IIFL Report For Refrence

Hindustan Unilever ADD
ADD
CMP Rs2010 Mr Reliable

Target 12m Rs2250 (12%)
Market cap (US$ m) 61,242 Fortified with a diverse portfolio across ~15 categories and
market-leading positions in over 90% of its portfolio, HUL is
Enterprise value (US$ m) 60,726
the largest FMCG player in India. Premiumisation and
Bloomberg HUVR IN excellent execution are what differentiate HUL from peers. Its
Sector FMCG ability to consistently expand margin (750bps Ebitda margin
expansion over FY11-19) gives us confidence on EPS growth
09 December 2019 in an environment where consumption growth is slow. The
GSK Consumer merger is hugely value-accretive, given its
52Wk High/Low (Rs) 2190/1650 synergies on the top-line and margin fronts. We forecast 19%
Shares o/s (m) 2165 EPS Cagr over FY19-22ii; however, at 47x FY21 EPS, the stock
Daily volume (US$ m) 47 is not cheap in light of the likely selling from GSK Plc.
Dividend yield FY21ii (%) 1.6 Maintain ADD.
Free float (%) 32.8
Attractive product portfolio: With a product portfolio that
Shareholding pattern (%)
straddles the price pyramid, HUL is well suited to benefit from India’s
Promoter 67.2
income and demographic changes. Indeed, HUL’s market share in
Pledged (as % of promoter share) 0.0 the premium segment is 1.3x that of its mass segment market
FII 12.4 share. ‘Categories of the future’ and themes such as ‘naturals’ are
DII 6.7 growing 2x the company growth.
Price performance (%)
Excellent executor: HUL has constantly expanded Ebitda margin
1M 3M 1Y
each year, over the past 9 years (including FY20), with its focus on
Hindustan (3.7) 9.6 10.2
cost-efficiency plans and ability to play the portfolio. Moreover, the
Unilever
widest GT distribution among peers, best-in-class analytics and
Absolute (US$) (3.3) 11.2 11.2
strong presence in channels of the future act as moats around HUL’s
Rel. to Sensex (4.1) 0.6 (3.3) business. As HUL has consolidated shares in key categories, the
CAGR (%) 3 yrs 5 yrs probability and the possible impact of price wars have reduced.
EPS 14.1 11.4
Strong growth: We forecast organic Ebitda Cagr of 14% over FY19-
Stock movement
22; EPS Cagr over FY19-22 is higher at 19%, on account of GSK
Vol('000, LHS) Price (Rs., RHS)
Consumer merger synergies of ~10% and lower corporate tax rate.
8,000 2,500
At 74% even post the merger, HUL boasts of the highest RoE in our
2,000
6,000 coverage universe. The stock is not cheap at 47x FY21 EPS, but
1,500
4,000 deserves a premium due to its superior portfolio and execution.
1,000
2,000 500
Weaker than expected demand environment and selling pressure on
0 0 the stock from GSK Plc are the main risks.
Financial summary (Rs bn)
Oct-18
Oct-19
Dec-17
Dec-18
Dec-19
Apr-18
Apr-19
Jun-18
Jun-19
Feb-19
Feb-18
Aug-18
Aug-19
Y/e 31 Mar, Consolidated FY18A FY19A FY20ii FY21ii FY22ii

