Hindustan Unilever shares overviews of fmcg personal care companies

Hindustan Unilever Ltd (HUL) (updated - 27 May 2010)
Fast moving consumer goods (FMCG) company Hindustan Unilever Ltd (HUL) is feeling the heat of intense competition. It decided to bet on volumes to improve its market share. Due to this, profitability took a hit. Price cuts in the soaps and detergent segment, which accounts for 45 per cent of net revenues, buoyed volumes by 11 per cent in the March quarter. This was encouraging compared to the industry’s growth rate of sixnine per cent. In value terms, HUL recorded eight per cent growth over the March 2009 quarter, the highest in the last four quarters.

Analysts, however, are not quite enthused by this, as most segments saw a dip in profit margins. The company’s operating profit margins (OPM), at 12-14 per cent, remained lower than peers. The soaps and detergents segment saw a two per cent dip in value terms, and its profit margins fell 375 basis points to 12.8 per cent. Moreover, advertisement spends grew 322 basis points and accounted for 14.8 per cent of sales, which dragged down OPM by 110 basis points to 13.6 per cent compared to the year-ago period.

Steady management of employee costs and benign raw material costs made sure that profit margins were not severely hit.
HUL reported the biggest year-on-year rise of 47 per cent in net profit at Rs 581 crore during the quarter, fuelled by extraordinary income of Rs 195 crore. But, excluding the odd items, core net profit declined 23 per cent to Rs 386 crore. Going ahead, the Street expects volume growth to be sustained, as the advertisement spend continues to be high. This is because the management intends to maintain a dominant position. But, pressure on raw material prices and intense competition will keep a check on profit margins.

Analysts also reckon that the price war between HUL and P&G, which started in February 2010, has not fully shown its impact on the March quarter numbers. So, the heat is still on for the consumer major.
source - business standard

Hindustan Unilever Ltd (HUL) (updated 21 Mar 2010)

Depletion in market share and a slowdown in revenue growth, particularly in soaps and detergents, are key concerns

The fast moving consumer goods (FMCG) industry is witnessing yet another round of price wars with big-wig Hindustan Unilever (HUL) locking horns with Proctor & Gamble (P&G) in the soaps and detergents category. The last time the industry witnessed such rivalry was in March 2004, when P&G slashed the prices of its Tide and Ariel brands by 20-50 per cent. Then after, HUL saw erosion in its profit margins and market share. Little wonder, analysts are not positive on HUL’s stock.

HUL recently resorted to around 30 per cent price cut in Rin. It also cut the grammage of Lux soap to 90 gm from 100 gm, while lowering the price to Rs 15 (Rs 18). This translates into an effective price cut of 7.4 per cent. For HUL, the soaps and detergents category contributed nearly 45 per cent to revenues (Rs 4,585 crore in December 2009 quarter).

P&G responded back by 25 per cent grammage rise in its detergents - Tide and Tide Naturals -which analysts suggest equates to a price cut of around 20 per cent. While Tide’s price remains at a 12 per cent premium to Rin (both mid-segment brands), Tide Naturals is seen eating into some of HUL’s volumes in rural and semi-urban areas (in value segment), suggest analysts.

HSBC analysts expect there could be more price cuts before the situation stabilises, putting pressure on HUL to cut prices further. Moreover, the risk of a price war spreading to other products, such as shampoos (around 10 per cent of HUL’s Ebit) also exists.

Post the price cuts, analysts expect HUL to post 10.2 per cent CAGR in topline over FY2010-12E. Religare Hichens Harrison expects 8 per cent volume growth in the detergent category, with aweighted average price cut of 5 per cent in 2010-11. Rising raw material prices such as palm oil, LAB and HDPE is expected to worsen the overall impact.

Depletion in market share and a slowdown in revenue growth, particularly in soaps and detergents, are the key concerns for HUL. Its stock has shed over 7 per cent in March 2010 and currently trades at 22.5 times 201011 consensus analysts’ earnings estimates.

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Hindustan Unilever Ltd (HUL) (updated - 03 Aug 2010)
Hindustan Unilever’s (HUL’s) efforts to maintain leadership in the highly-competitive fast moving consumers goods (FMCG) sector will surely have some negative impact on the company’s financial numbers, especially on profitability.
HUL saw a 7.1 per cent year-on-year rise in sales to Rs 318.2 crore and 11 per cent growth in volumes. This was lower than the consensus estimates, but the 60-basis-point rise in gross profit margins surprised analysts. Lower raw material costs made up for the price cuts in the detergent segment, which accounts for nearly half the company’s revenues. However, rising competition, product launches and re-launches escalated advertising spends to around 15.7 per cent of sales (up 34 per cent year-on-year).

Earnings before interest, depreciation, tax and amortisation margins declined 190 basis points to around 14 per cent, as operational expenses increased 3.13 per cent.

What certain analysts call as ‘irrational competition’ in the FMCG segment will continue to take toll on the company’s profitability. The low-cost hedges, like managing raw material cost, are likely to wane in the coming quarters, reckon analysts. The pressure on ad-spends may continue, as the management looks at tripling the direct rural coverage, tailoring products to suit needs of different consumers in different geographies, and tapping new growth opportunities. This may adversely affect the company’s balance sheet in the medium term, but is expected to generate returns in the longer run, as the market share and presence is consolidated.

There is good news on this front, as the ‘Pure-it Compact’ water purifier, priced at Rs 1,000, has been successfully launched. Also, ‘Comfort’ is seen to be creating inroads in the fast-growing fabric conditioners segment. The Fair & Lovely and Rin brands have been relaunched. The tea business has grown with the rollout of Brooke Bond ‘Sehatmand’. These are positive indicators, but currently at the horizon.
source - business standard

Hindustan Unilever Ltd (HUL) (updated - 27 Oct 2010)
Hindustan Unilever recorded an impressive set of numbers for the September quarter. Volumes witnessed doubledigit growth for the third consecutive quarter at 14 per cent, highest in more than ayear, albeit on a lower base.

However, sales growth was constrained at 10.7 per cent to `4,681 crore due to the carry-over impact of earlier price cuts in the soaps and detergents (S&D) business and subdued overall growth of 9.4 per cent in the home and personal care segment.

HUL managed to reverse the declining trend in operating profit margins (OPM), which inched up 77 basis points (bps) to 12 per cent despite higher other expenses. However, adjusted net profit margin slipped 124 bps to 12.1 per cent, as benefits of other income were negated by higher taxes and depreciation.

While sales of personal care products improved 15 per cent, aided by doubledigit volume growth for the sixth consecutive quarter, competition ate into the PBIT (profit before interest and tax) margins, which tanked 330 bps to 23 per cent. However, foods business posted impressive revenue growth of 13 per cent, backed by stable PBIT margin of 12.2 per cent, courtesy strong momentum in Knorr and Kissan.

Going ahead, while volumes are expected to rise due to good monsoon and higher spending power with rural people, price hikes (five-eight per cent in S&D) undertaken in the recently-concluded quarter may take a toll on the company’s financials.

Margins could also be affected by higher advertisement spends and an uptrend in raw material prices (mainly crude-linked), followed by benefits of low-cost inventory exhausting. To top it all, these factors don’t justify ultra-high valuations of 28x 2011-12 estimated earnings.
source - business standard