HUL BRICS FEB 12 by icestar

VIEWS: 4 PAGES: 4

									FMCG I December 2011 Quarter Review                                   7 February 2012




Hindustan Unilever                                                              ADD
 Volume growth leads to strong performance                             CMP: Rs382                Target Price: Rs419

HUL’s Q3FY12 revenues were in-line while net profit was 15%                  KEY DATA
higher than estimates. Volume growth came in at a good 9% despite            Bloomberg                           HUVR IN
                                                                             Reuters                              HLL.BO
an unfavorable base. While soaps and detergents margins are back
                                                                             52-wk H/L (Rs)                      420/265
to (high) pre-FY11 levels, the personal product segment performance          6-m avg trd value                US$23.4mn
was lower than expected. We have revised our EPS estimate for FY12           Market cap              Rs825.8bn/US$16.8bn
and FY13 by 5% each to Rs12.3 and Rs14, respectively, to factor              Shares o/s                        2,161.0mn
better-than-expected volume performance. We maintain our Add                 Face value                              Re1
                                                                            Source: Bloomberg
rating but revise our target lower to Rs419 (Rs426 earlier).

Sales growth driven by 9% volume growth: HUL’s revenues were up             SHAREHOLDING (%)
16% yoy at Rs59.4bn (vs. estimated Rs58.67bn), operating profit was up
34% at Rs9.7 bn (vs. estimated Rs8.5bn) and APAT was up 34% at
Rs7.7bn (vs. estimated Rs6.6bn). Sales growth was driven by 9% volume
growth in the quarter and the 7.4% price hike in the year. Operating
margins expanded 220bps yoy to 16.3% as a 170bps increase in raw
material costs was completely offset by 290bps drop in A&P spends and
                                                                            Source: CMIE         As of 31 December 2011
110bps decline in other expenses.

Margins back to normal in soap and detergent business: Recent price         RELATIVE PRICE PERFORMANCE
hikes helped improve HUL’s soap and detergent business performance.
The segment recorded a 21% yoy growth in revenues to Rs26.5bn and
110% increase in EBIT to Rs3.6 bn. Consequently, EBIT margin expanded
570bps yoy to 13.5%. This segment was able to record double digit-
margins for the second consecutive quarter (after three previous
consecutive quarters of lackluster performance), bringing margins at par
with pre-FY11 levels.
                                                                            Source: Bloomberg
Personal products performance was disappointing: Personal products
reported a 14% yoy growth in revenues to Rs18.9bn but only a 2.4%           Key financials                            (Rs mn)

growth in EBIT to Rs4.5bn. This has led to 290bps decline in EBIT margin     Y/E 31 March           2011     2012E     2013E

to 25.9%, disappointing considering these are the lowest third-quarter       Revenue              196,945   228,726   255,056
                                                                             EBITDA                26,693    34,137    38,877
margins that this segment has recorded in the last 10 years. We attribute
                                                                             EBITDA margin (%)       13.6      14.9       15.2
this to price-led promotional activities during the quarter.
                                                                             PAT                   23,060    26,524    30,147
Impressive volume growth on high base: HUL recorded a 9% volume              FDEPS (Rs)              10.0      12.3       14.0
          th
growth (8 consecutive quarter of +8% volume growth) on an unfavorable        % growth                 3.4      22.8       13.7
base (13% volume growth in Q3FY11), driven by effective brand building in    P/E (x)                 38.2      31.1       27.4
select categories and volume shift in favour of organised players.           ROCE avg (%)            93.0      92.1       92.3
                                                                            Source: Company, BRICS Research
Revising estimates, maintain Add rating: We have upped our FY12 and
FY13 estimates to Rs12.3 and Rs14 (from Rs11.7 and Rs13.3) to factor-in
better-than-expected volume performance. The stock trades at 31x FY12
and 27x FY13 on our estimates, leaving little room for further upside. We
maintain our Add rating but lower our target to Rs419 (from Rs426) to
                                                                            Sachin Bobade
factor in our concerns about the personal product business (multiple        +91 22 66360039
reduced from 32x to 30x).                                                   sachin.bobade@bricssecurities.com


BRICS Securities Limited
Hindustan Unilever                                                                        7 February 2012



                           Other businesses performance mixed: HUL’s other businesses recorded mixed
                           performance—beverages recorded sales of Rs6.7 bn (up 11%) with an EBIT of Rs1.1bn
                           (up 3.7%) and margin decline of 110bps to 15.7%. Packaged foods recorded sales of
                           Rs3.1bn (up 13.5%) and lower EBIT loss of Rs60mn compared with a loss of Rs161mn
                           in Q3FY11.