Revenues (Rs bn) 348 386 410 498 543
Ebitda margins (%) 21.6 23.0 25.1 27.0 28.2
Pre-exceptional PAT (Rs bn) 52 62 73 100 114
Reported PAT (Rs bn) 52 61 73 100 114
Percy Panthaki Pre-exceptional EPS (Rs) 24.2 28.7 33.7 42.5 48.3
percy.panthaki@iiflcap.com
Growth (%) 21.1 18.7 17.4 26.1 13.7
91 22 4646 4662
IIFL vs consensus (%) 0.3 5.4 1.9
Avi Mehta, CFA PER (x) 83.1 70.0 59.6 47.3 41.6
avi.mehta@iiflcap.com ROE (%) 74.7 82.1 88.7 85.4 73.9
91 22 4646 4650 Net debt/equity (x) (0.5) (0.5) (0.6) (0.8) (0.8)
EV/Ebitda (x) 57.5 48.6 41.8 34.2 30.0
Sameer Gupta
Price/book (x) 59.7 55.3 50.7 31.9 29.6
sameer.gupta@iiflcap.com
91 22 4646 4672 OCF/Ebitda (x) 0.8 0.7 0.8 0.8 0.8
Source: Company, IIFL Research. Price as at close of business on 9Dec2019.
www.iiflcap.com
1
Hindustan Unilever – ADD
Contents
Investment thesis ...................................................................... 5
Business analysis by category .................................................... 26
Track record............................................................................ 50
Earnings estimates ................................................................... 56
Valuation ................................................................................ 64
Risks ...................................................................................... 70
Environment, Social, Governance ............................................... 73
Questions ............................................................................... 77
Annexures .............................................................................. 83
Financial Statements ................................................................ 96
Our previous KYC reports
5-Dec-19 13-Nov-19
18-Nov-19 10-Oct-19
AIA Engineering HDFC Asset Mgmt. Co.
CreditAccess Grameen Asian Paints
Driving penetration in mining Quality franchise with growth
Getting execution right On a strong growth trajectory
sector potential
percy.panthaki@iiflcap.com 2
HUL’s business snapshot

