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| HUL: Volumes still sluggish |
| Shobhana Subramanian / Mumbai Jul 29, 2009, 00:46 IST |
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While the rise in revenues has been reasonably good, the subdued growth in volumes is disappointing.
 The Hindustan Unilever (HUL) stock tumbled 7 per cent on Tuesday to Rs 277 with the Street disappointed at the low growth in volumes and lower profitability in the personal products (PP) business. While the top line growth of 8 per cent was lower than expected, it had more to do with drop in exports; revenues were fairly strong across segments.
However, the growth was led by prices rather than volumes, which were up only 2 per cent. Besides, while the strong turnaround in PP revenues was encouraging given the rather muted growth in the March 2009 quarter, the segment saw a near 600 basis points fall in EBIT (earnings before interest and tax) margins. If the operating profit margin (OPM) for the quarter was higher by 70 basis points at 16 per cent, it was due to better profitability in soaps and detergents, lower input costs and a check on other expenses.
Domestic FMCG revenues grew close to 13 per cent, not a bad performance except for the fact that they were driven by prices, and volumes were up just about 2 per cent. It’s possible that volumes of soaps and detergents dropped 4-5 per cent and that PP volumes increased by low single digits. The management had resorted to some price cuts earlier this year because it believed HUL was losing market share at certain price points, especially in categories such as toothpaste, because consumers were down-trading. Cuts in prices of Wheel, Lifebuoy and other brands were supposed to have driven up volumes but it’s not clear which brands have been losing out.
The PP segment is important because it has all along contributed over 40 per cent to HUL’s EBIT. But this time around, it accounts for less than that. While it is true that HUL has spent large amounts on marketing and advertising — spends are up 180 basis points —the segment should have been more profitable given that revenues have risen nearly 15 per cent.
Again, both beverages and foods showed strong top line momentum, though at the cost of profitability. At Rs 277, the stock trades at 26 times estimated 2009-10 earnings and is not cheap.
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