Hindustan Unilever Ltd. 500696 (XBOM)

Morningstar Equity Analyst Report | Pricing: 29 Oct 2013 | Rating: 29 Oct 2013 | Trading Currency: INR | Page 1 of 7
Hindustan Unilever Ltd. 500696 (XBOM)

Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Dividend Yield % Market Cap (Bil) Industry Group Stewardship
QQ 604.80 529.00 1.14 1.74 1,307.86 Household & Personal Products Standard
Morningstar Pillars Analyst Quantitative

Economic Moat Narrow Narrow HUL: Near-Term Pressures, but Long-Term Outlook Still Positive; Fair Value
Valuation QQ Overvalued
Uncertainty Medium Medium
Estimate Under Review
Financial Health — Moderate brands locally, such as the recent launch of TRESemme
Investment Thesis
Suruchi Jain 10 May 2013 hair products, Lakme Absolute makeup line, and Dove
Quantitative Valuation
500696 As Unilever UN realizes the importance of India in its Elixir hair oil. Personal products, which contribute about
IND s emerging markets portfolio, there's been renewed focus 28% to revenues, have generated average annual
Undervalued Fairly Valued Overvalued on investing behind new product introductions and mid-teens topline growth over the past three years, and
advertising to ensure its products stay familiar and generate HUL's highest segment margins (25.2% on
Current 5-Yr Avg Sector Country average over past three years). We believe there is
prominent with local consumers. We consider this
Price/Intrinsic Value 1.16 — 1.02 0.93
important, especially given the highly competitive tremendous opportunity here, as the bulk of Indian
Price/Earnings 34.5 32.6 18.6 9.7
Forward P/E 31.3 — 14.6 6.3 operating environment. Furthermore, its recent consumers are just beginning to explore daily use personal
Price/Cash Flow 37.0 36.2 12.2 5.0 announcement to increase its ownership of Hindustan care items beyond soaps and shampoos.
Price/Free Cash Flow 41.8 44.8 20.3 10.7
Unilever (HUL) 500696 to its intended 75% (the maximum
Dividend Yield % 1.74 — 2.06 2.37
allowed by the local government, from 52.5%) confirms HUL’s other segments, such as beverages and food
Unilever’s commitment to this high-growth, low-penetration segments, have posted average three-year growth rates
Bulls Say
emerging markets business. With significant distribution of 11.6% and 16.6%, and average EBIT margins of 15.1%
OHUL has launched new brands in its existing
scale--reaching over 2 million retail mom-and-pop and 1.9%, respectively. In our opinion, HUL may slowly
product categories, such as TRESemme in hair
shops--Hindustan Unilever is a leading player in the Indian deprioritize its beverages and food segments, which
care, as the company attempts to move consumers
consumer products market, and a company that other local account for less than 20% of sales combined, in order to
up the ladder to more premium priced offerings.
firms seek to emulate. As competitors' aspirations grow, focus on its household and personal care offerings (similar
OIf HUL is able to maintain recent margin to its parent company). At the moment however, HUL is
and companies like Godrej Consumer Products 532424
improvements in its soap and detergents segment, riding the consumerism trend in India--of rising incomes
and Marico 531642 snap up acquisitions to enhance scale
and if higher-margin personal product launches and a gradual increase in consumer spending--that has
and distribution reach, HUL will have to continue investing
win with consumers, we think the potential for created ample demand, so all competitors should be able
in its business to ensure its competitive advantages
further margin expansion exists. to experience significant growth and generate ROICs
remain intact. If recent results (which have included
OHUL’s sales team sells products to over 2 million continued top-line acceleration and margin improvement) above their cost of capital.
outlets across India, making it the largest direct are any indication, we think the firm should maintain its
outreach program in the local consumer leading market position. Overall, HUL seems to be gaining some traction, and we
universe. expect that the company will continue investing behind
HUL's largest and oldest product segment -- soap and product innovation and advertising to support its brands.
Bears Say detergents -- accounts for around 47% of sales. However, While we recognize that the firm still faces intense
OCompetitive pressures loom from all sides, as operating margins lag the firm's consolidated total (only competition, we believe that as the consumer landscape
global behemoths L’Oreal and Procter & Gamble, 11.3% for the segment, versus 14.3% for the overall in India evolves, HUL will continue to be at the helm of
and local players like Godrej Consumer Products, business on average over the past three years). new product development.
are all vying for an increasing stake in the Indian Management has been clear that it is committed to the
consumer products space. soap and detergents segment, despite lower profitability, Analyst Note
OCommodity cost inflation could once again rear and we've been particularly impressed by the company's Suruchi Jain 30 October 2013
its ugly head, and constrain HUL’s ability to post ability to leverage the segment's sales (as operating HUL: Near-Term Pressures, but Long-Term Outlook
profit expansion in the future. margins expanded to 12.7% in fiscal 2013 from 11.6% the Still Positive; Fair Value Estimate Under Review
OLow switching costs in the consumer products prior year) while still investing in its brands. Competitive During first-half fiscal 2014, Hindustan Unilever’s (HUL)
industry means that HUL will have to constantly pressures from both local (Godrej and Marico) as well as earnings grew 13%, as lower commodity costs boosted
invest in advertising and innovation to keep its global firms (like Procter & Gamble PG and L’Oreal OR) are margins, despite near-term volume pressures. HUL's top
brands familiar and prominent in consumers' unlikely to subside, but we think that HUL's soap and line was up a disappointing 8% over the prior-year's
minds. detergents segment should benefit from recent efforts to comparable period, as high inflation and increased
launch premium products, as more Indian households take competition hindered growth of its largest segments.
to liquid detergents and washing machines. Soaps and detergents (50% of sales), and personal
products (28% of sales), both grew revenue at 7% each.
In its personal products segment, HUL is leveraging the The relatively smaller, beverage segment (12% of sales),
breadth of its parent's product portfolio to introduce global grew faster, by 12%, supported by new product
?
© 2013 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained
herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without
written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
Morningstar Equity Analyst Report |Page 2 of 7

