Hindustan Unilever - Growth Beats Despite Price Hikes

BSE Index Analysis, Securties , Standard Experts 

Hindustan Unilever :

 Volume Growth Beats Despite Price Hikes

Reco : Hold    

Cmp : 426   

 Target : 422

Hindustan Unilever Ltd (HUL) reported second consecutive quarter  of 30% YoY growth in adjusted profit and steady 10% growth in its underlying volume growth, which was better than our and street estimates. Operating margin expanded 150 bps in Q4 to 14.5% despite higher input cost. This was possible due to lower A&P spends and better cost management.

Pricing environment improving: Domestic FMCG business grew 20% YoY in Q4FY12 driven by 10% growth in underlying volumes (our est. 8%) and rest being on account of price hikes and mix improvement. Reduction in competitive intensity has led to improvement in pricing environment as exhibited by 29% revenue growth in soaps and detergents (S&D). We believe sustained volume growth at 9-10% in FY12 on the back of 13% growth in FY11 provides HUL with pricing levers to offset input cost pressure.

Commodity cost inflation pulls down gross profit margin: GPM contracted 50 bps despite price increases on account of rising input prices (Palm oil up 15% YoY and LAB up 19% YoY in March 12) and depreciating rupee. However, we expect consistent price hikes, improving mix to drive gross margin improvement of 20 bps in FY13 to 47.6%.