Hindustan Unilever
“Re‐Imagining” for a long haul ; Accumulate
June 06, 2018
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Analyst Meet Update
Amnish Aggarwal [email protected] +91‐22‐66322233
Nishita Doshi [email protected] +91‐22‐66322381
Rating Accumulate
Price Rs1,573
Target Price Rs1,627
Implied Upside 3.4%
Sensex 35,179
Nifty 10,685
(Prices as on June 06, 2018)
Trading data
Market Cap. (Rs bn) 3,397.2
Shares o/s (m) 2,160.0
3M Avg. Daily value (Rs m) 1709.9
Major shareholders
Promoters 67.19%
Foreign 12.56%
Domestic Inst. 6.85%
Public & Other 13.39%
Stock Performance
(%) 1M 6M 12M
Absolute 7.4 23.5 43.9
Relative 6.6 15.5 31.1
How we differ from Consensus
EPS (Rs) PL Cons. % Diff.
2019 28.0 28.8 ‐2.8
2020 33.4 34.1 ‐2.0
Price Performance (RIC: HLL.BO, BB: HUVR IN)
Source: Bloomberg
0200400600800
1,0001,2001,4001,6001,800
Jun‐17
Aug‐17
Oct‐17
Dec‐17
Feb‐18
Apr‐18
Jun‐18
(Rs)
We attended the Annual Investor Day of HUL and came back positive on the sustainability of growth led by “Re‐Imagining HUL”. HUL is creating building blocks for the future which include 1) Premiumisation and upgradation 2) Organisation culture and structure with young leaders 3) strengthening the core portfolio 4) market development for emerging segments 5) sustained expansion of naturals portfolio 6) efficiencies in supply chain and distribution and 7) driving cost savings to fuel growth. HUL is extensively using digital in mapping consumers, innovations, communication and marketing which will enable HUL to grow ahead of the market and gain share.
HUL is upping the ante in innovations and launches like Pure Derm, Indulekha Shampoo, Bru Coffee for Karnataka, Lifebuoy Haldi, Ayush Breakfast Cereals, Italian Noodles, Kwality Walls Sandwich ice cream, Hamam Neem etc. which will enable the company accelerate growth. Market development in categories of Future like Fabric Conditioners, Body Lotion, Anti‐ Perspirants, Hair conditioners, hand wash, liquid dish wash, toilet cleaners, face wash, Green tea etc. will make them as major drivers in coming years. HUL will have distinct advantage as it has higher share in premium segments, modern trade and E‐commerce and emerging categories.
HUL has increased cost savings from 3% of sales to 6‐7% in the past 6 years and expects to sustain the gains by 1) targeted use of digital in mapping and targeting consumers 2) efficiencies in supply chain 3) reduction in delivery time to retailers from 40 hours to 18 hours under project Shogun and 4) product development to fit the WIMI strategy.
We remain positive on the long term structural story and HUL’s ability to gain from the same. We estimate 18.8% PAT CAGR over FY18‐20 and value the stock at 45xSept20EPS thus assigning a price target of Rs1627 (Rs1555, 43xSept 18 earlier). We retain Accumulate rating on the stock, however we expect back ended returns post 43% appreciation in past 1 year.
Key financials (Y/e March) 2017 2018 2019E 2020E
Revenues (Rs m) 344,870 352,180 386,876 431,531
Growth (%) 3.0 2.1 9.9 11.5
EBITDA (Rs m) 60,470 72,760 86,036 102,409
PAT (Rs m) 42,490 51,359 60,706 72,542
EPS (Rs) 19.7 23.8 28.0 33.4
Growth (%) 1.9 20.9 17.7 19.5
Net DPS (Rs) 16.5 18.0 22.0 24.0
Profitability & Valuation 2017 2018 2019E 2020E
EBITDA margin (%) 17.5 20.7 22.2 23.7
RoE (%) 66.6 75.7 83.1 89.5
RoCE (%) 62.1 69.6 76.0 82.0
EV / sales (x) 9.8 9.6 8.7 7.8
