HLL’s recurring PAT (8% Y/Y decline) disappointed slightly (our est. was Rs5.68bn). While volume growth was 11% (slightly above our expectations of c8-10%), EBITDA margins at 14% were a tad (80 bps) below estimates. Mgmt will need to continue investing behind brands - ad/sales promotion spends continue to accelerate, even sequentially – up ~115bps Q/Q to 15.7% of revenues. However, gross margins positively surprised – up 80bps Y/Y, driven (we believe) by mix shift in the PP segment.
Volume growth of 11% has been aided by a low base (1QFY10: +2% Y/Y) but is healthy. Mgmt noted that PP EBIT margins (~25%, up 280bps Y/Y) have benefited from mix shift (up trading in skin), and improved better operating leverage. Revenue growth at 11.4% Y/Y disappointed – against our expectations of 14-15% revenue growth.
EPS expectation for fy 11 10.2 and 11.5 for fy 12.
