Dead Presidents! - India Equity Research: Hindustan Lever HLL

Showing posts with label Hindustan Lever HLL. Show all posts

Thursday, September 13, 2007

Power Grid, Dr Reddy, Cipla, IDBI, Hindustan Unilever

Friday, August 24, 2007

Hindustan Unilever

Till date, the southwest monsoon has been fairly widespread and normal. A favourable monsoon will significantly increase the rural income in the current year. This is particularly positive for HUL for whom the rural markets account for an estimated 50% of incremental growth. This will pave the way for a reasonable sales growth, besides even better profitability.

For the long-term, there is no doubt about its prospects. Increasing urbanisation, improving literacy level, expanding media reach, growing disposable income, changing attitudes and aspirations and a young and growing population all will ensure sustained growth.

Consider these: The per capita consumption of personal wash products in India is 0.5 kg compared to 1.1 kg in Brazil and 2 kg in USA, for fabric wash the figure is 2.6 kg in India compared to 7.2 for Brazil and 13.1 in USA.

The per capita consumption for other products is also currently very low. Toothpaste: 40 ml in India, 358 ml in Brazil and 299 ml in USA, shampoo: 16 ml in India, 444 ml in Brazil and 1,018 in USA, ice cream: 0.98 ltr in India, 1 ltr in Brazil and 22 ltr in the USA.

All these indicate very low level of penetration and tremendous growth prospects. High GDP growth and increase in per capita income is bound to more than proportionately increase demand for the company's products.

Valuation

In FY 2007 (ending December 2007) we expect the company to register sales and net profit of 13696.70 crore and Rs 1905.48 crore respectively. On equity of Rs 220.70 crore and face value Re 1 per share, EPS works out to Rs 8.3. The share price trades at Rs 196. P/E works out to reasonable 23.6.

Friday, August 03, 2007

Colgate Palmolive, Dish TV, Bank of Baroda, Hindustan Unilever, Grasim Industries

Colgate Palmolive, Dish TV, Bank of Baroda, Hindustan Unilever, Grasim Industriesa

Wednesday, August 01, 2007

BPCL, TVS Motors, Grasim, BPCL

TVS Motors Q1FY08 Result Update (Sell)

Grasim Ind Q1FY08 Result Update (Accumulate)

Hindustan Unilever Q2CY07 Result Update (Reduce)

BPCL Q1FY08 Result Update (Accumulate)

Monday, July 30, 2007

Result Updates

Reliance Industries: 1QFY08 results: Stronger-than-expected results on forex gains and stronger margins

State Bank of India: SBI's profit optically good, but operational performance in line, valuations full, downgrading to IL

ITC: 1QFY08: Cigarettes division posts impressive numbers despite taxation issues'we retain OP

Hindustan Lever: 2QCY07 Results: Core FMCG sales growth of 13.4%; retain In Line rating

Suzlon Energy: Results disappoint as several problems come to haunt simultaneously

GMR Infrastructure: Results first take: operating performance in-line with expectations

GAIL (India): Stronger-than-expected 1QFY08 results on lower subsidy losses, jump in gas transmission profits

Grasim Industries: 1QFY08: VSF leads the growth even as other division perform well; retain IL

ABB: Strong revenue growth and margin expansion; estimates and target price revised upwards

Tata Power: 1QFY08: Good growth in Mumbai licence area; maintain In Line

Container Corporation: Lower than expected exim volume growth; revise target price, maintain rating

BPCL: In the black despite no oil bonds

Bank of Baroda: BoB delivers on profit, driven by lower provisions

Canara Bank: Performance likely to remain under pressure, downgrading to IL

MTNL: No improvement in sight; broadband subs addition slow down; maintain U

Punj Lloyd: Strong operating performance helps beat expectations

Indian Overseas Bank: IOB on track as usual, retain OP

Colgate-Palmolive (India): 1QFY2008: Volumes growth near double-digits; upgrade
rating to Inline

Lanco Infratech: 1QFY08: results in line with expectations; Upgrade to Outperform

CESC: 1QFY08: Results in line with expectations

J&K Bank: PAT exceeds estimate supported by non-interest income, retain OP

GSPL: In-line 1QFY08 results; retain estimates with DCF-based target price of Rs58

TVS Motor Company: No respite from troubles; net profit down 65% yoy

Updates

Federal Bank: Amongst the few good results in financial sector, upgrading target price, retain OP

Result Updates

Thursday, June 28, 2007

Spice Communications, HLL

Tuesday, June 26, 2007

Sharekhan Investor's Eye June 25, 2007

Tourism Finance Corporation of India
Cluster: Cannonball
Recommendation: Buy
Price target: Rs30
Current market price: Rs17.1

Riding on improved prospects for tourism sector

Key points

To benefit from the positive outlook on tourism sector: Tourism Finance Corporation of India's (TFCI) deteriorating financial performance and increasing NPAs were a direct consequence of the downturn in the tourism sector in the late 1990s. However, the positive outlook for the tourism sector going forward would significantly benefit TFCI in terms of higher loan growth.