EV / EBITDA (x) 56.0 46.2 39.3 32.9
PE (x) 80.0 66.1 56.2 47.0
P / BV (x) 52.3 48.0 45.3 39.3
Net dividend yield (%) 1.1 1.1 1.4 1.5
Source: Company Data; PL Research
June 06, 2018 2
Hindustan Unilever
Exhibit 1: HUVR is Re‐imagining strategy to align to changing digital, consumer and distribution paradigm
Source: Company Data
Exhibit 2: HUVR is customising products, media and marketing to cater to 14 different clusters across country
Source: Company Data
Exhibit 3: HUVR is creating Mini boards so that Management time is focused on LONG TERM GOALS
Source: Company Data
June 06, 2018 3
Hindustan Unilever
Exhibit 4: Strengthen the CORE of portfolio to grow
Source: Company Data
Exhibit 5: Invest in Categories of FUTURE which will scale up in coming years
Source: Company Data
Exhibit 6: Build NATURALS portfolio, Indulekha Shampoo, Close UP, Lifebuoy Haldi, Ayush Breakfast Cereals
Source: Company Data
June 06, 2018 4
Hindustan Unilever
Exhibit 7: GENERAL TRADE will remain important, focus on improving coverage and assortment
Source: Company Data
Exhibit 8: Project SHOGUN; cut delivery time to retailer from 40hours to 18 hours, reduce distribution costs
Source: Company Data
Exhibit 9: Increased savings from 3% to 6‐7% of sales to invest for growth, trend to sustain
Source: Company Data
June 06, 2018 5
Hindustan Unilever
Food and refreshments: Ready to step up with Ayush Breakfast Cereals, Kwality Walls and TEA Portfolio
Exhibit 10: HUVR has high share in premium segment of TEA, BRU customised to cater to Kannadiga Taste
Source: Company Data
Exhibit 11: Ayush Entering Breakfast Cereals under AYUSH, Noodles ready for national rollout of Italian flavors
Source: Company Data
Exhibit 12: Kwality Walls: from 40 to 400 Cities; Innovations in Sandwich Ice cream, and Cornetto OREO
Source: Company Data
June 06, 2018 6
Hindustan Unilever
Home Care: Premium Detergents, Vim Key drivers; Toilet Cleaners a potential new growth area
Exhibit 13: Surf Excel drives growth in Detergents; WIMI strategy at Play: UP ; Surf Excel easy wash and RIN, TN: Liquids
Source: Company Data
Exhibit 14: Premium Detergents and fabric conditioners are LONG term growth drivers
Source: Company Data
Exhibit 15: Domex launches powder Toilet Cleaners; seeding categories of FUTURE
Source: Company Data
June 06, 2018 7
Hindustan Unilever
Personal Care: Naturals, Anti Perspirants and Body lotion future growth drivers
Exhibit 16: Premium and Mkt Development key drivers; AXE Ticket to enable entry in LUP in Deo’s
Source: Company Data
Exhibit 17: Rexona to drive anti Perspirants market; BODY Lotion another key focus area
Source: Company Data
Exhibit 18: Naturals: Portfolio strengthened with Indulekha Shampoo, Hamam Neem Soap, Lifebuoy Haldi and lakme naturals
Source: Company Data
June 06, 2018 8
Hindustan Unilever
Exhibit 19: Comparable FMCG sales up 16%
4.0 4.0 2.0
0.0
8.0 6.0
10.0
17.0 16.0
0.02.04.06.08.0
10.012.014.016.018.0
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
(%)
Source: Company Data, PL Research
Exhibit 20: Volumes up 11% on a low base
4.0 4.0
(1.0)
(4.0)
4.0
0.0
4.0
11.0 11.0
(6.0)
(4.0)
(2.0)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
(%)
Source: Company Data, PL Research
Exhibit 21: Ad spend up 140bps on increased brand building
11.2 10.8 10.9
11.5
10.4 10.6
12.3
12.9
11.8
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
