Monday, 27 October 2014

HUL: Volume growth continues to struggle at 5% in Q2

Growth isn't picking up for consumer companies, if Hindustan Unilever's September quarter numbers are anything to go by. While standalone net sales grew by 10.8% year-on-year to Rs 7640 crore, volume growth remained tepid at 5%, which disappointed analysts. The quarter's sales growth has been driven by a 11% growth in soaps and detergents. The personal products segment grew by 9.9% year-on-year, exhibiting signs of continued weakness. The laundry segment's growth, analysts claim, has been driven by the premium segment, even though brands like Wheel are showing traction after the relaunch.
The company's domestic consumer business grew 10.7% year-on-year to Rs 5800 crore, driven by a robust growth in select categories. Even though input prices have been coming down over the last few quarters, Hindustan Unilever has seen raw material prices increase year-on-year. The share of raw material prices as a percentage of sales during the quarter was 51.8% against 50.3 in the corresponding quarter last year. This impacted gross margins, which have declined 150 basis points year-on-year to 48.2%.
Despite the decline in gross margins, HUL's operating margins improved 50 basis points year-on-year to 16.3%, as the input cost inflation ebbed towards the end of the quarter. The company's also keeping a check on costs to protect its margins. Compared to last year, advertising & promotion spends have declined as a percentage of sales as have other expenses. Advertising expenses as a percentage of sales have declined from 13.8% in the second quarter of FY14 to 12.1% of sales.
While sequentially, most segments have seen their margins decline, however, compared to last year, segment margins are up other than the soaps and detergents. The soaps & detergents segment saw its EBIT margin decline 40 basis points YoY to 13.6%. The EBIT margin for the personal products segment expanded 160 basis points YoY 24.4% and processed foods business saw EBIT margin expand 110 basis points YoY to 4.4%. While growth in key categories like skin cleansing and skin care remained strong, growth in the oral care segment has been impacted by the competitive intensity.
According to Emkay Global, HUL's adjusted profit after tax grew 6.7% to Rs 940 crore, which is below estimates, due to higher depreciation and higher tax rate. The company's reported profit after tax grew 8.1% YoY to Rs 990 crore.