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HINDUSTAN UNILEVER LTD

Stock Coverage

Date 29th June 2018

BSE Code 500696

NSE Code HINDUNILVR

Market Cap (Rs Cr) 355394.90

52 week High/Low 1655/1064.60

Industry FMCG

Face Value Rs 1/Share

Shares O/S (In No) 216.46 Cr

EPS * 24.14

Book Value* 33.64

P/E 68.01

P/B 48.80

*Note: On Consolidated FY’18 financials basis

Shareholding Pattern as on Mar’ 2018

Research Analyst : Astha Jain

HUL is India’s largest fast moving consumer goods company,with leadership in Home & Personal Care Products & Foods & Beverages. With over 40 brands spanning 20 distinct categories such as soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, frozen desserts, water and air purifiers, the company is a part of the everyday life of millions of consumers across India. Co’s portfolio includes leading brands such as Lux, Lifebuoy, Surf excel, Rin, Wheel, Fair & Lovely, Pond’s, Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, BRU, Knorr, Kissan, Kwality Wall’s and Pureit. Co’s products are available in over seven million outlets across India. Healthy Performance Across Segments: In Food & Refreshment segment, co has leading position in 6 F&R categories with double digit growth & decent segmental operating margin of 15.6% in FY18 . Co’s Kwality Wall’s presence has increased from 40 cities in 2014 to 400 plus cities in 2018. In Home Care Segment, co has shown double digit growth with 14.6 % segmental operating margin during FY18. In Personal Care segment, co has shown highest operating margin of 24.9 % with double digit growth.

Robust Financial Performance: Co has posted healthy financial performance in FY18 as bottomline of company has witnessed decent growth of more than 15% in FY18 at Rs 5214 Cr as compare to Rs 4476 cr in FY17.Co’s operating & net profit margin stood at 21% & 14% & has witnessed surge of more than 14% during FY18. Company has posted strong return ratios with ROE & ROCE standing at more than 70% in FY18.

Strong growth Outlook: India continues to be one of the fastest growing economies in the world and this is expected to continue in financial year 2018-19, as per the latest economic survey. With GST having been successfully implemented, trade conditions have stabilised and a gradual improvement in demand is witness. Government spending plans such as increases to Minimum Support Price (MSP), provision of health insurance, etc.is expected to bolster rural development and drive consumption. Normal monsoon, as forecasted, will help the overall economy. Co is expected to show performance on back of strong economic outlook with gradual improvement in demand.

Valuation

The company is currently trading at 68.01x of FY18 eps of Rs 24.14 while it is trading at 55.52x of FY19E eps & 47.14x of FY20E eps. Co has shown strong financial performance in FY18 & going ahead with co’s focus on consistent, competitive, profitable, responsible growth, we believe company to be a strong candidate for investment at current levels, hence, we recommend “Buy” on the stock with price target of Rs 1855 for long term horizon.

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BUY CMP 1641.85 TARGET 1855 LONG TERM INVESTMENT




Company Overview

Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods company with a heritage of over 80 years in India. On any given day, nine out of ten Indian households use co’s products.With over 40 brands spanning 20 distinct categories such as soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, frozen desserts, water and air purifiers, the Company is a part of the everyday life of millions of consumers across India. Co’s portfolio includes leading brands such as Lux, Lifebuoy, Surf excel, Rin, Wheel, Fair & Lovely, Pond’s, Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, BRU, Knorr, Kissan, Kwality Wall’s and Pureit. Co’s products are available in over seven million outlets across India. Nearly 900 suppliers work with co’s supply chain that spans 28 of its own factories and several others that manufacture on co’s behalf. Co’s products are stocked in warehouses dotted across the country and delivered to 3,500 customers. HUL has around 18,000 employees working across 28 factories and 9 offices and creates employment opportunities for several thousand more across its value chain – from smallholder farmers, who provide raw materials to the distribution partners who take the products to customers and consumers. HUL is a subsidiary of Unilever, one of the world’s leading suppliers of Food, Home Care, Personal Care and Refreshment products with sales in over 190 countries and an annual sales turnover of €53.7 billion in 2017. Unilever has over 67% shareholding in HUL.

