. The company's key business segment of soaps and detergents remained flat, growing only by 0.2% YoY. This segment formed about 47.6% of sales as compared to 50% in same quarter last year.

    Segment wise performance
    Segment 1QFY15 1QFY16 Change
    S&D 38,476 38,544 0.2%
    % of sales 50.0% 47.6%  
    Personal products 21,596 24,056 11.4%
    % of sales 28.1% 29.7%  
    Beverages 8,366 9,149 9.4%
    % of sales 10.9% 11.3%  
    Packaged foods 5,438 6,079 11.8%
    % of sales 7.1% 7.5%  
    Others 3,029 3,125 3.2%
    % of sales 3.9% 3.9%  
    Total 76,904 80,953 5.3%
    Data source: Company, Equitymaster research

    As per the company's management, the slow growth in its key division was largely a factor of price cuts. Also, the company did witness pressure in certain key brands (such as Wheel and Pepsodent) - as it has been in recent times - in the form of intense competition and thus pricing pressures. Rural sales revenues - which form about 35% to 37% (direct reach) of the total sales, witnessed pressure during the quarter, while brands in the urban markets have been generally doing well. Overall volume growth has been in a range of 6% YoY on an overall basis. The management believes that the market recovery is yet to stabilize and that the deflationary trend is pressuring the company on the revenue front as it had essentially passed on cuts in input costs to consumers in select categories.

  • HUL's operating profits were up by 14.4% YoY largely due to lower input costs. For example, the price of Palm Fatty Acid Distillate - the key input cost for the company - declined by about 15% YoY. Input costs declined by over 2% YoY forming about 48% of sales as compared to 51.7% earlier.

    Cost break up
    Particulars 1QFY15 1QFY16 Change
    Raw material costs 39,896 39,020 -2.2%
    % of sales 51.7% 48.1%  
    Employee benefit  3,357 3,635 8.3%
    % of sales 4.4% 4.5%  
    Other expenses  20,745 23,332 12.5%
    % of sales 26.9% 28.8%  
    Total  63,998 65,987 3.1%
    Data source: Company, Equitymaster Research

  • At the profit level, the figure did not grow as fast due to three reasons - lower other income (due to more income from sale of investments in same quarter last year), higher tax outgo and lower exceptional income (profit from sale of real estate) during the quarter gone by. On adjusting the profit before tax for the non-tax related adjustments, the figure would have been higher by about 15% YoY.
What to expect?
At the current price of Rs 890, the stock of HUL trades at a multiple of about 44x its trailing twelve month earnings and at about 39x our estimated FY17 EPS.

HUL is largely working towards fixing the key issues for some of the brands, especially those which are largely influenced by the rural demand. As the subdued demand from the rural parts of the country have impacted the sector on the whole, it is hoped that the scenario will change given the lower commodity prices which would be expected to leave more money in the hands of the people. Key aspects that will drive growth for this segment will include the impact of monsoons, coupled with the government efforts towards the rural India in the form of support prices and MNREGA programs, which if nothing else would at least bring in about a change in sentiments.

Having said that, over the long term, the company's focus will remain on the rural markets given that they are largely underpenetrated and have historically outgrown the urban markets in to the ratio of 1.5 to 2x over longer periods. Given the large untapped markets, there would be no reasons to change this strategy anytime soon. As for the urban markets, the personal care products and the packaged foods divisions continue to do well.

Some of the key things to watch out for over in the short term is the full impact of the lower input costs coupled with impact of the phase out of excise benefits on the company's pricing strategy and its impact on margins.

Coming to the view on the stock, we believe HUL is anything but attractive and thus maintain our 'SELL' view on the stock at this juncture.

To Read the Full Story, Subscribe or Sign In



DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research Analysts) Regulations, 2014 with registration number INH000000537.

BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.

DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.

GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.

DETAILS OF ASSOCIATES:
Details of Associates are available here.

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report.
  2. Neither Equitymaster, Research Analyst or his/her relative have any financial interest in the subject company.
  3. Equitymaster's Associate has financial interest in the HUL.
  4. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  5. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

HIND. UNILEVER SHARE PRICE


Dec 13, 2017 12:53 PM

TRACK HIND. UNILEVER

  • Track your investment in HIND. UNILEVER with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

MORE ON HIND. UNILEVER

HIND. UNILEVER - GILLETTE INDIA COMPARISON

COMPARE HIND. UNILEVER WITH

MARKET STATS