Motilal Oswal Neutral on Hindustan Unilever

HINDUSTAN UNILEVER 3QFY11: Below est; Volumes up 13%; EBITDA margins decline 310bp; Neutral

Volumes grew 13% (est 11.5%), fourth consecutive quarter of double digit volume growth; FMCG sales growth increased QoQ from 9.7% to 11.5%.

Gross margin expanded 180bp to 49.9% (est 51.3%). Ad-spend grew 17.4% YoY to Rs7.4b, Ad/Sales expanded 70bp YoY to 14.5%.

EBITDA margins contracted 310bp to 14.1% (est 15.5%); EBITDA de-grew 8% to Rs7.2b (est Rs7.9b).

98% increase in financial other income and 200bp lower tax rate cushioned the PAT growth decline to 2%.

Reported PAT of Rs6.4b included exceptional income from gain on sale of long term investment (Rs159m) and Properties (Rs492m).

Soap & Detergents: EBIT margins at all time low of 7.7%; Personal Care: Sales up 20%; EBIT Margins down 310bp; Foods: Sales up 13% YoY; Beverage EBIT increases 24% on higher prices; exports EBIT jumps 200%. Although HUL has posted strong volume growth, visibility on sustained profit growth remains low. We will review our estimates post concall on Jan 27; marginal upgrades are likely. The stock currently trades at 25x FY12E and 21.8x FY13E. Neutral.

Source : Equity Bulls

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