)
Hindustan Unilever (HUL) reported a mixed set of numbers for the June 2015 quarter. On the one hand, volumes grew six per cent in line with expectations and recent trends, while Ebitda margins also expanded. On the other, lower realisations and withdrawal of excise duty incentives impacted revenues.
While some plants saw tax incentives period expire, lower base effect due to tax refunds in the June 2014 quarter, too, pushed up tax rate. Other income also fell by almost half, hurting net profit growth.
Consequently, both net sales and net profit came in below Bloomberg consensus estimates of Rs 8,310 crore and Rs 1,127 crore, respectively. Net sales grew 5.3 per cent year-on-year (y-o-y) to Rs 7,973 crore, while net profit at Rs 1,059 crore was up only 0.2 per cent y-o-y. After adjusting for exceptional items, the profit at Rs 1,053 crore was below estimates.
One reason for the moderate revenue growth is the benign input costs as well as subdued rural demand. Lower input prices, however, have aided overall Ebitda margin, which expanded 150 basis points (bps) to 18.9 per cent and was at multi-quarter high. The gains could have been higher but for a 199 basis points y-o-y increase in advertising costs to 14.5 per cent of sales. HUL will have to invest continuously in innovations and advertising to sustain volume growth.
The good part is that the key segments - soaps and detergents (about half of revenues) and personal products (30 per cent of topline) - witnessed healthy operating margin expansion as well as volume growth.
While pricing cuts impacted topline growth in soaps and detergents segment that grew only 0.2 per cent to Rs 3,854 crore, personal products expanded 11.4 per cent to Rs 2,406 crore. Double-digit growth in Close Up was the highlight of Oral Care business. Beverages and packaged foods also swelled 9-12 per cent.
Even after this correction, the HUL scrip trades at rich valuations of 43 times FY16 estimated earnings and 36 times FY17 estimated earnings. The polarisation in markets, where growth stories are limited forcing big money to park funds in stocks like HUL, is one reason. After the miss on net profit front, there is a possibility of analysts marginally tweaking their estimates. If that happens, the valuations will become more expensive or if broader markets look up the stock could underperform. A lot though hinges on the current monsoon season.
