Angel Broking sees HUL's margin expansion at 13% in FY12

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Angel Broking sees HUL's margin expansion at 13% in FY12

Chitrangda Kapur, FMCG Analyst at Angel Broking, in an interview with CNBC-TV18's Sonia Shenoy and Anuj Singhal, analysed the FMCG major HUL and gave her perspective on how HUL would pan out going forward and the top pick in FMCG sector.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets HUL BSE | NSE 31/05/12 Are Mutual Funds betting on HUL? Other Stocks in this news Procter and Gamble Hygiene and Health Care | ITC | Nestle India |

HUL had two straight days of gains. It had many pressure pockets opening up for HUL. EBITDA margins were suppressed because of commodity cost. The volume growth was also becoming sluggish in the soaps and detergents segment.

Chitrangda Kapur, FMCG Analyst at Angel Broking, in an interview with CNBC-TV18's Sonia Shenoy and Anuj Singhal, analysed the FMCG major HUL and gave her perspective on how HUL would pan out going forward and the top pick in FMCG sector.

Below is the verbatim transcript of the interview. Also watch the accompanying video.

Q: What is your call on HUL post the earnings?

A: The results are completely inline with what we were estimating. In fact, it was just 1% higher than what we estimated. We would maintain a call on HUL.

We were initially maintaining accumulate on HUL with a target price of Rs 304. The current upside on the stock has run about 4-5% in past two consecutives days. We would be neutral on the stock with a fair value of about Rs 306.

Q: What kind of margin profile do you think Lever will have in FY12 going forward? Due to ad spend cut, they managed to cushion some of the margins in Q4.

A: HUL did very well in terms of margins. We were expecting a dip in advertising to cut down, especially because of the gross margin inflation that all FMCG companies were facing. It was a positive surprise in terms of advertising spends cuts.

Going forward, because of a monsoon forecast to be normal by IMD, we expect the gross margins to improve a little on the basis of cooling of raw material and inflation. In FY12, we have penciled in margin expansion of about 13.4% from the current 12.2%. In FY13, we expect an OPM of about 13.9-14%.

Q: What about the rising competition in this sector? Has it weakened HUL's pricing power? Within the FMCG sector, what would be your preferred pick now?

A: It is a concern in the short-term for HUL because P&G is cutting their shampoo cost by about 20% in the recent term and HUL followed the suite. HUL's personal product category now contributes to about 60% to the profits which is a good sign. It indicates that their complete dependence on soap is coming down.

However, HUL's focus is on volume growth right now. The pricing power for HUL will be under pressure. We are not expecting value growth at least in the first half of FY12. We would expect an overall volume growth of about 9-10% for HUL going forward.

Q: What is your top pick in the FMCG space?

A: In the FMCG space, I would prefer ITC over the rest of the FMCG space. Most of the FMCG companies, especially Nestle and HUL which have given out their results, have been more or less been in line with our estimate.