Industry HUL HUL
Contributi HUL
size (net HUL net relative Price sales
on to HUL market HUL brands Competitors
sales, Rs sales market ladder Cagr
sales share
bn) share FY19-22
Lifebuoy, Lux,
GCPL (Godrej No.1, Cinthol),
Dove, Pears, Rs144-653
Soaps 153.4 68.0 18% 42% 3.2 Wipro (Santoor), Reckitt 2.6%
Breeze, Rexona, per kg
(Dettol), ITC (Vivel)
Hamam
Surf, Wheel, Rohit Surfactants (Ghari), P&G Rs45-225
Fabric wash 221.6 102.3 27% 43% 2.3 9.2%
Rin, Sunlight (Tide, Ariel), Nirma per kg
Rs80-167
Dishwashing 30.0 18.0 5% 60% 5.1 Vim JYL (Exo, Pril) per kg or 9.3%
litre
Toilet/floor Reckitt (Harpic, Lizol), Dabur Rs123-150
15.0 3.0 1% 20% 0.3 Domex, Cif 12.0%
cleaner (Sanifresh), JYL (T-shine) per litre
P&G (Head & Shoulders,
Dabur, Clinic Pantene), Cavin Care (Chik),
Shampoo (incl Rs375-824
55.9 29.5 8% 53% 2.7 Plus, Sunsilk, L'Oreal (L'Oreal, Garnier), 10.2%
conditioner) per litre
Clear Dabur (Vatika), Patanjali (Kesh
Kanti)
Marico (Parachute),Dabur
Indulekha, Lever(Amla), Bajaj Consumer
Hair oils 82.6 3.5 1% 4% 0.1 Rs30-432 19.0%
Ayush (Almond drops), Emami (Kesh
King)
Rs375-
Closeup,
Oral care 67.1 12.0 3% 17% 0.3 Colgate, Dabur, Patanjali 1400 per 0.0%
Pepsodent
kg
Nivea, Emami (Boro Plus, Fair &
Fair & Lovely, Rs1317-
Handsome), Himalaya, Dabur
Skin care 81.4 47.0 12% 58% 6.4 Ponds, Vaseline, Rs7000 9.5%
(Fem, Gulabari), Cavin Care
Dove, Lakme per kg
(Fairever), L'Oreal
Lakme, Colour
Colour cosmetics 20.0 11.3 3% 56% NA L'Oreal (L'Oreal, Maybelline) NA 11.3%
Cosmetics
Axe, Sure, Vini Cosmetics (Fogg), ITC Rs993-
Deodorants 18.0 2.0 1% 11% 0.6 10.0%
Rexona, Dove (Engage), 1667
Taaza, Red TGBL (Tata Tea, Premium, Gold,
Label, 3 Roses, Chakra Gold, Tetley), Gujarat Rs220-800
Tea 150.8 34.7 9% 23% 1.2 9.5%
Taj Mahal, tea Processors (Wagh Bakri), per kg
Lipton Hasmukh Bhai & Co (Society)
Rs350-
Coffee 21.8 9.4 2% 43% 0.9 Bru Nestlé (Nescafe) 2800 per 8.5%
kg
Frozen
Kwality Walls, Amul, Vadilal, Hatsun (Arun, Rs170-240
Desserts/ice- 81.4 8.9 2% 11% 0.7 10.7%
Magnum Ibaco) per litre
creams
Rs310-
Jams/Ketchups 9.0 7.5 2% 70%, 40% 2.5, 2 Kissan Mapro, Nestlé (Maggi) 375, 10.0%
Rs198-220
Nestle (Maggi), Marico
Knorr,
Other foods NA 10.2 3% 70% NA (Saffola), Capital Foods NA 7.7%
Annapurna
(Chings), ITC (Aashirwaad)
Rs1,500-
Water purifier 17.0 4.3 1% 25% 0.9 Pureit Eureka Forbes, Kent 12.7%
25,000
Others 5.06 1% 3.3%
Total 1024.9 376.6 100%
Source: IIFL estimates; Note: Relative market share is calculated as HUL's market share divided by the market share of the 2nd largest player or
the market leader, whichever is applicable
Key charts
HUL has been able to expand margins consistently since the HUL is one of the fastest growing FMCG companies in a weak
past 9 years consumption environment, aided by margin expansion
Adjusted Ebitda margin Ebitda CAGR - FY17-20
25% 20% 18%
18%
15%
20% 16% 13%
14% 12%
15% 12% 10%
10% 9%
8%
8% 7%
10% 6%
4%
5% 2%
0%
Dabur
GSK
Marico
HUL
GCPL
Colgate
Britannia
TGBL
0%
CY03
CY04
CY05
CY06
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20ii
HUL’s distribution is significantly superior to peers HUL offers better value, relative to peers
40
(mn outlets) Direct Total
NEST
10 35
HUVR
30
8 CLGT
25
6
P/B
20
4
15 TTAN
APNT BRIT
2 MRCO
10 JUBI DABUR
0 GCPL UNSP
5 TGBL VBL
Dabur
HUL
Bajaj Corp
Jyothy Labs
Emami
Nestle
Marico
Britannia
GCPL
TGBL
HMN
JYL ITC
0
0 20 40 60 80 100
ROE
Ample scope to grow in nascent categories; HUL driving
HUL has driven premiumisation in the detergents market
category development
Premium Mid Mass Category penetration
100% 30%
17% 25%
22%
80% 20%
25% 15%
21% 10%
60%
5%
40% 0%
Soups*
Face wash
Instant coffee
Hair conditioner
Washing liquids
Body Lotion
Body Wash*
Dishwash Liquids
Hand Wash*
58% 57%
20%
0%
CY11 CY18
Source: Company, IIFL Research
Investment thesis
1. Market leadership
HUL has market-leading HUL is the market leader in almost all the categories that it is
positions, with ~40% or
higher market share in
present in, except oral care, coffee and frozen desserts (including ice
several categories creams).
Figure 1: HUL has dominant market position in all categories it is present in

70% #1
#1
50% #2 #1 #1
30% #1
#2
#2
10%
-10%
Oral care
Shampoos
Coffee
Detergents
Skin care
Soaps
Frozen desserts
Tea
Moreover, despite market leading positions, HUL is growing market

share in most categories.
Excerpts from conference calls

1QFY20: “At an aggregate, our growth continues to be competitive.
So, whether it was the prior quarter or now, at an aggregate, we
continue to be competitive. Meaning, ahead of the market.”
4QFY19: “I think Skincare is a different market. There is mass,

where Fair & Lovely plays and Fair & Lovely is the most dominant.
There we have every reason to believe that growths are ahead of the
market in that segment.”
“You look at the growth rates (in beauty and personal care
segments) of the competitors who have presented the results and
then you will see that the growth rates have not been non-
competitive. In fact, if you take away skin cleansing, we are talking
about again a double-digit growth in this quarter.”
As explained in our note “Disaggregating Farm income growth”,

market leaders are likely to face relatively fewer headwinds in the
current slow-consumption environment.
Figure 2: HUL has an array of brands that are huge – 20 brands entail over Rs5bn revenue each
Source: Company
2. Straddling the price pyramid

In most of its categories of play, HUL has brands straddling the price
pyramid. This ensures several benefits, such as:
1. HUL can target a significantly large percentage of the population.