                           Q3FY12 earnings surpassed our estimates                                                                (Rs mn)
                                          Dec 2011           Dec 2011              %                            qoq                   % yoy
                                                                                           Sep 2011                    Dec 2010
                                            Actual           estimate     Difference                         growth                  growth
                           Revenue          59,376             58,670           1.2%         56,105            5.8%      51,272       15.8%
                           EBITDA            9,705              8,527           13.8%             8,267       17.4%       7,245       34.0%
                           OPM (%)           16.3%             14.5%        180 bps           14.7%          160 bps     14.1%       220 bps
                           PAT               7,662              6,643           15.3%             6,445       18.9%       5,727       33.8%
                           EPS                  3.5               3.1           15.3%               3.0       18.9%         2.6       35.0%
                           Source: BRICS Research, Company

                           We have revised our FY12 and FY13 estimates upward                                                     (Rs mn)
                                                    Old Estimates                        New Estimates                    % Change
                                                FY12E               FY13E                FY12E             FY13E        FY12E         FY13E
                           Revenue             218,201             241,578              228,726           255,056        4.8%           5.6%
                           EBITDA               31,331              35,750               34,137            38,877        9.0%           8.7%
                           OPM (%)                  14.4%               14.8%            14.9%             15.2%        60 bps        40 bps
                           PAT                  25,266              28,756               26,524            30,147        5.0%           4.8%
                           EPS                        11.7               13.3              12.3              14.0        5.0%           5.0%
                           Source: BRICS Research




BRICS Securities Limited                                                                                                                       2
  Hindustan Unilever                                                                            7 February 2012



Financial summary
Income statement                                               (Rs mn)     Balance sheet                                                     (Rs mn)
Y/E 31 March                     2010       2011     2012E       2013E     Y/E 31 March                       2010    2011         2012E       2013E
Revenue                       177,659    196,945    228,726     255,056    Net fixed assets                 24,361 24,682          24,845      24,858
Revenue growth (%)              (13.4)      10.9       16.1        11.5    Investments                      12,641 12,607          12,607      12,607
Operating exp                 149,695    170,252    194,589     216,178    Current assets                   53,678 60,952          73,171      90,152
EBITDA                         27,964     26,693     34,137      38,877     Inventories                     21,799 28,113          32,649      36,408
EBITDA margin (%)                   16        14         15          15     Sundry debtors                   6,784   9,432         10,954      12,215
Depreciation                    1,840      2,208      2,337       2,487     Cash & bank balance             18,925 16,400          21,487      32,559
EBIT                           26,123     24,484     31,800      36,390     Loans & advances                 6,006   6,654          7,727       8,617
MTM profit / (loss)                  -         -          -           -    Other current assets                166     354            354         354
Other income                    1,089      2,879      2,879       3,026    Total assets                     93,167 100,338        112,720     129,713
Interest paid                       70         2         14          14    Net worth                        23,654 24,180          32,354      42,141
PBT                            27,143     27,361     34,665      39,401    Share capital                     2,182   2,160          2,160       2,160
Tax                             6,044      5,769      8,141       9,254    Reserves & surplus               21,472 22,020          30,194      39,981
PAT                            21,099     21,592     26,524      30,147    Minority interest                     -       -              -           -
Minority interest                    -         -          -           -    Total debt                            -       -              -           -
EO income                         922      1,468          -           -    Secured loans                         -       -              -           -
APAT                           22,020     23,060     26,524      30,147    Unsecured loans                       -       -              -           -
PAT growth (%)                  (11.7)       4.7       15.0        13.7    Current liabilities & prov       67,332 73,999          78,207      85,413
Shares o/s (mn)                 2,161      2,161      2,161       2,161    Current liabilities              52,917 60,749          64,957      72,164
Fully diluted o/s shrs (mn)     1,957          -      1,959       1,959    Provisions                       14,416 13,250          13,250      13,250
FDEPS (Rs) recurring               9.7      10.0       12.3        14.0    Net deferred tax liab                 -       -              -           -
                                                                           Total liabilities                93,167 100,338        112,720     129,713
Cash flow statement                                            (Rs mn)
Y/E 31 March                      2010       2011     2012E       2013E
                                                                           Key ratios
PAT                             27,143     27,361     34,665      39,401
Depreciation                                                               Y/E 31 March                      2010        2011      2012E        2013E
                                 1,840      2,208      2,337       2,487
Amortisation                         -          -          -           -   Valuation ratios
Interest paid                                                              PE (x)                             39.5        38.2       31.1         27.4
                                    70          2         14          14
Tax paid                         6,044      5,769      8,141       9,254   CEPS (Rs)                          10.6        11.0       13.4         15.1
Chg in working capital                                                     PCE (x)                            36.0        34.7       28.6         25.3
                                14,289    (1,534)    (2,924)       1,298
Int/div in other income                                                    BVPS (Rs)                          10.9        11.2       15.0         19.5
                                     -          -          -           -
Other operations                                                           Price/Book (x)                     34.9        34.2       25.5         19.6
                                   223      1,229          -           -
CF from operations (a)                                                     EV/EBITDA (x)                      28.9        30.3       23.6         20.4
                                36,806     22,681     25,936      33,933
Capital expenditure                                                        EV/Revenue (x)                      4.5         4.1        3.5          3.1
                               (5,568)    (2,992)    (2,500)     (2,500)
Chg in investments             (8,358)        564          -           -   Dividend yield (%)                  1.7         1.7        1.9          2.1
Other investing act                                                        Cash flow yield (%)                 2.8         2.5        2.8          3.8
                                     -          -          -           -
Int/div in other income              -          -          -           -   Performance ratios
CF from investments (b)                                                    Raw material to sales (%)          50.0        51.1       53.2         52.6
                              (13,926)    (2,428)    (2,500)     (2,500)
Free cash flow (a+b)            22,879     20,253     23,436      31,433   SGA to sales (%)                   25.5        26.8       23.2         23.7
Equity raised/(repaid)                                                     Effective tax rate (%)             22.3        21.1       23.5         23.5
                                     -          -          -           -
Debt raised/(repaid)           (3,907)    (6,219)          -           -   PAT margin (%)                     12.4        11.7       11.6         11.8
Interest paid                       70          2         14          14   DPS (Rs)                            6.5         6.5        7.3          8.1
Dividend (incl tax)                                                        Dividend payout ratio (%)          67.2        65.0       59.4         58.0
                              (17,827)   (16,556)   (18,350)    (20,361)
Other fin activities                 -          -          -           -   Return ratios
CF from financing (c)                                                      RoE avg (%)                       100.3        90.3       93.8         80.9
                              (21,733)   (22,775)   (18,350)    (20,361)
Net chg in cash (a+b+c)                                                    RoCE avg (%)                      101.1        93.0       92.1         92.3
                                 1,146    (2,522)      5,087      11,072
Opening balance                                                            Fixed asset turnover (x)            7.9         8.0        9.2         10.3
                                17,773     18,922     16,400      21,487
Closing balance                 18,925     16,400     21,487      32,559   Working capital ratios
                                                                           Inventory (days)                   44.8        52.1       52.1         52.1
                                                                           Payable (days)                     12.3        12.3       12.3         12.3
                                                                           Receivable (days)                  13.9        17.5       17.5         17.5
                                                                           Working capital (days)             46.4        57.3       57.3         57.3
                                                                           Leverage ratios
                                                                           Interest cost (%)                    3.3           -          -            -
                                                                           Net debt/equity (x)                (0.8)       (0.7)      (0.7)        (0.8)
                                                                           Interest coverage (x)             374.3    10,201.8    2,208.3      2,527.1