Segments:

a) Home Care include detergent bars, detergent powders, detergent liquids, scourers, water business etc.

b) Personal Care include products in the categories of oral care, skin care (including soaps), hair care, deodorants, talcum powder, colour cosmetics, salon services etc.

c) Foods include branded staples (atta, salt, bread, etc.) and culinary products (tomato based products, fruit based products, soups, etc.)

d) Refreshment include tea and coffee and frozen desserts.

e) Others include exports, infant care products etc.

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Robust Financial Performance During the year, company has witnessed healthy growth in its financials with the operating profit of company has been growing at CAGR of 12% from FY13 to FY18 while operating profit margin during the same year has grown at CAGR of 7 % from 15% operating margin in FY13 to 21% operating margin in FY18.Also company has been successfully able to generate return on its investment to shareholders with ROE (more than 70 % in Fy18) is consistently ranging anywhere between 60%-70% since FY16 , being among one of the best in its industry. At the same time co has posted ROCE of more than 100 % in FY18 thus depicting the robust financial health of the company. Also on debt front, company has completely paid off its debt & has become zero debt company as co’s debt/eq ratio has reduced to 0 in FY18 from 0.04 in FY17.

Volume led growth across segments Segments Reported Sales Growth*

(%) Comparable Sales Growth ^ (%)

Operating Margin (%)

Home Care 3% 15% 14.6%

Personal Care 0% 10% 24.9%

Refreshment 8% 12% 17.1%

Foods 4% 11% 8.6% *Reported Sales growth = Segment Turnover growth excluding Other Operational Income (Excludes impact of A&D) ^Comparable Sales growth = Segment Turnover growth excluding Other Operational Income but including Fiscal exemption/ refund andnet of excise & input tax costs in base quarter (Excludes impact of A&D)

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Strong Segmental Performance Personal Care During the year, skin care saw healthy growth across segments including face care, face cleansing, hand and body. Growth of core brands in Skin Care was driven by a successful re-launch of Fair & Lovely. Skin Cleansing had a good year, with Lifebuoy, Lux, Pears and Dove growing strongly. In Haircare, two new variants of TRESemmé, namely, ‘TRESemmé Botanique Detox and Restore’ and ‘TRESemmé Botanique Nourish and Replenish’ were launched. Company, through LEVER ayush, has forayed into the ‘naturals' segment in Oral Care. Lakmé had a milestone year and entered the list of Company’s Rs 1,000 crores brands. Lakmé continued to lead trends in the market with new ranges like Lakmé Absolute Argan Oil range. The brand also hosted the marquee Lakmé Fashion Week. In Deodorants, the Axe brand performed well, and a new mini format of Axe Ticket was launched. Company has a comprehensive ‘naturals’ strategy to ensure it is able to leverage this growing trend. The Company is building a master brand LEVER ayush across multiple categories like oral care, haircare, skin care and more. The brand strives to make ancient ayurvedic wisdom accessible to solve modern day beauty problems. LEVER ayush consists of a wide range of products across toothpaste, soaps, handwashes, shampoos and face wash, with each segment offering varied solutions. LEVER ayush works with one of the premier Ayurvedic Institutes, Arya Vaidya Pharmacy, to make products that use the right ingredients to make the product effective. Company is also building specialist 'naturals' brands like Indulekha and Citra. Indulekha has delivered impressive performance in the oil format and has now been extended into shampoos, with a unique product formulation and distinctive packaging. Home Care Segment In Household Care during the year, Vim led the market development for dishwash through category adoption of Vim bar in rural India and by upgrading existing bar consumers to the liquid format. During the year, Vim bar also launched its value-added variant Vim Anti-Smell (with Pudina) to start upgrading existing bar users to a higher value benefit of removal of strong leftover smells from clean vessels. Domex launched India’s first low-cost toilet cleaning powder. Domex toilet rim blocks too were re-launched via e-commerce.

Refreshments The Refreshments business of Company, comprising iconic brands like Taj Mahal, Red Label, Lipton, BRU and Kwality Wall's, had a good year in FY 18. It delivered strong and broad-based volume-led growth across Tea, Coffee and Ice Cream. The business continued to drive the reach through increase in direct distribution. Tea continued to deliver robust, volume-led growth as all the key brands continued to grow and delight millions of consumers with their superior taste. Company initiated the launch of 13 new premium variants of Taj Mahal for gifting on the e-commerce channel.