The company estimates that 9 of 10 households in India use an
HUL product.
Figure 3: HUL’s brands straddle the entire price pyramid, across different categories
Premium brands
Surf, Dove, Pears, Clears,
Ponds, Taj, Mahal, Lipton, Magnum
Mid priced brands

Rin, Sunlight, Lux, Tres Semme, Close Up, Pepsodent,
Vaseline, Brooke Bond Red Label / 3 Roses, Bru,
Cornetto
Mass end brands

Wheel, Lifebuoy, Clinic Plus, Sunsilk, Fair & Lovely, Taaza, Kwality Walls
2. Straddling the price pyramid also ensures that the company can
make the most of the longer-term trend of premiumisation. HUL’s
market shares in the premium segment are higher than its
overall market share.
Figure 4: HUL has a higher market share in premium categories
Source: Company, Note: * sourced from Nielsen (urban + rural)
3. In case of down-trading owing to an economic slowdown, HUL

ensures that it does not lose a consumer to a competing brand.
3. Best-in-class market development & brand

building
“Categories of the future” is a big focus area for HUL. These are
currently nascent, but likely to grow significantly in the future, as
consumer incomes improve and habits change. HUL has identified 11
such categories, namely tea bags, fabric conditioners, liquid
detergents, hair conditioners, packaged soups, hand washes, face
washes, liquid dishwash, body washes, body lotion and instant
coffee.
Figure 5: HUL is investing behind ‘categories of the future’

Face wash
Instant coffee
Hand wash
Explode
Soups
Hair Conditioner
Liquid detergents Accelerate
Fabric
conditioners
Body wash
Liquid dishwash
Seed
Categories of the future are Since these categories of interest are still nascent, HUL is investing
growing underpenetrated in advertising and sampling, aimed at their advancement. As a
and growing 2x the pace of result, such categories are logging growth 2x that of HUL’s overall
the overall company
sales growth.
Figure 6: Currently, the ‘categories of the future’ have very low penetration levels
Category penetration
25%
20%
15%
10%
5%
0%
Soups*
Dishwash
Washing
Instant coffee
Body Lotion
Face wash
Body Wash*
conditioner
Hand Wash*
liquids
Liquids
Hair
Source: Company, IIFL Research, IMRB as of MAT 2018. * Urban only
These categories have room to become considerably large in the

long run; some possibilities are mentioned below:
1. Fabric conditioner currently accounts for low single-digit market
share in the fabric-care category. However, on a per-use basis,
the cost of fabric conditioner is the same as, or even higher than,
a detergent’s. As household penetration of fabric conditioner
increases, its market share in the fabric-care industry will
increase.
2. Similarly, the hair conditioner category is currently a small part
of the hair-care category. However, for a person who uses a hair
conditioner, its cost per use is more than that of a shampoo. In
developed regions such as Europe, the share of hair conditioners
is ~40% of shampoos. In India, hair oils are used as hair
conditioners, but there is a section of society that is shifting
towards conditioners.
Figure 7: ‘Categories of the future’ currently contribute 20% to Figure 8: With a growth rate that is 2x of core categories’, the
HUL’s sales new categories are expected to contribute 43% to HUL’s growth
in the medium term
New
categories,
20%
New
categories,
43%
Core
categories,
57%
Core
categories,
80%
Source: Company, IIFL Research; Note: ‘new categories’ refers to Source: Company, IIFL Research; Note: ‘new categories’ refers to
‘market development cells’, which include category-cluster ‘market development cells’, which include category-cluster
combinations over & above the categories mentioned in Figure 6 combinations over & above the categories mentioned in Figure 6
In addition, HUL is using powerful brands to extend into different

categories. As an example, Dove was introduced in India in 1993 as
a skin cleansing bar. For 13 years, Dove did not enter any other
category in India. In 2007, Dove Shampoo was launched and today
has a ~19% market share in the shampoo category. As on date,
Dove straddles several categories.
Figure 9: Dove − From skin cleansing, the product has been extended to multiple categories
Moreover, HUL has introduced new brands (or ramped up subscale

brands; Figure 9), most of which have seen success.
Figure 10: List of brands launched in the past few years