Close Competitors Currency (Mil) Market Cap TTM Sales Operating Margin TTM/PE companies in India have such a wide reach. HUL enjoys
Godrej Consumer Products Ltd. 532424 INR 289,601 67,391 13.17 36.23 high returns on invested capital, or ROIC, well above its
10.8% estimated cost of capital, supporting our contention
Procter & Gamble Co PG USD 224,145 84,633 17.35 20.79
that HUL has a narrow economic moat. HUL does not,
Marico Ltd. 531642 INR 136,122 47,086 12.70 31.75
however, enjoy a wide economic moat, because of the
Unilever NV UN USD 121,842 68,845 14.50 17.79
intense competitive pressures it faces from both local and
introductions in the tea category. global players, especially in the key soap and detergent
categories.
Despite revenue growth grossly missing our full-year
target of 15%, we continue to hold our positive outlook Valuation
on the firm's long term prospects. With the help of its 10 May 2013
stable of iconic brands that span all price points, and cater We're increasing Hindustan Unilever's fair value estimate
to every budget, we believe the firm will be able to to INR 529 per share from INR 487, which implies a forward
maintain a leading position in the growing Indian price/adjusted earnings ratio of 34 times, an enterprise
consumer market. As such, we hold our narrow economic value/adjusted EBITDA ratio of 24 times, and a free cash
moat and stable moat trend ratings unchanged. However, flow yield of 3.2%. Our new fair value estimate reflects
we're putting our fair under estimate for HUL's shares our belief that HUL has the potential to achieve
under review while we revise both our cash flow model incremental margin expansion, which we project to reach
We believe that as the assumptions, and our fair value estimate, upward. 15.5% by fiscal 2018, up from adjusted margins of 14.9%
consumer landscape in India in fiscal 2013 and 15.1% in our previous forecast. Our
On the margin front, lower commodity prices boosted updated model assumptions incorporate Hindustan
evolves, HUL will continue to gross margins to 49.3% compared to 47.8% in the first Unilever's fiscal 2013 operating results, as well as the
be at the helm of new product half of fiscal 2013. Furthermore, HUL was able to push its announcement that Unilever intends to increase its stake
operating margins higher by 30 basis points, to 14.9%, to 75% from 52.5%.
development. despite higher advertising spends at 13.4% of sales --
compared to 12.2% in 2013 -- to support new product We haven’t made material changes to our forecast for
launches and combat competition. We believe these sales. We anticipate average top-line growth of 18.9%
brand investments are crucial to maintaining HUL's share (mostly reflecting pronounced volume growth combined
of the burgeoning Indian market as more and more global with modest price increases), reflecting our belief that the
competitors look to gain a foothold. New product firm’s recently launched premium products will continue
introductions and innovations, especially in the personal winning with consumers.
products category, will allow it to charge a premium to its
competitors, and drive margins further upwards, in our Risk
opinion. 10 May 2013
Hindustan Unilever faces two strong headwinds. First,
Economic Moat volatile commodity costs can hinder margin expansion.
10 May 2013 Secondly, it is critical that the company continues to invest
We have assigned Hindustan Unilever a narrow economic in advertising to maintain customer mind share. Lastly, if
moat rating, thanks to its portfolio of iconic brands and consumer spending softens as a result of macroeconomic
wide retail distribution network. HUL was one of India's factors, there is a risk that consumers may not trade up to
first consumer products companies, initiating its business the premium products being offered by the company. The
presence there in 1931. HUL's brands continue to hold company also enjoys two central advantages of having a
leading market share in 75% of its products, maintaining global consumer behemoth as its parent to drive strategic
the number-one spot in its home care and personal direction, and possessing a portfolio of brands in each
products segments. Nine of the company's brands each segment that covers low-to-premium price points. These
drive more than INR 10 billion in turnover in a year and advantages will become even more relevant as Unilever
another five generate turnover in excess of INR 5 billion focuses more on India with its higher equity stake. Overall,
each. HUL’s distribution network reaches over 2 million we assign the company a medium uncertainty rating,
outlets of the total 6.5 million retail outlets in India. Few owing to its low operating leverage and relatively stable
?

