Intense competition in the soaps and detergents categories did not deter Hindustan Unilever (HUL) from delivering 8.2 per cent growth in the top line for the March 2010 quarter — the highest increase in the last five quarters. Notably, most of its businesses did well, clocking 15-23 per cent growth. This was led by product innovations and new launches, helping gain market share in many segments.
On the flip side, adjusted for higher exceptional income of Rs 221 crore, net profits were down 7.9 per cent year-on-year at Rs 422 crore. While HUL is making efforts to gain market share, it is unlikely to come easily.
Competitive pressures
The soaps and detergent business was under stress. Thanks to the pricing war with P&G, sales in this segment declined two per cent year-on-year, while profit margins fell 375 basis points. Positively, detergent volumes improved, with Rin delivering double-digit growth. While volume growth is expected to remain healthy, pricing pressures are likely to persist for some time, keeping overall margins under check.
Others chip in
In the personal care segment, skin care as well as hair care saw gains in market share. New product launches, like Vaseline Menz range, introduction of shampoo variants and stable volumes in oral care saw personal care sales increase 19 per cent in the quarter.
| TOUGH TASK | |||
| in Rs crore | FY10 | FY11E | FY12E |
| Net Sales | 17,726 | 19,528 | 21,896 |
| EBITDA % | 15.50 | 14.90 | 15.20 |
| PAT | 2091.00 | 2254.00 | 2569.00 |
| EPS (Rs) | 9.60 | 10.30 | 11.80 |
| P/E (x) | 24.10 | 22.30 | 19.60 |
| E: Estimates | |||
The foods business grew 22.7 per cent year-on-year with Kissan and Annapurna posting good growth. New launches like Knorr Soupy Noodles also boosted growth. Beverages, too, saw HUL launch Brooke Bond Sehatmand in the mass tea segment.
Overall, foods and beverages reported improved profitability (up by 40 per cent) in the March quarter, helped by better cost management.
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HUL’s volumes jumped 11 per cent in the March quarter (helped by a weak base in the March 2009 quarter, when volumes declined four per cent year-on-year). The top line growth, however, was muted due to pricing pressure in the laundry segment, where prices were lower by an average 2.5-3 per cent.
Outlook
Aggressive promotional spends (up 39 per cent in the March quarter) across all brands and pricing action should augment HUL’s volumes and help expand market share. However, it would also bring pressure on the Ebitda margins, which were down about 100 basis points in the March quarter. Overall, HUL could post an average 10-12 per cent revenue growth annually over the next two years, aided by improved performance in the personal care and foods divisions and volume gains in the laundry business. HUL would be looking at rural markets closely and intends to treble its rural reach in the next two years.
At Rs 232.75, its stock is trading at over 22 times estimated 2010-11 earnings and looks fairly valued.