  BRICS Securities Limited                                                                                                                        3
Hindustan Unilever                                                                       7 February 2012




                                              BRICS RECOMMENDATION SCALE


                                 BUY:            More than 15% upside
                                 ADD:            Upside up to 15% (between 0% and 15%)
                                 REDUCE:         Downside up to 15% (between 0% and –15%)
                                 SELL:           More than 15% downside


                    Head Office: Sadhana House, 1st Floor, 570, P. B. Marg, Behind Mahindra Tower,
                                   Worli, Mumbai - 400 018. Tel: (91-22) 6636 0000
Disclaimer:
Disclaimer: This Report/Document has been prepared solely for your information. All reasonable care has been taken to ensure that
the information contained herein is not misleading or untrue at the time of publication, but we make no representation as to its
accuracy or completeness. All information is for private use of the person to whom it is provided and is not for public distribution and
without any liability whatsoever on the part of BRICS Securities Limited, any associated company, or employee thereof (hereinafter
collectively referred to as BRICS). This Report/Document shall not be copied, printed, distributed or re-distributed to any person. If
you are not the intended recipient of this Report/Document, you should immediately send it to the sender. Nothing contained herein
should be construed as an offer to buy or sell or a solicitation of an offer to buy or sell. The value of any investment may fall as well as
rise. Past performance is no guide to the future. The rate of exchange between currencies may cause value of investment to increase
or diminish; consequently investors may not get back full value of their original investment.
BRICS shall not be liable for any direct or indirect losses arising from action initiated by you on the basis of information provided in
this Report/Document and BRICS accepts no responsibility for statements made or any other source of information received by you
and you would be doing so at your own risk.
This Report/Document is not directed or intended for distribution to or use by any person or entity who is a US citizen or person
resident in US or who is a citizen/resident of or located in any locality, state, country or other jurisdiction, where such distribution,
publication, availability or use would be contrary to law, regulation or which would subject BRICS to any registration or licensing
requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a
certain category of investors. Persons in whose possession this presentation may come are required to inform themselves of and to
observe such restrictions.
BRICS and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material,
may from time to time have "long" or "short" positions in, act as principal in, and buy or sell the securities or derivatives thereof of
companies mentioned herein.



BRICS Securities Limited                                                                                                                   4

								
To top