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HUL: Robust profitable growth continues
Jul 24, 2012

Hindustan Unilever Limited has announced its first quarter financial results of 2012-2013 (1QFY13). The company has reported 14% YoY increase in sales and 112% YoY rise in net profits. Here is our analysis of the results.

Performance summary
  • Backed by 19% growth in the domestic consumer business, HUL's revenues grew by 14% YoY during the quarter. The robust sales growth was led by double-digit growth in the revenues from both home & personal care and foods businesses.
  • Aided by lower raw material costs and other expenditure (as a percentage of sales), the company was able to offset higher adspends and register a 170 basis points expansion in operating margin during the quarter.
  • Earnings surged by 112% mainly on account of profit of Rs 6 bn from sale of property. Excluding the impact of extraordinary income, net profit was up by 27.8%.

Standalone financial performance snapshot
Rs(m) 1QFY12 1QFY13 Change
Revenues 55,889 63,788 14.1%
Expenditure 48,346 54,123 11.9%
Operating profit (EBDITA) 7,543 9,665 28.1%
EBDITA margin (%) 13.5% 15.2%  
Other income 506 2,186 332.0%
Interest 0 53  
Depreciation 562 576 2.5%
Profit before tax 7,487 11,222 49.9%
Extraordinary inc/(exp) 588 6,047  
Tax 1,802 3,957 119.5%
Profit after tax/(loss) 6,272 13,312 112.3%
Net profit margin (%) 11.2% 20.9%  
No. of shares (m)   2161.8  
Diluted earnings per share (Rs)*   15.72  
Price to earnings ratio (x)*   30.3  
(*On a trailing 12-month basis)

What has driven performance in 1QFY13?
  • Riding on a strong volume growth of 9%, HUL's domestic consumer business grew by 19% in 1QFY13. The robust topline growth was driven by a 20.6% rise in Home & Personal Care division whereas the Foods division grew by 10.6%. In Home & Personal Care, the largest segment soaps & detergents clocked a 24% rise in sales whereas the personal care segment grew by 17% led by double-digit volume growth in hair care, skin care and oral care categories. In the Foods segment, beverages grew by a subdued 7.4% whereas packaged food sales surged by 17% backed by double-digit growth in sales of ketchup and soups.

    All round picture
    Jun 12 quarter % contribution to sales Revenue growth PBIT growth PBIT margin (%) PBIT margin gain/(decline)(basis points)
    Soaps and Detergents 49.7% 23.7% 63.2% 12.2% 295
    Personal Products 29.0% 16.7% 15.8% 25.8% (21)
    Beverages 10.3% 7.4% 25.9% 14.5% 214
    Packaged Foods 5.9% 17.3%   6.7% 268
    Others(includes Exports, Chemicals, Water etc) 7.3% -43.0%   -0.9% (990)

  • On the back of improved profitability in majority of its product segments including soaps & detergents, beverages and packaged foods, HUL expanded operating margin by 170 basis points during the quarter. The personal care segment saw a marginal dip in its operating margin. On the cost front, controlled raw material costs and other expenses enabled the company to expand margins during the quarter. However, adspends continued to be high recording growth of 29.5% during the quarter. As a proportion of sales, adspends rose by 152 basis points to 12.8%.

  • At the net level, profits witnessed a steep 112% jump on account of extraordinary income earned during the quarter. HUL earned profits of Rs 6 bn from sales of properties. Even the other income earned was up by 332% as it included gains from sale of other non trade investments and income tax refunds.

What to expect?
HUL has delivered consistent double-digit growth in the last five quarters. This growth has been a mix of both volume and prices. Apart from that, the company has improved operating profitability in each of the last four quarters recovering from the margin dip of FY10 and FY11. Going forward, the company does not have benefit of the low base effect and with inflationary pressures persisting from deficient rainfall as well as weak rupee, the margin expansion may not be significant in the coming quarters. But the investments in brands and innovation are expected to fuel the company's growth engine in the long run.

We had given a SELL on this stock. At the current price of Rs 519, the stock is trading at a multiple of 29 times its estimated FY15 earnings. At current valuations, the stock appears overpriced and we continue to maintain a SELL on the stock.

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