market demand within India’s still evolving consumer

environment.
Management
Suruchi Jain 18 January 2013
Nitin Paranjpe assumed the position as HUL's managing
director and CEO in April 2008. Paranjpe began his career
at HUL in 1987, serving in various roles in both the home
and personal care divisions during his tenure. We believe
he understands the business challenges of the Indian
consumer market and will serve the company and its
shareholders well.
In terms of compensation, we believe the company could

give out more equity to align the interests of top country
managers with those of shareholders. Furthermore,
although some top positions at the company frequently
change managers, there is no paucity of experienced
hands at HUL with a strong succession bench in place for
each senior role.
Overall, we believe HUL's stewardship of shareholder

capital is standard. HUL has always maintained a
conservative balance sheet, levering up occasionally for
growth capital expenditures. In addition, the firm has
generated returns on invested capital that historically
have exceeded our cost of capital estimate. Its consistent
dividend payout of over 60% also indicates that the firm
is committed to returning excess cash to shareholders.
?

margin expansion, up 380 basis points to 18.3%. However,

Analyst Notes Archive we aren't convinced this level of profitability is
sustainable, and anticipate full-year margins will come in
Soaps and Personal Products Constrain Revenue closer to 16%.
Growth at HUL in 1Q; Shares Still Overvalued
Suruchi Jain 28 July 2013 HUL: Near-Term Pressures, but Long-Term Outlook
Hindustan Unilever reported modest revenue growth in Still Positive; Fair Value Estimate Under Review
its fiscal 2014 first quarter (up just shy of 7% year over Suruchi Jain 30 October 2013
year), as two of its largest segments (soaps and During first-half fiscal 2014, Hindustan Unilever’s (HUL)
detergents and personal care which, in aggregate, earnings grew 13%, as lower commodity costs boosted
account for 78% of sales) were constrained by competitive margins, despite near-term volume pressures. HUL's top
pressures, price deflation, and a challenging line was up a disappointing 8% over the prior-year's
macroeconomic landscape. Soaps and detergents (up 8%, comparable period, as high inflation and increased
50% of total sales) witnessed commodity cost deflation, competition hindered growth of its largest segments.
which it passed along to consumers in the form of lower Soaps and detergents (50% of sales), and personal
prices, resulting in primarily volume-led growth; while products (28% of sales), both grew revenue at 7% each.
personal products' (up 2%, 28% of sales) growth was The relatively smaller, beverage segment (12% of sales),
dented by intense competitive pressures, as global grew faster, by 12%, supported by new product
consumer product firms seek emerging market expansion. introductions in the tea category.
Despite revenue growth grossly missing our full-year

target of 15%, we continue to hold our positive outlook
On the other hand, beverages (up 16%, 11% of sales) on the firm's long term prospects. With the help of its
brewed up a solid performance, as tea sales picked up stable of iconic brands that span all price points, and cater
after new product introductions and significant brand to every budget, we believe the firm will be able to