Brand name Product categories
Indulekha Hair oils, shampoos
Lever Ayush Across beauty and personal care
Comfort Fabric conditioners
Love and beauty Planet Beauty and personal care
Love and care Liquid fabric wash
Magnum Ice cream
Pure Derm Shampoo
Cif Surface cleaner
Citra Skin Care
Sure Deodorants
Source: Company, IIFL Research; Brands in ‘orange’ denote a disappointing response
is a great success story. Acquired in April 2016 for

Rs3.3bn, the brand had a turnover of Rs1bn within a short span of
time. Today, the brand clocks a turnover of Rs4bn. This is the most
premium of hair oils in the industry, with a price point of Rs432 per
100ml.
Figure 11: Pricing ladder in hair oils – Even among Ayurvedic hair oils, Indulekha is
by far the most expensive
(Rs per 100ml)
500 432
400
300
200 160
108
49 65 75
100 30 39
0
Bajaj almond
Dabur Amla
Patanjali
Kesh Kanti
Nihar amla
Parachute
Navratna
Indulekha
4. Able to manage a downturn well

HUL has been least affected HUL has in the past benefitted from one-off events, such as GST –
during demonetisation and
volume growth post implementation of GST averaged 10% for six
been able to take
advantage of GST quarters vs. 1% for the six prior quarters. Similarly, in 2HFY17 (time
of demonetisation), HUL posted a slowdown trend of 1.5% decline
(difference in volume growth of H2FY17 vs. H1FY17), which was
better than the ~6% decline posted by the overall sector.
In the current scenario, when consumption is under pressure, we

believe that it is better to stick with HUL, as it can tide over the
slowdown better.
Figure 12: Volume growth accelerated post GST implementation for HUL
14%
HUL volume growth
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
Figure 13: HUL managed demonetisation better than peers – Fall in volume
trajectory (due to demonetization) lower than peers
0%
-2%
-1.5%
-4% -2.5%
-6% -4.7% -5.0%

-5.6%
-8%
-7.5%
-10% -8.9%
-12%
-14% -12.5%
HUL Marico JYL GCPL Dabur Britannia Emami Colgate
Note: Chart denotes the difference in growth rates for H2FY17 vs H1FY17
5. Proven track record of margin expansion

HUL has been able to grow Ebitda margin each year, CY03 onwards,
except the years of a price war, i.e. CY04, CY05 and FY11.
9 straight years of margin Figure 14: HUL has delivered Ebitda margin expansion (even adjusted for accounting
expansion changes) for nine straight years
Adjusted Ebitda margin
25%
20%
15%
10%
5%
0%
CY03
CY04
CY05
CY06
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
HUL has consistently delivered margin expansion, irrespective of the

input cost environment. Even in CY07, FY09 and FY12, when there
was a sharp input-cost inflation, HUL was able to deliver expansion
in Ebitda margin.
Figure 15: HUL has delivered margin expansion even in some years (such as FY09
and FY12) of sharp crude price inflation
(bps) Adjusted Ebitda margin expansion (LHS)
YoY change in avg crude price (RHS)
300 50%
40%
200 30%
100 20%
10%
0 0%
-10%
(100) -20%
(200) -30%
-40%
(601)
(300) -50%
CY03
CY04
CY05
CY06
CY07
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
HUL’s philosophy is to HUL’s philosophy

deliver continuous HUL’s philosophy is to grow sales faster than the industry (for the
moderate margin expansion segments it has presence in) and deliver a continuous, moderate
Ebitda-margin expansion.
Some corollaries to the aforementioned statement:

• HUL does not necessarily manage each line-item separately, but
plays all lines of the P&L dynamically, to deliver margin
expansion.
• Input-cost deflation is looked at as a source of funds. Brand
investment, distribution expansion, etc. may be looked at as an
application of funds. The company will decide how to balance
source and application, to deliver modest Ebitda-margin
expansion.
• Costs such as royalty are not an excuse for letting margins drop.
Premiumisation and cost How does HUL do it?