13.0
13.5
Q4FY1
6
Q1FY1
7
Q2FY1
7
Q3FY1
7
Q4FY1
7
Q1FY1
8
Q2FY1
8
Q3FY1
8
Q4FY1
8
(%)
Source: Company Data, PL Research
Exhibit 22: GM up 150bps; EBITDA margins up 240bps
51.2
51.0
52.6
19.1 20.1 22.5
12.0
14.0
16.0
18.0
20.0
22.0
24.0
42.044.046.048.050.052.054.056.0
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Gross Margins (%) EBITDA Margins (%) (RHS)
Source: Company Data, PL Research
Exhibit 23: PFAD prices down 15.3% YoY and 2.2% QoQ
‐18.9‐21.9‐27.8‐28.9
‐4.4
6.7
28.7
69.7
30.3
3.1 2.7
‐6.9‐15.3
‐40.0
‐20.0
0.0
20.0
40.0
60.0
80.0
Mar‐15
Jun‐15
Sep
‐15
Dec‐15
Mar‐16
Jun‐16
Sep
‐16
Dec‐16
Mar‐17
Jun‐17
Sep
‐17
Dec‐17
Mar‐18
(%)
YoY QoQ
Source: Company Data, PL Research
Exhibit 24: LAB prices are up 3.9% QoQ and up 7% YoY
125.1
103.189.1
104
106
60
70
80
90
100
110
120
130
140
Dec‐12
Mar‐13
Jun‐13
Sep
‐13
Dec‐13
Mar‐14
Jun‐14
Sep
‐14
Dec‐14
Mar‐15
Jun‐15
Sep
‐15
Dec‐15
Mar‐16
Jun‐16
Sep
‐16
Dec‐16
Mar‐17
Jun‐17
Sep
‐17
Dec‐17
Mar‐18
(Rs/Kg)
Source :PL Research
June 06, 2018 9
Hindustan Unilever
Exhibit 25: Sales not comparable due to GST, Home care, Personal care and Refreshments see margin expansion
Quarterly Segmental 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18
Net Sales (Rs m) 83,210 87,886 84,700 83,073 88,750 92,130 83,030 85,900 90,970
Home Care 27,980 28,760 27,770 26,891 30,040 30,470 27,390 27,410 31,020
Personal Care 37,700 42,216 40,280 39,802 40,750 43,680 39,100 40,900 40,960
Foods 2,880 2,722 2,778 2,785 2,950 2,840 2,820 3,000 2,990
Refreshments 11,760 12,149 11,692 11,641 13,000 13,460 12,220 12,480 14,090
Others 2,890 2,038 2,181 1,954 2,010 1,680 1,500 2,110 1,910
Sales Growth % 4.4 1.6 (0.8) 6.7 4.8 (2.0) 3.4 2.5
Home Care 8.0 3.2 1.0 7.4 5.9 (1.4) 1.9 3.3
Personal Care 2.7 (0.3) (2.7) 8.1 3.5 (2.9) 2.8 0.5
Foods 5.0 2.4 0.5 2.4 4.3 1.5 7.7 1.4
Refreshments 5.6 8.4 8.1 10.5 10.8 4.5 7.2 8.4
Others (14.3) (15.2) (27.3) (30.4) (17.6) (31.2) 8.0 (5.0)
EBIT (Rs m) 14,514 15,768 13,981 13,359 16,160 18,170 15,560 15,300 18,640
Home Care 3,023 3,559 2,800 2,342 3,890 4,480 3,830 3,540 5,090
Personal Care 9,027 10,214 9,226 9,208 9,840 10,790 9,480 10,070 10,660
Foods 381 170 137 261 280 410 170 110 310
Refreshments 1,943 1,921 1,726 1,713 2,190 2,550 2,140 1,690 2,560
Others 140 ‐95 91 ‐166 ‐40 ‐60 ‐60 ‐110 20
EBIT Growth % 4.7 9.0 (5.5) 11.3 15.2 11.3 14.5 15.3
Home Care 22.7 24.7 (0.6) 28.7 25.9 36.8 51.1 30.8
Personal Care 0.3 3.6 (7.1) 9.0 5.6 2.8 9.4 8.3
Foods (20.7) (16.2) (25.1) (26.5) 141.6 24.0 (57.9) 10.7
Refreshments 7.5 17.5 7.4 12.7 32.8 24.0 (1.3) 16.9
Others 340.5 112.1 159.0 (128.6) (36.6) (165.6) (33.5) (150.0)
EBIT Margin %
Home Care 10.8 12.4 10.1 8.7 12.9 14.7 14.0 12.9 16.4
Personal Care 23.9 24.2 22.9 23.1 24.1 24.7 24.2 24.6 26.0
Foods 13.2 6.2 4.9 9.4 9.5 14.4 6.0 3.7 10.4
Refreshments 16.5 15.8 14.8 14.7 16.8 18.9 17.5 13.5 18.2
Source: Company Data, PL Research
June 06, 2018 10
Hindustan Unilever
Income Statement (Rs m)
Y/e March 2017 2018 2019E 2020E
Net Revenue 344,870 352,180 386,876 431,531
Raw Material Expenses 182,820 169,250 181,167 200,453
Gross Profit 162,050 182,930 205,709 231,078
Employee Cost 16,200 17,450 19,893 22,027
Other Expenses 85,380 92,720 99,780 106,642
EBITDA 60,470 72,760 86,036 102,409
Depr. & Amortization 3,960 4,781 5,095 5,440
Net Interest 220 200 220 220
Other Income 5,260 5,690 6,002 6,882
