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Oct 30, 2012, 02.52 PM IST | Source: Moneycontrol.com

Way2Wealth neutral on Hindustan Unilever

Way2Wealth has maintained neutral rating on Hindustan Unilever in its October 29, 2012 research report. The research firm expects growth momentum across FMCG to marginally slow down. Price increase support is unlikely from Q3 as base move up.

Way2Wealth has maintained neutral rating on Hindustan Unilever in its October 29, 2012 research report. The research firm expects growth momentum across FMCG to marginally slow down. Price increase support is unlikely from Q3 as base move up.

“Hindustan Unilever’s Net sales grew by 11.6% YOY to Rs6,155.4 crs in Q2FY13. On a like to like comparison (excluding exports from Q1FY12 results) sales were up 17% YOY. Sales grew on the back of a 20%+ YOY growth in the soaps and detergents segment. Growth in this segment was primarily price driven. This segment contributes ~50% to the revenue. In the personal care which accounts for ~30% of the topline, growth slowed down by12.1%. Growth slowed on account of slow down in CSD sales & impact of price hikes on Fair & Lovely sachets. Hair care grew on double digits. The company launched TRESemme this quarter, a high end salon at home hair care collection. In the oral care segment the company witnessed double digit growth led by volumes. Packaged foods & beverages which constitute 17% of revenues grew at ~10%.”

“Operating profit in Q2FY13 grew by 18.2% YOY to Rs976.7 crs on the back of lower raw material costs. The company saw higher ad spends of ~ Rs120 crs. The competitive intensity in the industry seemed to be on a rise with players diverting cost savings on raw material to garner higher market reach. Selling and distribution expenses climbed to 12.2% of sales higher than Q2FY12. OPM’s expanded by 90 bps YOY to 15.9% in Q2FY13. The company continued its focus on margin improvement. APAT grew by 17.1% in Q2FY13 to Rs805 crs with margins expanding by 50 bps to 12.8%. Tax rate for the year is expected to be around 24-25% and move up to 30-33% next year.”

“We expect growth momentum across FMCG to marginally slow down. Price increase support is unlikely from Q3 as base move up. We expect the growth to return to mean 12-15% growth. Margins were better as we expected in on the back of better product mix and pass through of cost increases. New product launches coupled with increasing distribution network will drive growth going forward. At the CMP of Rs551.75 the stock trades at 37x its FY13E Adj. EPS of Rs15. Thought long term growth drivers stay intact we believe the stock is currently fairly valued and hence are neutral on the stock,” says Way2Wealth research report.

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