Substantial improvement in asset quality: TFCI has significantly improved its asset quality. Its net NPAs, which were high at 11% in FY2004, were at 2.6% in FY2006 and are expected to fall further in FY2007. Higher recoveries and lower incremental NPAs have helped reduce the level of its NPAs.

Possible foray into private equity space to boost future earnings: TFCI is also reported to be in talks with major private hotel chains, real estate funds and private equity players to raise private equity to finance large hotel projects. This will enable TFCI to generate a fee income, and increase its ability to co-invest and lend.

Dividend payment now possible: Due to its high NPAs, TFCI was not permitted by the RBI to pay dividends in FY2005 and FY2006. TFCI had paid a dividend of Rs0.7 per share in FY2004. If it resumes dividend payment at the earlier historical rate, the dividend yield would work out to 4%, which could provide a margin of safety for the stock.

Stock could trade at Rs30: TFCI had a reported book value of Rs27 per share in FY2006. The stock is trading at 0.6x trailing book and is cheaper than most other financial stocks. At our target price/book value of 0.8x for FY2009, the price target for the stock works out to Rs30 per share. We believe that the valuation at 0.8x is reasonable given that the company has never made losses, its NPAs have turned around and its loan growth is expected to be strong with the improving prospects of the hotel and tourism industry. We therefore recommend a Buy on TFCI with a price target of Rs30.

STOCK

UPDATE

Alphageo India
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs395
Current market price: Rs370

Price target revised to Rs395

Result highlights

Alphageo India has reported a 56.7% growth in its revenues to Rs29.5 crore for the fourth quarter ended March 2007. This is in line with our estimate of Rs29 crore.

The operating profit margin declined by 5.3% to 44.5% during the quarter, largely due to the incremental cost related to the third 3D crew. The crew became operational only in the latter part of Q4FY2007 but the staff cost for the same was reflected in the entire quarter.

The net profit grew by 41% to Rs6 crore which is marginally higher than our estimate of Rs5.9 crore.

On the full year basis, the revenue and earnings have grown by 127.5% to Rs54.3 crore and 80.2% to Rs7.5 crore respectively.

Along with the results, the board has approved a dividend of 15% (or Rs1.5 per share) for the existing shareholders.

The company had a pending order book of Rs110 crore as of end March 2007. The order book is executable over the next five quarters and provides a strong visibility for the revenue growth in FY2008. Accordingly, we have revised upwards our estimates for FY2008. At the current market price the stock trades at 11.2x FY2008 estimated earnings. We maintain our Buy recommendation on the stock with a revised price target of Rs395 (12x FY2008 estimated earnings).

Hindustan Unilever
Cluster: Apple Green
Recommendation: Buy
Price target: Rs280
Current market price: Rs188

To prune margins at stockists
According to media reports, Hindustan Unilever Ltd (HUL) is expected to prune the margins of the stockists with an intention to bring in efficiencies. It is still not clear to what extent the company would bring down the margins though. Till now, the company had allowed its stockists to keep a little less than 5% as margins. The other fast moving consumer goods companies in the business like Amul pay their dealers margins in the region of 3%

Sharekhan Investor's Eye June 25, 2007

Wednesday, May 16, 2007

ENAM - HLL, Suzlon Energy

ENAM - HLL

ENAM - Suzlon Energy

Wednesday, May 09, 2007

Sharekhan Investor's Eye dated May 08, 2007

Andhra Bank
Cluster: Cannonball
Recommendation: Buy
Price target: Rs101
Current market price: Rs82.4

Stable performance

Result highlights

For Q4FY2007 Andhra Bank reported a stable year-on-year (y-o-y) growth in its net profit to Rs138.8 crore. The same is better than our profit after tax (PAT) expectation of Rs123 crore. The PAT growth was driven by a lower than expected operating expenditure.

During the quarter, the bank’s net interest income (NII) grew by 18.4% year on year (yoy) to Rs362.2 crore. However there was some sequential pressure on the net interest margin (NIM) as the bank’s cost of funds increased at a much faster pace than its asset yields. Also, its low cost deposit base declined sequentially.