investments. Despite this quarter's more muted results, maintain a leading position in the growing Indian
we believe the company benefits from its large portfolio consumer market. As such, we hold our narrow economic
of iconic brands (which resonate with consumers) and its moat and stable moat trend ratings unchanged. However,
vast retail distribution. We maintain our narrow economic we're putting our fair under estimate for HUL's shares
moat rating. We also hold our INR 529 fair value estimate under review while we revise both our cash flow model
intact, and believe the stock is overvalued at its current assumptions, and our fair value estimate, upward.
price, as the market is anchoring to the INR 600 offer price
made by its European parent, Unilever UN. However, if On the margin front, lower commodity prices boosted
the shares trade off on concerns surrounding competitive gross margins to 49.3% compared to 47.8% in the first
pressures, we may look to recommend the stock, given half of fiscal 2013. Furthermore, HUL was able to push its
our positive outlook on the firm's competitive advantages operating margins higher by 30 basis points, to 14.9%,
to capture the yet untapped potential of the Indian despite higher advertising spends at 13.4% of sales --
consumer market. compared to 12.2% in 2013 -- to support new product
launches and combat competition. We believe these brand
From a profitability standpoint, lower commodity costs investments are crucial to maintaining HUL's share of the
drove a 170-basis-point gross margin expansion to 48.9%, burgeoning Indian market as more and more global
compared to the year-earlier period. However, higher competitors look to gain a foothold. New product
advertising spend (up 20 basis points, to 13.1% of sales) introductions and innovations, especially in the personal
led to a more modest increase in operating margin of just products category, will allow it to charge a premium to its
70 basis points, to 15.0%. Soaps and detergents margins competitors, and drive margins further upwards, in our
(up 70 basis points to 12.9%) were in line with our full-year opinion.
forecast, while those in personal products (down 90 basis
points to 24.9%) lagged our full-year forecast for
operating margins of 25.8%. Beverages realized notable
?
Quantitative Equity Report | Release Date: 30 October 2013 | Reporting Currency: INR | Trading Currency: INR Page
Page 5 of1 7of 1
Hindustan Unilever Ltd. 500696

Last Close Quantitative Fair Value Estimate Market Cap (Bil) Sector Industry Country of Domicile
604.80 522.03 1,307.9 s Consumer Defensive Household & Personal Products IND India
Hindustan Unilever Ltd. is a fast moving consumer goods Price Versus Quantitative Fair Value
company involved in Home & Personal Care Products and 2009 2010 2011 2012 2013 2014
Foods & Beverages. Its operating segments are Soaps and Sales/Share
Detergents, Personal Products, Beverages, Packaged foods Forecast Range
800 Forcasted Price
and others.
Dividend
640 Split
Quantitative Scores Scores
All Rel Sector Rel Country Momentum: —
Quantitative Moat Narrow 98 97 99 480 Standard Deviation: 23.51
Valuation Overvalued 14 17 7 Quantitative Fair Value Estimate
Quantitative Uncertainty Medium 96 93 99 320
Financial Health Moderate 63 58 84 Total Return 432.25 52-Wk 725.00
160
500696 201.80 5-Yr 725.00
IND s
8.6 20.4 32.8 32.7 16.4 Total Return %