Consolidated P&L A/c

Rs Cr

Particulars FY16 FY17 FY18 FY19E FY20E

Total Revenue 32303.00 33252.00 35550.00 40882.50 47014.88 Growth ( %) --- 2.94 6.91 15.00 15.00 Expenditure 26290.00 26925.00 28049.00 31479.53 35966.38 EBIDTA 6013.00 6327.00 7501.00 9402.98 11048.50 Growth (%) -- 5.22 18.56 25.36 17.50 EBIDTA Margin (%)

18.61 19.03 21.10 23.00 23.50

Other Income 424.00 369.00 384.00 441.60 507.84 Depreciation 353.00 432.00 520.00 614.28 706.42 EBIT 6084.00 6264.00 7365.00 9230.30 10849.92 EBIT Margin (%) 18.83 18.84 20.72 22.58 23.08 Interest 17.00 35.00 26.00 20.00 15.00 Exceptional Item -31.00 237.00 -33.00 -33.00 -33.00 PBT 6036.00 6466.00 7306.00 9177.30 10801.92 Tax 1876.00 1976.00 2079.00 2763.09 3250.48 PAT 4160.00 4490.00 5227.00 6414.21 7551.44 Min Int & Ass Sh -9.00 -14.00 -13.00 -13.00 -13.00 Consolidated PAT 4151.00 4476.00 5214.00 6401.21 7538.44 Growth (%) -- 7.83 16.49 22.77 17.77 NPM (%) 12.85 13.46 14.67 15.66 16.03

Ratios


EPS 19.18 20.68 24.14 29.57 34.83

ROCE(%) 89.87 88.94 100.88 94.12 80.67

ROE(%) 63.15 66.37 71.61 65.41 56.14

Book Value 30.37 31.16 33.64 45.21 62.04

Debt/Equity 0.03 0.04 0.00 0.00 0.00




Consolidated Balance Sheet

Rs Cr


Sh Capital 216.00 216.00 216.00 216.46 216.46

Res & Surplus 6314.00 6499.00 7036.00 9541.21 13183.65

Sh App/Warrants 43.00 29.00 29.00 29.00 29.00

Minority Interest 20.00 22.00 20.00 20.00 20.00

Total Debt(Long Term+Short Term Borrowings)

177.00 277.00 0.00 0.00 0.00

Other Long Term Liab & Provison

1133.00 1226.00 1674.00 1766.06 1802.71

Net Deferred Tax Liability

-167.00 -170.00 -302.00 -302.00 -302.00

Sources Of Fund 7736.00 8099.0 8673.00 11270.73 14949.82

Net Fixed Assets 3688.00 4669.00 5005.00 5520.05 7097.30

Non –Current Investments

32.00 6.00 2.00 2.00 2.00

Intangible Assets 0.00 0.00 0.00 0.00 0.00

Other Non –Current Assets

583.00 710.00 909.00 1174.31 1918.65

Total Current Assets 10323.00 10151.00 11644.00 13755.08 17837.06

Current Liabilities & Provisions

6890.00 7437.00 8887.00 9180.71 11905.20

Net Current Assets 3433.00 2714.00 2757.00 4574.37 5931.86

Uses Of Funds 773600 8099.00 8673.00 11270.73 14949.81





Standalone Quarterly Financial Highlights

Rs Cr

Particulars Q4FY18 Q4FY17 Q3FY18 YoY% QoQ%

Total Income 9097.00 8886.00 8590.00 2.37 5.90

Total Expenses 7049.00 7235.00 6910.00 (2.57) 2.01

Operating Profit 2048.00 1651.00 1680.00 24.05 21.90

Net Profit 1351.00 1183.00 1326.00 14.21 1.89

PBIDTM % 22.51 18.58 19.56 21.17 15.08

NPM % 14.85 13.31 15.44 11.55 (3.82)

EPS 6.24 5.47 6.13 14.08 1.79

Past Price Movement



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