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.
 

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