Undervalued Fairly Valued Overvalued
-32.3 7.5 49.0 14.4 -1.2 +/– Market (Morningstar World
Index)
2.64 2.08 1.72 1.62 1.74 Dividend Yield %
23.1 31.6 38.8 40.7 34.5 Price/Earnings
Valuation Sector Country 2.8 3.8 4.5 4.8 5.1 Price/Revenue
Current 5-Yr Avg Median Median
Undervalued
Price/Quant Fair Value 1.16 — 1.02 0.93 Fairly Valued
Price/Earnings 34.5 32.6 18.6 9.7 Overvalued
Forward P/E 31.3 — 14.6 6.3
Price/Cash Flow 37.0 36.2 12.2 5.0 1,388 Monthly Volume (Thousand Shares)
Price/Free Cash Flow 41.8 44.8 20.3 10.7 Liquidity: High
Dividend Yield % 1.74 — 2.06 2.37
Price/Book 49.0 30.5 1.8 0.7 2009 2010 2011 2012 2013 TTM Financials (Fiscal Year in Mil)
Price/Sales 5.1 4.0 0.9 0.5 205,011 181,082 196,910 234,363 258,102 258,102 Revenue
— -11.7 8.7 19.0 — 0.0 % Change
Profitability Sector Country 30,611 27,279 27,371 32,951 43,746 43,746 Operating Income
Current 5-Yr Avg Median Median — -10.9 0.3 20.4 — 0.0 % Change
Return on Equity % 119.1 99.9 11.9 12.2 25,099 21,646 23,066 27,907 37,967 37,967 Net Income
Return on Assets % 33.1 26.9 5.9 4.3 20,541 34,796 19,102 20,502 35,296 35,296 Operating Cash Flow
Revenue/Employee (Mil) 15.6 — 0.5 6.5 -6,458 -5,815 -3,213 -2,806 -4,057 -4,057 Capital Spending
14,082 28,981 15,889 17,696 31,239 31,239 Free Cash Flow
Quantitative Moat Score 6.9 16.0 8.1 7.6 — 12.1 % Sales
100
11.47 9.87 10.52 12.91 17.55 17.55 EPS
— -13.9 6.6 22.7 — 0.0 % Change
80
6.45 13.27 7.28 8.11 14.44 14.44 Free Cash Flow/Share
60 — 7.00 6.50 7.00 8.50 8.50 Dividends/Share
9.84 12.28 12.73 16.27 12.37 12.37 Book Value/Share
40 2,180 2,182 2,159 2,162 2,162 2,162 Shares Outstanding (Mil)
Profitability
20
116.8 89.4 85.0 86.9 119.1 119.1 Return on Equity %
0
28.9 23.5 22.8 25.6 33.1 33.1 Return on Assets %
2006 2007 2008 2009 2010 2011 2012 2013
12.2 11.9 11.7 11.9 14.7 14.7 Net Margin %
2.37 1.97 1.96 2.15 2.25 2.25 Asset Turnover
4.0 3.6 3.8 3.1 4.3 — Financial Leverage
Financial Health Sector Country
Current 5-Yr Avg Median Median 44.8 50.7 47.2 43.8 47.6 47.6 Gross Margin %
Distance to Default 0.7 — 0.6 0.5 14.9 15.1 13.9 14.1 17.0 17.0 Operating Margin %
Solvency Score — — 499.0 559.0 4,341 108 27 — — — Long-Term Debt
Assets/Equity — 3.6 1.8 2.3 21,453 26,794 27,239 36,994 26,740 — Total Equity
Long-Term Debt/Equity — 0.1 0.2 0.3 9.6 7.9 8.0 9.5 10.5 10.5 Fixed Asset Turns
Growth Per Share Annual Revenue & EPS Revenue Growth Year On Year %
1-Year 3-Year 5-Year 10-Year Revenue (Bil) Jun Sep Dec Mar Total
19.0
Revenue % 16.7 13.3 12.5 9.8 2013 — — — — 258.1
Operating Income % 30.5 17.1 15.4 2.4 2012 — — — — 234.4 10.1
8.7
Earnings % 41.0 21.2 14.3 9.4 2011 — — — — 196.9
Dividends % 21.4 6.7 — — 2010 — — — — 181.1
Book Value % -23.9 0.2 11.6 — Earnings Per Share
Stock Total Return % 14.1 29.4 25.5 13.9 2013 — — — — 17.55
2012 — — — — 12.91
-11.7
2011 — — — — 10.52
2005 2006 2007 2008 2009 2010 2011 2012 2013
2010 — — — — 9.87
©2013 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information ®
contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution
is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. ß
Morningstar
Morningstar Equity
Equity Analyst
Analyst Report
Report |Page 6 of 7
Morningstar Equity & Credit Research Methodology
