HUL Q2 adjusted PAT seen up 10.6% at Rs 590 cr

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Hindustan Unilever (HUL) is expected to report an adjusted profit after tax of Rs 590 crore in the second quarter of FY12, a growth of 10.6% as against Rs 533.65 crore in the corresponding quarter of last fiscal.

During the same period, reported PAT is seen going up by 4.2% to Rs 590 crore from Rs 566.1 crore.

Sales are likely to go up by 14.1% to Rs 5,340 crore in July-September quarter of FY12 versus Rs 4,680.87 crore in same quarter the previous year.

Operating profit margin is expected to be at 13.5% as against 13.58% (Includes other operating income) year-on-year.

Q2 Expectations

-Base of double digit volume growth since late FY10 is playing out now

-Q1 saw a moderation in volumes to 8.3% from 13-14% in FY11

-Expect a similar 8% volume growth in Q2

-Rest of the topline growth is being driven by pricing

Volume growth moderation

* Base Effect as explained above

* Price increases: Weighted average around 6% hike in Q2 (Hiked prices across key brands Rin, Surf, Pears etc)

* Higher competitive intensity but cut in marketing spend - ASP/sales fell by 4% in Q1!

Costs & gross margins

* Q1 gross margin was down almost 5%

* Cut in advertisement spends cushioned margins

* Expect ASP to sales to remain subdued at 11.5%

* Also price hikes should mean sequential improvement in gross margins

* Palm Oil and other inputs are off highs (But still up YoY)

* But Rupee depreciation impacts costs

* 20% of the HUL's input is directly imported

* 3/4th of HUL's inputs are globally linked

Soaps and detergents

* Price hikes taken in key brands; will aid topline

* Need to see impact of hikes on volumes & margins

* Margins at 9.2% last quarter had improved 1.7% sequentially

* Q4 was likely the bottom at 7.5%  

Personal Products: Will growth sustain? 

* 19% topline growth in Q1 (Best in 3 years)  

* Need to see if segment margins above 25% are sustained

Bottomline drag

* Higher tax rate: Was 21.3% in Q2 last year and 24.1% in Q1FY12

* Lower other income may drag bottomline a bit