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HUL: Soaps disappoint - Views on News from Equitymaster
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HUL: Soaps disappoint
Oct 31, 2009

Performance summary
  • Net sales for 2QFY10 grew by 3.9% YoY. This is due to growth in personal product portfolio offset by a flat performance in the soaps and detergent business.
  • Operating (EBITDA) income grew by 17% YoY for the quarter. This was largely on the back of strong growth in the personal products business.
  • Net profit margin fell by 3.3% to 10% for the quarter. However, when adjusted for extraordinary items, the net profit margin is higher by 2.5% at 13.2%. This growth comes on the back of higher operating income for the quarter.
  • Net profit margin for 1HFY10 was lower by 2.1% at 11.1%. However, when adjusted for extraordinary items the net profit margin is higher by 0.8% at 12.5%.


Financials
(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 change
Net sales 41,109 42,692 3.9% 83,476 87,719 5.1%
Expenditure 35,516 36,173 1.9% 71529 74,049 3.5%
Operating profit (EBDITA) 5,594 6,520 16.6% 11947.4 13,670 14.4%
EBDITA margin (%) 13.6% 15.3%   14.3% 15.6%  
Other Income 473.9 472.8 -0.2% 1281.7 808 -36.9%
Interest 65 14.8 -77.2% 152.2 67 -56.3%
Depreciation 392.7 462.4 17.7% 771.9 887 15.0%
Profit before tax 5,610 6,515 16.1% 12,305 13,524 9.9%
Exceptional/extraordinary Items 1087.3 (1,352)   1267.7 (1,287)  
Tax 1,231 878 -28.7% 2524.6 2,521 -0.2%
Profit after tax/(loss) 5,466 4,285 -21.6% 11,048 9,717 -12.0%
Net profit margin (%) 13.0% 12.0%   13.2% 11.1%  
No. of shares (m) 2,178 2,181   2,178 2,181  
Diluted earnings per share (Rs)*         10.8  
Price to earnings ratio (x)*         26.1  
* On a trailing 12 months basis

What has driven growth in 2QFY10?
    All round picture..
    September quarter % contribution to sales Revenue growth PBIT growth PBIT margin (%) PBIT margin gain/(decline) (basis points
    Soaps and Detergents 46.9% 0.9% 1.6% 13.6% 9
    Personal Products 27.8% 13.4% 22.6% 26.3% 199
    Beverages 12.2% 18.0% 41.9% 17.0% 287
    Processed Foods 4.1% 0.0% -135.6% -0.5% (204)
    Ice Creams 1.2% 3.6% 18.9% 5.0% 64
    Exports 5.3% -23.3% -45.8% 7.6% (314)
    Others 2.5% 17.9% -65.9% -9.2% 2,259

  • The top line growth has been a function of both volume growth and higher price realisation. While volume was 1%, the balance was made up of higher price realisation. Sales growth would have been higher if not for a phased decrease in exports. The domestic consumer sales including water grew by 8% YoY.

  • Soaps and detergents segment grew by 1% YoY due to low growth in mass segment while personal products portfolio grew by 13% YoY. Foods business grew by 13% YoY while the beverage segment showed an 18% YoY growth.

  • Operating margins increased by 1.7% to 15.3%. This increase comes on the back of lower raw material costs and cost saving measures offset by higher advertisement expenses.

  • The net profit of the company was affected by a onetime restructuring cost and profit on sale of properties. Barring these, the net profit of the company grew by 29% YoY during the quarter.

What to expect?
At a price of Rs. 283, the stock is trading at 21 times our estimated FY12 earnings. While the personal products portfolio has shown strong growth, the soaps and detergent segment continues to disappoint. The company has started taking corrective measure now in the form of value offering and brand building to regain market share. However, we would like to wait and see how the company performs in the December quarter, which has traditionally been the strongest quarter for the company.

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