Fundamental Analysis ward the firm’s cost of capital more quickly than compa-
At Morningstar, we believe buying shares of superior nies with moats will. We have identified five sources of
businesses at a discount and allowing them to com- economic moats: intangible assets, switching costs,
pound over time is the surest way to create wealth in network effect, cost advantage, and efficient scale.
the stock market. The long-term fundamentals of busi-
nesses, such as cash flow, competition, economic cy- Fair Value Estimate
cles, and stewardship, are our primary focus. Occa- Our analyst-driven fair value estimate is based primari-
sionally, this approach causes our recommendations to ly on Morningstar’s proprietary three-stage discounted
appear out of step with the market, but willingness to cash flow model. We also use a variety of supplemen-
be contrarian is an important source of outperfor- tary fundamental methods to triangulate a company’s
mance and a benefit of Morningstar’s independence. worth, such as sum-of-the-parts, multiples, and yields,
Our analysts conduct primary research to inform our among others. We’re looking well beyond next quarter
views on each firm’s moat, fair value and uncertainty. to determine the cash-generating ability of a company’s
assets because we believe the market price of a securi-
QQQQQ
QQQQ
QQQ
ty will migrate toward the firm’s intrinsic value over
QQ
Q
time. Economic moats are not only an important sorting
Fundamental Economic Fair Value Uncertainty Star mechanism for quality in our framework, but the desig-
Analysis Moat Rating Estimate Assessment Rating
nation also directly contributes to our estimate of a
company’s intrinsic value through sustained excess re-
Economic Moat turns on invested capital.
The economic moat concept is a cornerstone of Morn-
ingstar’s investment philosophy and is used to distin- Uncertainty Rating
guish high-quality companies with sustainable com- The Morningstar Uncertainty Rating demonstrates our
petitive advantages. An economic moat is a structural assessment of a firm’s cash flow predictability, or valu-
feature that allows a firm to sustain excess returns ation risk. From this rating, we determine appropriate
over a long period of time. Without a moat, a compa- margins of safety: The higher the uncertainty, the wider
ny’s profits are more susceptible to competition. Com- the margin of safety around our fair value estimate be-
panies with narrow moats are likely to achieve normal- fore our recommendations are triggered. Our uncertain-
ized excess returns beyond 10 years while wide-moat ty ratings are low, medium, high, very high, and ex-
companies are likely to sustain excess returns beyond treme. With each uncertainty rating is a corresponding
20 years. The longer a firm generates economic profits, set of price/fair value ratios that drive our recommen-
the higher its intrinsic value. We believe lower-quality dations: Lower price/fair value ratios (<1.0) lead to pos-
no-moat companies will see their returns gravitate to- itive recommendations, while higher price/fair value
Economic Moat
C O M PE T I T I V E F O R C E S
WIDE NARROW NONE COMPANY PROFITABILITY
Moat Sources: Intangible Switching Network Cost Efficient

