HUL: Extraordinary boost for bottomline

Oct 25, 2010

• Sales growth for HUL was volume led. The volume growth of domestic consumer business stood at 14% YoY while Home and Personal Care business grew by 9% YoY. Sales from foods business grew by 13% which is ahead of market. The performance this quarter has been broad based with the company spending on brand building, defending its market position and launching several new products this quarter. All round picture

  June quarter	% contribution to sales	Revenue growth	PBIT growth	PBIT margin (%)	PBIT margin gain/(decline) (basis points)
  Soaps and Detergents	44.8%	6.3%	-8.3%	11.7%	(186)
  Personal Products	28.7%	14.7%	0.2%	23.0%	(332)
  Beverages	12.0%	9.3%	-1.3%	15.4%	(165)
  Processed Foods	4.6%	26.2%		4.6%	510
  Ice Creams	1.2%	9.0%	117.5%	10.0%	498
  Exports	5.6%	16.6%	10.2%	7.1%	(42)
  Others	3.2%	42.7%		-12.0%	(281)

  
  
• Sales of soaps and detergent business which contributes 44.8% of the total revenue was up by 6.3% YoY. This was led by double digit growth in the Rin portfolio. The company reported a strong growth in the personal products portfolio at 15% YoY. This was the result of good volume growth driven by hair, oral and skin care segments. Beverage business of the company grew by 9.3%. This was on the back of strong growth in coffee. However, some down trading was observed in tea during the quarter as a result of high food inflation. Processed foods grew by 26% while ice cream grew by 9%. Pure-it water filter continues to grow strongly as a result of increase in penetration and launch of new innovative products like Pureit Marvella at Rs 6,900.

• Operating income fell during the quarter. While the company benefited from lower raw material costs and lower staff costs, higher spending on brand building and increase in other expenditure saw operating income dip by 0.8% YoY. Advertisement expense grew by 13.2% during the quarter, ending at 13.6% of sales while other expenditure grew by 26.5% ending at 17.7% of sales.

• On a segmental basis, the company saw its soaps and detergents business being affected by lowering of prices of the products and heightened competitive activity. This has resulted in the sales increasing by a muted 6.3% YoY. Moreover, increase in brand building has resulted in PBIT margins shrinking by 1.9%. Margins for the personal products category improved by 0.2% during the quarter. PBIT margins for the beverage category fell as a result of higher raw tea prices. Margins for foods category turned positive for the quarter and stood at 4.6%. For ice cream business, the margins doubled to 10% as the company consolidated its new ice-cream parlours called Swirl’s. The loss at operating level for others reflecting the water filter business was higher this quarter as a result of the company investing behind Pureit aggressively.

• Net profit of the company grew on the back of higher other income and higher extraordinary profits during the year. The extraordinary profits include profit from sale of property, provision for expenses related to buyback of shares, profit on sales of long term investment and restructuring costs.

What to expect?