HLL earnings growth below expectations: Prabhudas Lilladher

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HLL earnings growth below expectations: Prabhudas Lilladher

Abhijeet Kundu of Prabhudas Lilladher reviews the HLL numbers. He says that the earnings growth was slightly below expectations, while, the topline growth was quite strong. Their personal products has seen a substantial slowdown in growth.

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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 25/05/12 Are Mutual Funds betting on HUL?

Abhijeet Kundu of Prabhudas Lilladher reviews the HLL numbers. He says that the earnings growth was slightly below expectations, while, the topline growth was quite strong. Their personal products has seen a substantial slowdown in growth.

Excerpts from CNBC-TV18's exclusive interview with Abhijeet Kundu:

Q: What is your first cut of the numbers - happy, unhappy or as per expectations?

A: Earnings growth was slightly below expectations, we were actually expecting a growth of about 17-17.5%, about Rs 351 crore; which was actually around Rs 331 crore, which is below expectations.

In case of topline, the growth was quite strong, better than what we had expected. But the only thing that has to be seen within 13.8% growth in topline, is slow growth in personal products.

So that was a concern because soaps and detergents have grown at about 9-10%. Foods is doing well, but the only issue is with their personal products, which formed the major chunk of their profits. That has seen a substantial slowdown in growth, during the quarter, for that period.

Q: What about the mergence? The company's admitted that there has been a significant growth in advertising costs and more importantly raw material costs, are the margins upto your satisfaction?

A: We were expecting input cost pressures, but in case of advertisement expenditure, we were expecting it to be almost flattish during the quarter, which was surprisingly above expectations impacting our margins.

We were expecting about 30 bps improvement in margins, whereas we actually saw 40 bps decline in operating margins, which also could be a function of slower growth in personal products. Usually, personal products again, is a higher margin category for the company.

Q: Three forward looking statements from the company - 1) Inflationary pressures will be there on raw material, given the prices of palm oil and other vegetable oils, 2) Rural growth has been good and we have a decent rainfall forecast and 3) We will take price increases wherever necessary.

How do all these time with your margin expectations for the rest of the year, as well as, topline and bottomline expectations?

A: All these three outlooks given by the company were factored in by us. The input cost pressure was factored in by us and the increased prices was factored in by us, plus the positive scenario in FMCG demand was also factored in.

The only concern would be the slow growth in percentage terms. That was not factored in by us. For the year, we were expecting about 16% growth and for the quarter, we were expecting a growth beyond 15%.

Q: What will you do with the stock, is it a buy or sell, underweight or overweight?

A: Currently, we are market performer, so it is a hold at this time. We would not be underweight because, we would try to figure out more things and look at the lack of growth in personal products. Otherwise, the underlying growth in all other areas has been great, it has been according to expectations, they have done well there.