Profit before Tax 61,550 73,469 86,722 103,631
Total Tax 19,060 22,110 26,017 31,089
Profit after Tax 42,490 51,359 60,706 72,542
Ex‐Od items / Min. Int. 4,820 2,023 1,000 1,000
Adj. PAT 42,490 51,359 60,706 72,542
Avg. Shares O/S (m) 2,160.0 2,160.0 2,170.0 2,170.0
EPS (Rs.) 19.7 23.8 28.0 33.4
Cash Flow Abstract (Rs m)
Y/e March 2017 2018 2019E 2020E
C/F from Operations 54,340 65,260 61,233 82,929
C/F from Investing (13,460) (14,440) (4,231) (20,733)
C/F from Financing (42,630) (45,739) (56,166) (61,271)
Inc. / Dec. in Cash (1,750) 5,081 836 924
Opening Cash 2,400 650 5,730 6,566
Closing Cash 650 5,730 6,566 7,490
FCFF 36,680 57,230 55,517 77,252
FCFE 36,680 57,230 55,517 77,252
Key Financial Metrics
Y/e March 2017 2018 2019E 2020E
Growth
Revenue (%) 3.0 2.1 9.9 11.5
EBITDA (%) 5.2 20.3 18.2 19.0
PAT (%) 1.9 20.9 18.2 19.5
EPS (%) 1.9 20.9 17.7 19.5
Profitability
EBITDA Margin (%) 17.5 20.7 22.2 23.7
PAT Margin (%) 12.3 14.6 15.7 16.8
RoCE (%) 62.1 69.6 76.0 82.0
RoE (%) 66.6 75.7 83.1 89.5
Balance Sheet
Net Debt : Equity (0.2) (0.5) (0.4) (0.5)
Net Wrkng Cap. (days) (63) (88) (83) (83)
Valuation
PER (x) 80.0 66.1 56.2 47.0
P / B (x) 52.3 48.0 45.3 39.3
EV / EBITDA (x) 56.0 46.2 39.3 32.9
EV / Sales (x) 9.8 9.6 8.7 7.8
Earnings Quality
Eff. Tax Rate 31.0 30.1 30.0 30.0
Other Inc / PBT 8.5 7.7 6.9 6.6
Eff. Depr. Rate (%) 5.8 6.5 6.5 6.5
FCFE / PAT 86.3 111.4 91.5 106.5
Source: Company Data, PL Research.
Balance Sheet Abstract (Rs m)
Y/e March 2017 2018 2019E 2020E
Shareholder's Funds 64,900 70,751 75,418 86,734
Total Debt — — — —
Other Liabilities 5,740 6,660 7,248 7,880
Total Liabilities 70,640 77,411 82,666 94,613
Net Fixed Assets 42,270 45,720 43,675 43,384
Goodwill — — — —
Investments 42,860 31,110 33,210 43,510
Net Current Assets (14,490) 580 5,781 7,719
Cash & Equivalents 11,640 33,730 33,647 39,855
Other Current Assets 50,740 60,930 64,573 70,861
Current Liabilities 76,870 94,080 92,439 102,997
Other Assets — — — —
Total Assets 70,640 77,410 82,665 94,613
Quarterly Financials (Rs m)
Y/e March Q1FY18 Q2FY18 Q3FY18 Q4FY18
Net Revenue 85,290 83,090 85,900 90,970
EBITDA 18,660 16,820 16,800 20,480
% of revenue 21.9 20.2 19.6 22.5
Depr. & Amortization 1,140 1,150 1,210 1,280
Net Interest 60 60 50 40
Other Income 1,130 2,040 1,520 1,000
Profit before Tax 18,590 17,650 17,060 20,160
Total Tax 5,670 5,290 5,080 6,070
Profit after Tax 12,920 12,360 11,970 13,990
Adj. PAT 12,920 12,360 11,980 14,090
Key Operating Metrics
Y/e March 2017 2018 2019E 2020E
Volume Growth % (1.5) 4.9 7.3 7.1
Source: Company Data, PL Research.
June 06, 2018 11
Hindustan Unilever
Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage PL’s Recommendation Nomenclature
45.3%42.2%
12.5%
0.0%0%
10%
20%
30%
40%
50%
BUY Accumulate Reduce Sell
% of Total Coverage
BUY : Over 15% Outperformance to Sensex over 12‐months
Accumulate : Outperformance to Sensex over 12‐months
Reduce : Underperformance to Sensex over 12‐months
Sell : Over 15% underperformance to Sensex over 12‐months
Trading Buy : Over 10% absolute upside in 1‐month
Trading Sell : Over 10% absolute decline in 1‐month
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
DISCLAIMER/DISCLOSURES
ANALYST CERTIFICATION
We/I, Mr. Amnish Aggarwal (MBA, CFA), Ms. Nishita Doshi (CA, CFA Level 1, B.Com), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
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