control are the two main HUL’s margin expansion is a combination of many factors:
drivers of margin expansion • Product mix change - Premium products grow faster than
overall company sales, thereby giving a margin tailwind. HUL’s
share in premium products is 1.3x its overall market share. The
company has mentioned that categories of the future and natural
products have been growing at 2x the overall growth of the
company.
• Employee costs - Over the past 10 years, HUL’s employee cost
has increased by 7% Cagr. If we adjust for volume growth, i.e.
look at employee cost per ton, the inflation is much lower, at 1%
a year.
Figure 16: Employee cost per ton has increased by only 1% over Figure 16: Increase in employee costs for HUL is among the
the past ten years for HUL lowest
Increase in empoyee costs Employee costs CAGR - FY09-19
Increase in employee costs per ton
20% 16%
13.6% 13.8% 14.1%
14% 12.6% 13.1%
15% 12% 10.8%
9.5%
10% 10%
8% 7.0% 7.2%
5% 6%
0% 4%
2%
-5% 0%
HUL
Dabur
Britannia
Nestle
GSK
GCPL
Marico
Colgate
TGBL
-10%
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18

FY19 Source: Company, IIFL Research; Note: Includes standalone data for
TGBL, GCPL, Dabur and Marico; also, for GCPL, the Cagr is calculated
for FY10-19
• Tight control on other expenses - Over the past ~10 years,

HUL has maintained Cagr of ‘other expenses’ at 7%. If we adjust
for volume growth, i.e. look at other expenses per ton, the
inflation is much lower, at 1% a year.
Figure 17: Other expenses per ton have increased by only 1% Figure 18: Increase in other expenses is among the lowest for
over the past ten years for HUL HUL
Increase in other expenses Other expenses CAGR - FY09-19
Increase in other expenses per ton 18%
25% 15.8%
16%
20% 14%
11.5% 11.5% 11.8%
15% 12% 10.5% 10.7% 10.8%
10%
10% 8% 7.0% 7.1%
5% 6%
4%
0%
2%
-5% 0%
HUL
Dabur
Nestle
GSK
Marico
Britannia
GCPL
TGBL
Colgate
-10%
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Source: Company, IIFL Research Source: Company, IIFL Research; Note: Includes standalone data for
TGBL, GCPL, Dabur and Marico; also for GCPL, the Cagr is calculated
for FY10-19
• Cost-saving plans – HUL has almost doubled its cost savings,

from ~3-4% of sales to 7-8%, working all line items of the P&L.
Of course, a large part of these savings is reinvested in the
business, but some of it flows into the Ebitda.
Figure 19: Cost savings as a percentage of turnover have steadily improved

8%
7%
6%
5%
4%
3%
2%
1%
0%
2014 2015 2016 2017 2018
Why does ability to expand margins matter?

• In times of a slowdown, when companies are struggling to deliver
top-line growth, robust bottom-line growth depends on an ability
to deliver margin expansion. In the past three years, HUL has
delivered Ebitda growth at the higher end of the peer group.
Figure 20: HUL’s sales growth slightly better than industry Figure 21: Ebitda growth is also on the higher side for HUL
Sales CAGR - FY17-20 20%
12% Ebitda CAGR - FY17-20 18%
10% 18%
10% 9% 9% 15%
9% 16%
13%
14% 12%
8% 7%
6% 12% 10%
6% 10% 9%
4% 7% 8%
4% 8%
4% 6%
2% 4%
2%
0% 0%
Dabur
HUL
Dabur
HUL
GSK
GCPL
Marico
Britannia
GCPL
Marico
Britannia
GSK
TGBL
Colgate
TGBL
Colgate
Source: Company, IIFL Research; Source: Company, IIFL Research;
• Since HUL’s margin expansion is not related to the input-cost

environment (although sales growth is), its Ebitda growth is
better in the years of input-cost inflation, as the Ebitda benefits
from a better top line as well as from margin expansion.
Figure 22: Years of higher inflation (e.g. CY06, FY09, FY12, FY13 and FY14) have seen
strong Ebitda growth for HUL
Ebitda growth YoY change in crude prices
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
CY03
CY04
CY05
CY06
CY07
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
To understand HUL’s margin expansion story better, please refer to