Assets Costs Effect Advantage Scale
© 2013 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information
contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is
prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
Morningstar
Morningstar Equity
Equity Analyst
Analyst Report
Report |Page 7 of 7
Morningstar Equity & Credit Research Methodology
ratios (>1.0) lead to negative recommendations. In very Quantitative Economic Moat: The quantitative moat
rare cases, the fair value estimate for a firm is so un- rating is analogous to Morningstar’s analyst-driven
predictable that a margin of safety cannot be properly economic moat rating in that both are meant to de-
estimated. For these firms, we use a rating of extreme. scribe the strength of a firm’s competitive position.
Very high and extreme uncertainty companies tend to
have higher risk and volatility. Financial Health: Financial health is based on Morning-
star’s proprietary Distance to Default calculation.
Credit Rating
The Morningstar Corporate Credit Rating measures the Understanding Differences Between Analyst
ability of a firm to satisfy its debt and debtlike obliga- and Quantitative Valuations
tions. The higher the rating, the less likely we think the If our analyst-driven ratings did not sometimes differ
company is to default on these obligations. from our quantitative ratings, there would be little val-
ue in producing both. Differences occur because our
Quantitatively Driven Valuations quantitative ratings are essentially a highly sophisti-
To complement our analysts’ work, we produce Quanti- cated analysis of the analyst-driven ratings of compa-
tative Ratings for a much larger universe of companies. rable companies. If a company is unique and has few
These ratings are generated by statistical models that comparable companies, the quantitative model will
are meant to divine the relationships between Morn- have more trouble assigning correct ratings, while an
ingstar’s analyst-driven ratings and key financial data analyst will have an easier time recognizing the true
points. Consequently, our quantitative ratings are di- characteristics of the company. On the other hand, the
rectly analogous to our analyst-driven ratings. quantitative models incorporate new data efficiently
and consistently. Empirically, we find quantitative rat-
Quantitative Fair Value Estimate (QFVE): The QFVE is ings and analyst-driven ratings to be equally powerful
analogous to Morningstar’s fair value estimate for predictors of future performance. When the analyst-
stocks. It represents the per-share value of the equity driven rating and the quantitative rating agree, we find
of a company. The QFVE is displayed in the same cur- the ratings to be much more predictive than when they
rency as the company’s last close price. differ. In this way, they provide an excellent second
opinion for each other. When the ratings differ, it may
Valuation: The valuation is based on the ratio of a compa- be wise to follow the analyst’s rating for a truly unique
ny’s quantitative fair value estimate to its last close price. company with its own special situation, and follow the
quantitative rating when a company has several rea-
Quantitative Uncertainty: This rating describes our lev- sonable comparable companies and relevant informa-
el of uncertainty about the accuracy of our quantitative tion is flowing at a rapid pace.
fair value estimate. In this way it is analogous to Morn-
ingstar’s fair value uncertainty ratings.
Uncertainty Rating
Price/Fair Value
2.00
Q
1.75
175%
1.50 155%
QQ
135%
1.25
125% 125%
115%
1.00 105% 110%
95% QQQ
90%
0.75 85%
80% 80%
70%
0.50 60% QQQQ
50%
0.25 QQQQQ
Low Medium High Very High

Uncertainty Rating
© 2013 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information
contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is
prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.

Hindustan Unilever Ltd. 500696 (XBOM)

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Hindustan Unilever Ltd. 500696 (XBOM)

Uploaded by

Copyright:

Available Formats

Morningstar Equity Analyst Report | Pricing: 29 Oct 2013 | Rating: 29 Oct 2013 | Trading Currency: INR | Page 1 of 7