The non-interest income increased by 9% yoy to Rs138.4 crore despite a 40.4% y-o-y decline in the treasury income. The non-interest income excluding treasury was up 20.3% yoy.

A 15.7% growth in the net income coupled with a 7.3% y-o-y decline in the operating expenses helped the bank to report a 46.7% y-o-y growth in the operating profit to Rs270 crore. The core operating profit (operating profit excluding treasury) reported further improvement of 59.6% yoy to Rs256 crore.

Provisions and contingencies showed a decline of 23% yoy to Rs81 crore but increased 25.7% quarter on quarter (qoq) mainly due to higher non-performing assets (NPA) and standard asset provisions charged during the quarter.

The PAT growth was marginal although the profit before tax (PBT) grew by 158.7% yoy. This was mainly due to a Rs76 crore of tax charge in Q4FY2007 compared to a tax write-back in Q4FY2006.

Its full year tax provision has gone up significantly by 208% to Rs247 crore compared to Rs80 crore. The higher tax incidence is due to a 32.5% jump in the operating profit coupled with the absence of the investment provision amount (which reduces a bank’s tax liability) in FY2007.

We had witnessed a jump in the net NPAs during Q3FY2007. The bank made higher NPA provisions during the fourth quarter and the asset quality, already at healthy levels, showed further improvement during the quarter. The net NPAs improved to 0.17% from 0.44% on a sequential basis.

The bank has shown an improvement in its operating performance, its capital adequacy ratio (CAR) is comfortable at 11.3% with the Tier-I CAR at 9.98% and its asset quality continues to remain among the best in the industry. At the current market price of Rs82.4, the stock is quoting at 6.5x its FY2008E earnings per share (EPS), 3.6x pre-provision profit (PPP) and 1.1x book value. The bank is available at attractive valuations, given its low price to book multiple compared with its peers, and an average return on equity of 18.1%. We maintain our Buy call on the stock with a price target of Rs101.

Hindustan Lever
Cluster: Apple Green
Recommendation: Buy
Price target: Rs280
Current market price: Rs195

Good sales growth but disappointing margins

Result highlights

The Q1CY2007 net profit of Hindustan Lever Ltd (HLL) grew by 13.6% year on year (yoy) to Rs333.9 crore, which is slightly below our expectations.

The net revenues grew by 13.8% yoy on the back of an 8.73% year-on-year (y-o-y) growth in the home and personal care (HPC) segment, which comprises the soap and detergent, and personal care businesses. The lower growth in the personal product range is disappointing but is expected to pick up in the coming quarters.

The profit before interest and tax (PBIT) margin showed a contraction of 70 basis points to 13.6%. The contraction in the PBIT margin is attributable to the lower growth in the personal care segment.

The soap and detergent business has shown a growth of 9.6% whereas the personal care product business has reported a lower growth of 7.4%. Adjusting for the disposal of the Nihar brand, personal products grew by 10.5%.

The beverage business has shown a growth of 16.6% yoy whereas the processed food business has grown by 26% yoy.

The operating profit margin (OPM) of HLL contracted by 44 basis points to 11.37% on a y-o-y basis due to a higher raw material cost. The selling and administrative expenses as a percentage of sales increased by 35 basis points which led to further erosion in the margin.

The soap and detergent segment was able to maintain its earnings before interest and tax (EBIT) margin at 12.1% yoy whereas the EBIT margin in the personal care product range recorded an improvement of 30 basis points to 24.7%.

At the current market price of Rs195, the stock is quoting at 22.8x its CY2007E earnings per share (EPS) of Rs8.5 and 20x its CY2008E EPS of Rs9.6. We maintain our Buy recommendation on the stock with a price target of Rs280.

VIEWPOINT

TV Today Network

Missing growth drivers
While Aaj Tak has been the leader in the Hindi news genre and has sustained its market share at about 22% (source: TAM Media Research), the other channels of the group haven't been able to garner significant share in their respective genres (Headlines Today—10.7%, Tez—4.6%). Though we believe that these channels had a low investment and incremental operating expenditure (as they leveraged the existing infrastructure of Aaj Tak) and the management claims them to be incrementally profitable, these small initiatives, in our view, do not lay down a foundation for strong growth. Also, competition to its channels has been heating up with the launch of newer channels and the decreasing differentiation of content that has led to pressure on the market share of the existing channels.

The company had about Rs100 crore cash on books at the end of FY2006, which should increase to around Rs150 crore by the end of FY2007. But it hasn't been able to find ways of deploying this cash in any new initiatives (several other players in the industry have actually raised funds for expansion).

Sharekhan Investor's Eye dated May 08, 2007