our note “Decoding HUL’s margin expansion story”.
Price wars are less probable 6. Lower probability and impact of price wars
to happen and likely to be
less impactful, if they do
Price wars have led to significant problems for HUL, in the past.
1. In CY04, P&G cut prices of its major shampoo and detergent

brands by ~30%. This led to HUL responding in kind and, as a
result, HUL’s Ebitda fell by 30%.
2. Towards the end of FY10, P&G launched Tide Naturals in the
mass-end segment; also, both HUL and P&G took some price cuts
in other detergent and shampoo brands. This resulted in Ebitda
falling 4% in FY11.
Figure 23: CY04 and FY11 were years of price wars with P&G
Sales growth Ebitda growth
20%
10.6%
10%
0%
-2.2% -4.4%
-10%
-20%
-30%
-30.0%
-40%
CY04 FY11
Future seems brighter

We believe that the probability of any material price war in the
future is low.
• Past experience of price cuts has shown that it is a zero-sum
game. Since both companies drop prices, the relative market
share remains unchanged.
• According to an article in the Economic Times, the price war
between multinationals and the rapid growth of the low-end
Ghari detergent resulted in some 500 small and local brands

losing 10pps in market share – their share slipped, from 13% for
2009 to only 2.9% for 2010. As mainline brands such as Wheel,
Rin, Tide, and Ghari were available at the same price as these
‘semi-organised’ players, they lost out on the only thing that was
working for them, i.e. price. Since past experience has shown
that HUL upholds its market share, the only rationale for P&G to
cut prices would be to gain from small players. But if this pool of
small players itself has shrunk, then such an action will not yield
any results.
• P&G has become more profit-focussed. Its margins have
increased, from 1.6% in FY14 to 12.1% in FY19. There is a risk
of price competition if P&G reverses its margin focus; but even
with increasing margins, P&G has clocked robust sales growth.
Figure 24: P&G has become more margin-focussed in the past few years
Sales growth Sales growth detergents Ebitda margin (RHS)
25% 15%
20%
10%
15%
10% 5%
5%
0% 0%
-5%
-5%
-10%
-15% -10%
FY13 FY14 FY15 FY16 FY17 FY18 FY19
In FY16, P&G cut shampoo (Pantene as well as Head and Shoulders)

bottle prices by ~20-25%. Moreover, it introduced a variant of Ariel
(Ariel perfect wash) at a lower price point. However, we did not see
any material impact on HUL’s performance.
In conclusion, we believe that the probability of a price war is low

and even if it were to ensue, the impact would be lower than in
history, due to HUL’s strengthened competitive positioning.
7. Future-ready business
HUL has the widest and Excellence in GT (general trade) distribution
deepest distribution across HUL has a best-in-class distribution network, with direct coverage of
FMCG companies in India, over 3m outlets and total reach of 8m outlets.
aided by advanced data
analytics
Figure 25: HUL has the widest distribution coverage, in terms of both direct and
total
(m outlets) Direct Total
10
8
6
4
2
0
HUL
Jyothy Labs
Emami
Nestle
Dabur
Bajaj Corp
Marico
GCPL
TGBL
Britannia
Despite the threat of modern trade and ecommerce, general trade is

likely to remain the largest channel for a long time to come.
Dominance in general trade, especially in terms of direct distribution,
helps increase the number of lines sold and improve market share
within the store.
Moreover, HUL has innovated rural distribution models such as

Shakti and Shakti-man, for which local residents of a village are used
as distributors; this helps increase HUL’s sales and, simultaneously,
provide employment. This model enables direct access to the deep
hinterland, which entails a considerable expense for the traditional
distribution models to reach.
As of FY19, HUL has implemented Project Shakti in 18 states and

given employment to 0.1m women (called ‘Shakti Ammas’).
Figure 26: Project Shakti has empowered women in rural India by creating livelihood opportunities
HUL has split India into 15 WIMI (Winning in many Indias) strategy
consumer clusters and each India is the second-largest country by population and is home to
cluster has its own strategy over 1.3bn people. Moreover, there is significant diversity in terms of
and tailor-made marketing
incomes, tastes and preferences for FMCG products. HUL realises
mix
this and has, therefore, decided to approach different parts of India
with varied, suited strategies and tailor-made marketing mix.
Figure 27: HUL imagines India as a collection of 15 consumer clusters
Punjab
Haryana
Hills
Greater
Delhi
UP NESA
Bihar
MP, Chhattisgarh, West

