Stock Market Result Update on HUL for 2QFY2012

Stock Market Result Update on HUL for 2QFY2012 with a Neutral recommendation. 

HUL posted a strong set of numbers for the quarter, above our estimates. The company’s top line grew by 18% yoy to `5,522cr (`4,681cr). Recurring earnings for the quarter grew by 22.6% yoy to `645cr, above our estimates. We remain Neutral on the stock.

Key highlights during the quarter: HUL posted impressive top-line growth of 18% yoy, driven by healthy volume growth of 10% yoy. Overall, FMCG sales grew by 20% yoy, aided by 20.5% yoy growth in the home and personal care (HPC) business and 17% yoy growth in the foods business. The soaps and detergent (S&D) segment posted 21.8% yoy revenue growth, while its EBIT margin expanded by 65bp yoy to 12.4%. The packaged food business reported 20.9% yoy growth. The personal products segment grew by 18.2% yoy, registering the tenth consecutive quarter of double-digit volume-led growth. At the operating level, OPM expanded by 134bp yoy to 13.4%. During the quarter, HUL reduced its ad spends and other expenses and negated the affect of gross margin pressure.

Outlook and valuation: Post 2QFY2012, we maintain our revenue and earnings estimates. We expect HUL to post a ~13% CAGR in its top line over FY2011-13E, largely aided by steady performance of the company’s personal care and foods division (aided by innovations and higher ad spends), spike in detergents volume growth and modest performance of its soaps business (aided by brand re-launches). In terms of earnings, we expect HUL to post a ~17% CAGR.  At the CMP of `388, the stock is trading at 29.2x FY2013E earnings. We see a limited upside in the stock price from current levels; hence, we maintain our Neutral view on the stock.