Hindustan Unilever shares overviews of fmcg personal care companies

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Hindustan Unilever Ltd (HUL) (updated - 10 May 2011)
A third consecutive quarter of a double-digit growth in revenues, driven largely by volume growth indicates a turnaround for HUL, which has had a stunted growth from 2009 till mid-2010.

Efforts mounted by the company over the past few quarters now appear to be bearing fruit for the FMCG Company. More than 50% of its product portfolio has either been re-launched or re-branded. It has increased its coverage to 5,000 more stores - most of them in rural areas. A volume growth of 13.5%, in spite of past year’s high base in the face of an intense competition, looks impressive. Operating profit, which rose 9%, was largely impacted due to high input cost.

Selective product price increases and a calibrated adspend could not help the company boost operating profit margins. While the MNC consumer giant has successfully managed to defend its leadership across categories, the moot point is how much of this is sustainable in a high inflation scenario and growing competition from national and regional players as well as other multinational companies.

In 2010, the company was seeking to push up volumes through price cuts and discounts on products. This year, it has changed the tack and is taking price increases on products back to year-ago levels. The company has indicated that the mix of price and volume growth is likely to change since increase in prices may put pressure on volume growth.

Investments in brands given competition and higher input cost inflation are two cost heads for FMCG firms. For HUL, addressing this ought not be tough, considering its deep pockets. It will need to adjust adspends and brand equity to pass on input costs to consumers.

However, soaps and detergents, the largest revenue-earner segment for HUL, continues to be a sore point for the company. This category is marked by competition, rising raw material prices and a slowdown in consumer demand. HUL appears to have adopted a wait and watch approach to gauge consumer behaviour in this category.

One of the few FMCG stocks to have declined since the start of 2011, HUL’s stock has now fallen 9%. With its performance back on track, the company’s stock, which is now trading at a price to earnings multiple of 27 and a dividend yield of 2.3%, looks attractive among FMCG stocks. The markets appear to have recognised that with the stock surging 3.5% on Monday after the results. However, given the current macro economic scenario, HUL will have to up its game to sustain this performance, if it has to emerge as a favourite among investors again.
source - economic times

Hindustan Unilever Ltd (HUL) (updated - 26 Jan 2011)
Hindustan Unilever (HUL) was the biggest loser among the Nifty stocks on Tuesday, closing 5.45 per cent lower at `281.65, after the company reported significant pressure on margins during the December 2010 quarter, courtesy intense competition and high expenditure (mainly input costs and advertising).

While operating profit margin (OPM) tanked 306 basis points (bps) year-onyear to 14.1 per cent, net profit margin (NPM) adjusted for exceptional items of `64 crore (Rs 44.5 crore in the corresponding quarter a year ago) dropped by a little over 200 bps to 11.2 per cent (as against estimates of 13.1 per cent). However, OPM rose 200 bps sequentially, while NPM remained stable, which is a positive sign.

Sales growth of 12.1 per cent at `5,128 crore exceeded expectations and was better than the 9.5 per cent rise seen in the first half of the current financial year. It was helped by the double-digit volume growth of 13 per cent and a price rise of five-eight per cent undertaken in the September 2010 quarter, indicating gradual return of pricing power.

Unlike past several quarters, soaps, detergents and personal care products (categorised as home and personal care products that contribute 75 per cent to revenues) have been the growth drivers, as revenues from the category rose 11.6 per cent to `3,848 crore compared to 7.4 per cent growth in the first half and 6.4 per cent in 2009-10. However, profit before interest and tax (PBIT) margin declined 404 bps to about 17 per cent due to high competition in soaps and detergents (45 per cent of revenues).

The food business (beverages, processed foods and ice creams) continued to do well, with revenue growth of 12.6 per cent at `872 crore. Despite high tea and coffee prices, PBIT margin was maintained at about 10 per cent mainly led by beverages (largest category in foods).

Going ahead, the outlook for volume growth is robust and price rise undertaken in the September 2010 quarter will continue to benefit. However, structural margin contraction is expected to continue due to rising competition, input costs and advertising expenditure.
source - business standard

Hindustan Unilever Ltd (updated - 21 June 2011)
HUL remains one of the safest bets in the pure Indian FMCG play and provides higher confidence in its earnings growth when compared to its competitors.

HUL’s sales growth in the past few quarters has come mainly from volume growth and not from increase in product prices, unlike other companies. Its average volume growth in FY11 was 13% and net sales also grew by 13.5%. Also, despite the cost inflation, HUL did not compromise much on ad spend, when compared with Dabur, Marico, Nestle and Godrej Consumer Products in the previous quarter. This will give HUL enough room for price hikes and further cut in ad spend in the coming quarters to fight against the rise in input costs.

HUL remains one of the most diversified FMCG companies, followed by Dabur. It mainly operates in the soaps and detergent, personal care and food and beverage categories and faces competition from various multinationals as well as regional companies in each of the categories.

After years of strategising, HUL’s market shares in each of these categories have stabilised and started to improve gradually. Dependence on soaps and detergent business, which remains the most competitive, is gradually decreasing. Personal care segment, which has the highest margin, now contributes more than almost 60% to the earnings, compared with 45% a year ago. Its sales grew by 16% in FY11, without any compromise on margins. Also, the low margin at which the soap and detergent business is operating is not sustainable for the competition, or HUL. This limits further decrease in margins. All this puts HUL in a better position and provides confidence in future earnings growth than most of the other players in the FMCG sector.

