In your interest.
Online Personal Finance Magazine
No beating about the bush.
The fast moving consumer goods company has delivered another robust quarter, despite a difficult economy, driven by strong showing in both home and personal care as well as domestic consumer divisions
Hindustan Unilever, one of India’s leading fast moving consumer goods (FMCG) company, has come out with very positive results, despite intense competition, a benign economy and uncertainty over inflation. The company has reported 12% year-on-year (y-o-y) increase in net sales to Rs6465.81 crore for the quarter ended 31 March 2013. Likewise, its net profit is up 14.65% y-o-y, and touched Rs787.20 crore for the March 2013 quarter. This was driven by strong performances in domestic consumer business as well as home and personal care divisions. During the quarter, the domestic consumer business grew 13% with strong 6% underlying volume growth. Both home and personal care (HPC) and foods & beverages (F&B) registered double digit growth.
Earlier this year, we had recommended the stock at Rs473.95 (please refer to our Long Term section of the Moneylife magazine). Currently, at time of writing the piece, the stock is quoting at Rs498.50 on the Bombay Stock Exchange (BSE).
Analysis of Moneylife database on Hindustan Unilever reveals that the company has been one steady performer through thick and thin. Its net sales growth rate is equal to its three-quarter y-o-y growth rate of 12%. However, it is its operating profit that stood out, growing 17% y-o-y, beating its average three-quarter y-o-y growth rate of 15%. Such is the quality of cost control. Its return on networth and return on capital were extraordinary high at 108% and 123% respectively, which means the company is also commanding premium valuations. Its market capitalisation stood at over 25 times operating profit.
Exceptional items during the March 2013 quarter included reduction in provision for retirement benefits of Rs10.39 crore and restructuring costs of Rs98 lakh. Also, during the March 2013 quarter, the company had entered into a share purchase agreement with promoters of M/s Aquagel Chemicals Pvt Ltd for acquisition of 74% of the equity share capital of ACPL. The company was earlier holding an investment of 26% of its equity share capital. Therefore, Aquagel has become a wholly-owned subsidiary with effect from 1 April 2013.
While commodity costs were relatively benign during the quarter, competitive intensity remained at high levels. They continue to push brands vis-à-vis advertising & promotion, which is up Rs144 crore (+90 bps) in the quarter.
Other divisions too performed well, too. Soaps & detergents witnessed broad-based growth and grew 13%. Personal products grew 12%, driven by acceleration of its hair & oral care segments. Beverages saw robust growth across portfolio, and grew 18%. Packaged foods grew 7%. Surprisingly, its ice cream division did not perform well due to “slowdown in the market”.
Harish Manwani, chairman HUL, commented: “In a challenging environment, we have delivered broad based competitive growth and margin improvement. We have continued to invest in strengthening our brands, stepped up innovation and driven in-market execution and operational efficiencies even harder. At the same time, we are making good progress on our Sustainable Living Plan agenda. While there are near term concerns around slowing market growth and inflationary pressures on consumers, we are confident of the medium to long term growth prospects of the FMCG sector and remain focused on delivering consistent and competitive growth with sustainable operating margin improvement.”
The board of directors has proposed a final dividend of Rs6 per share for the financial year ending 31 March, 2013, subject to the approval of the shareholders at the annual general meeting. Together with interim dividend of Rs4.50 per share and special dividend of Rs8 per share, the total dividend for the financial year ending 31 March, 2013 amounts to Rs18.50 per share.
For more information on other companies’ results, check here
While high inventory remains a concern in the near term, it is expected that zinc prices will improve to $2,000-$2,100/tonne owing to zinc turning to a balanced supply market, says Nomura Equity Research
Volume growth along with cost optimization provides earnings visibility, says Nomura in its research report on Hindustan Zinc. At the same time, the brokerage believes that globally zinc fundamentals have improved and it expects zinc to see a balanced demand supply scenario. Zinc prices are expected to improve from the current level of $1,900/tonne to $2,000-$2,100/tonne in FY14-15F.
According to Nomura Equity Research, the catalyst factor lies in a potential stake sale of 29.5% government stake to Sterlite Industries and this could be a trigger for the stock for investors in Hindustan Zinc. While the stock was trading around Rs119 last week, Nomura has predicted a target price of Rs161 along with its ‘Buy’ recommendation.
Nomura’s sensitivity analysis shows that Hindustan Zinc FY15F EPS would change by Rs0.70/share for every $100/tonne change in zinc prices and Rs0.20/share for $100/t change in lead prices. The analysis is shown in the table below:
Net Interest Margin expansion for LIC Housing Finance was driven by improvement in both—cost of funds and yield on assets, says Nomura Equity Research
LIC Housing Finance (LICHF) reported robust 4QFY13 numbers, driven by expansion in NIM (net interest margin) and lower than expected provisions. Net profit of Rs320 crore was largely driven by 10.4% beat in NII (net interest income) as NIM expanded 36 bps (basis points) sequentially to 2.45%. Asset quality improved during the quarter with GNPLs (gross non-performing loans) declining 12.5% sequentially to Rs470 crore. Loans were up 23.4% year-on-year with disbursals growth of 28.62% year-on-year. These observations were made by Nomura Equity Research in its Quick Note on LICHF.
NIM expansion was driven by improvement in both—cost of funds and yield on assets. Yield improved by 3bps quarter-on-quarter to 10.78%, while cost of funds declined by 27bps to 9.4% quarter-on-quarter. Consequently, spreads improved from 1.07% in 3Q13 to 1.38% in 4QFY13, point out Nomura Equity Research analysts.
Loan growth of 23.4% year-on-year was higher than Nomura’s expectation of 21.4% year-on-year; with disbursal growth of 16.7% year-on-year (disbursal growth in the retail segment was at 18.8% year-on-year). Sanctions grew 30.2% year-on-year. Loan growth was largely driven by continued traction in retail loans that grew 25.5% year-on-year (sequential increase of 7.5%); however, the higher yielding developer/ project loans declined 5.5% quarter-on-quarter (decline of 16.3% year-on-year). The developer/ project loans as a proportion of total loans declined further to 3.4% from 3.9% in the previous quarter.
Operating expenses and employee costs were marginally higher than Nomura’s expectations, with a cost-income ratio of 18.6% (down 113bps year-on-year). The brokerage further computes the total CAR (capital adequacy ratio) as standing at 15.8%, with a tier-1 ratio of 10.7%.
The key ratios of LICHF are given below:
According to Nomura, the key issues to watch in LICHF management’s discussion on Monday (29 April 2013) include the following: further colour on delinquencies, plans for the project loan book, FY14 loan growth guidance, plans for fresh capital issuance and trajectory for margins.
LICHF currently trades at 1.6x of Nomura’s FY14F ABV of Rs157 and 7.8x of Nomura’s FY14F EPS of Rs31.8. Nomura’s target price of Rs295 implies multiples of 1.9x of Nomura’s FY14F ABV and 9.3x of Nomura’s FY13F EPS.