At the current market price, HUL trades at a P/E multiple of 30. This valuation sounds justified when compared with Dabur, Nestle or Godrej Consumer that are trading at 35x, 46x and 26x. HUL also remains a pure Indian FMCG player, compared with other companies that now have a good amount of exposure to foreign markets, which do not enjoy such high valuations.
Source - Economic Times

Hindustan Unilever Ltd (HUL) (updated - 15 Sept 2011)
A third consecutive quarter of a double-digit growth in revenues, driven largely by volume growth indicates a turnaround for HUL, which has had a stunted growth from 2009 till mid-2010.

Efforts mounted by the company over the past few quarters now appear to be bearing fruit for the FMCG Company. More than 50% of its product portfolio has either been re-launched or re-branded. It has increased its coverage to 5,000 more stores - most of them in rural areas. A volume growth of 13.5%, in spite of past year’s high base in the face of an intense competition, looks impressive. Operating profit, which rose 9%, was largely impacted due to high input cost.

Selective product price increases and a calibrated adspend could not help the company boost operating profit margins. While the MNC consumer giant has successfully managed to defend its leadership across categories, the moot point is how much of this is sustainable in a high inflation scenario and growing competition from national and regional players as well as other multinational companies.

In 2010, the company was seeking to push up volumes through price cuts and discounts on products. This year, it has changed the tack and is taking price increases on products back to year-ago levels. The company has indicated that the mix of price and volume growth is likely to change since increase in prices may put pressure on volume growth.

Investments in brands given competition and higher input cost inflation are two cost heads for FMCG firms. For HUL, addressing this ought not be tough, considering its deep pockets. It will need to adjust adspends and brand equity to pass on input costs to consumers.

However, soaps and detergents, the largest revenue-earner segment for HUL, continues to be a sore point for the company. This category is marked by competition, rising raw material prices and a slowdown in consumer demand. HUL appears to have adopted a wait and watch approach to gauge consumer behaviour in this category.

One of the few FMCG stocks to have declined since the start of 2011, HUL’s stock has now fallen 9%. With its performance back on track, the company’s stock, which is now trading at a price to earnings multiple of 27 and a dividend yield of 2.3%, looks attractive among FMCG stocks. The markets appear to have recognised that with the stock surging 3.5% on Monday after the results. However, given the current macro economic scenario, HUL will have to up its game to sustain this performance, if it has to emerge as a favourite among investors again.
source - economic times

Hindustan Unilever Ltd (HUL) (updated - 01 Nov 2011)
HUL’s efforts in invigorating its biggest product segment finally paid off, with the company managing to extract strong growth from its soaps and detergents segment. This pulled the overall performance of the company for the September quarter beyond analysts’ expectations and the market cheered it. The HUL stock rose to a record high, closing 7.4% higher on bourses, the highest-ever single-day rise since March 2007. HUL’s net sales rose by 18%, its highest in the past 11 quarters. This growth comprised a 10% volume growth and an 8% value growth achieved on account of price increases carried out by the company.

Operating profit rose 28% - with operating profit margins expanding by 150 basis points to 15%. This was despite the 26% rise in input costs. The company has managed to effectively cut costs in the areas of advertising and promotion and other expenditures. Both these cost items have remained flat over the same quarter the previous year. This was made possible despite the company relaunching or upgrading many of its products such as Lux, Vim, Fair & Lovely, Vaseline and Ponds in the quarter.

Its main product segments of soaps, detergents and personal products registered double-digit growth in revenues and earnings and also logged a marginal jump in margins. Since the past several quarters, the soaps and detergents segment - the largest contributor to HUL’s topline and bottomline - was the laggard among all segments. In the preceding March quarter, the soaps and detergents segment had recorded a 12.8% rise in revenues and a 5% drop in segmental earnings. This time, the segment registered a 22% growth in revenues (the highest among all segments) and a 28% growth in segmental earnings (again the highest among all segments).

Though amazing, the repeat of the overall performance of the September quarter appears difficult to sustain in the December quarter, given the high base in the previous year.
Besides, inflation and intense competition - challenges identified by the company - may limit its growth. The soaps and detergents segment may still manage to log strong performance due to lower base to contend or the next two quarters.
Source - Economic Times

Hindustan Unilever Ltd (HUL) (updated - 30 Dec 2011)
2011 was the year of FMCG stocks, with most of them hitting record highs during the year. Weakness in global financial markets, policy paralysis at the government level and slowdown in the economy led to a lot of uncertainty among investors.

Defensive stocks in the consumer sector became the obvious choice of investment for most on the Street.

However, within FMCG stocks, the year belonged to the sector biggie HUL. Investors in this company would be happier than their counterparts who had invested in other FMCG stocks.

The stock has rewarded them with returns of 35.6% — better than others in the sector. It is also the top performer of the year among stocks in Sensex and Nifty indices.
If 2012 were to witness a slowdown in financial markets (as popularly feared), the HUL stock may once again emerge as the star performer during the year.

This is because, during most years of slowdown in the market in the past, investors have preferred HUL to other stocks in the sector.

In 2008, as the market was ailing under the effect of the US subprime crisis, HUL outperformed its sector logging returns of 15% on bourses. Even in earlier years of 1996 and 2001, HUL has beaten its peers in the FMCG sector in rewarding the highest for its investors. The company’s stock has posted returns of 30% and 12%, respectively, during those years. So, 2012 could well again be the year for HUL.

The company has logged double-digit revenue growth in the past eleven consecutive quarters. It is present across almost all product categories and across the value chain in each category.

It has a fair share of premium products as well as products appealing to the rural market. It is one of the few companies that dictate the pricing of the products while its peers follow suit. While it competes with almost all other players in the market - few have the deep pockets to spend on advertisement and promotion as well as the distribution reach to penetrate into the Indian market like HUL.

Moreover, India is increasingly an important and profitable pie for Unilever - the company’s UK parent and the global consumer major is ensuring that the company doesn’t loosen its foothold and advantage here.
Source - Economic Times