Gujarat Rajasthan
Orissa Bengal
Jharkhand
Greater Maharashtra
Mumbai
Pune
Andhra
Pradesh
Karnataka
Kerala
Tamil Nadu
The WIMI strategy involves:

• 15 mini boards with cross-functional participation, making the
company more consumer-centric.
• The marketing mix is tailor-made for the product portfolio of a
particular cluster. Even SKUs are different: for example in beauty
and personal care, only 40% of the SKUs are national.
• The structure enables HUL to handle competition more
effectively, especially on the regional front.
• Priorities are different for different clusters. For low penetration
markets, the company targets growth by shifting consumers from
proxy products and for other markets, the priority is to increase
occasions for use.
• WIMI helps HUL grow in the “cow belt” (areas of North and
central India) where HUL’s market shares are low, by bringing in
product portfolios, media strategies and on the ground activation
which are suited for that region.
Projects such as Jarvis, Live Best-in-class supply chain solutions

wire, and Samadhan give HUL leads the pack in terms of implementing IT systems, to not only
HUL the big data edge in service, but predict demand.
front-end supply chain
solutions
HUL has, over time, developed various systems that extensively use
data analytics, enabling the company to make more informed
decisions in various aspects. It has developed applications such as:
• Live wire: Granular data is collected across multiple sources and
analysed, to formulate patterns across clusters.
• Jarvis: Using data generated as output from Live wire, the

application predicts volumes for a particular geography. The
algorithm is being used by 70% of the business.
• Smart pick: Analysing the brand engagement data, the
application helps identify the target audience and product
assortments for sampling.
• Project Samadhan: The project aims at collating retailer level
data, facilitating direct replenishment at the retailer level,
bypassing the distributor.
• People Data Centre: It enables real-time listening that involves
using data to unearth underlying currents that shape the
changing consumer behaviour and deciphering the impact of
these trends on HUL brands.
With more connected devices, data gathering has become easier and
sharper. These applications have facilitated improvements in various
attributes, such as demand planning, inventory management, net
revenue management and effective coverage, among others.
As these indigenous tools become even more effective with time

(through iterations and machine learning), it could become possible
to connect retailers directly with the company, bypassing
distributors. The distributors would be responsible for credit and
relationship management.
As regards supply chain, the company is on a path of consolidation

of distribution centres, to create a demand-focussed network design
for faster and more-efficient demand fulfilment. The company plans
to build an agile manufacturing network with an optimum mix of own
factories and third-party manufacturers. The objective is to move the
supply chain closer to demand clusters and drive efficiencies. Also,
post GST implementation, HUL has been working on re-organising its
supply chain for an optimum output. The number of distribution
centres has decreased, from 40 to 28.
Figure 28: HUL has robust systems to predict demand and effectively service distribution partners
Source: Company
8. Winning in the modern channels

HUL’s market shares in HUL has been early in identifying the channels of the future –
modern trade are higher ecommerce and modern trade. As a result, its market shares in e-
than its general trade commerce are higher than those in modern trade, which in turn are
market shares
higher than those in general trade. Contribution to sales from
modern trade and e-commerce is among the highest vs. peers at
20%, despite a reasonable rural exposure.
Figure 29: HUL leads the pack in terms of contribution from modern trade and e-
commerce
Contribution from modern channels
25%
20% 20%
20%
15%
15%
10% 10% 10% 10% 10%
10% 8%
6%
5%
0%
Dabur
HUL
Emami
Bajaj Corp
Britannia
Nestle
GCPL
Marico
Colgate
JYL
HUL has been developing best-in-class activations and content, to

drive online conversions. Websites such as BeBeautiful (aimed at
answering queries on personal care) and tajmahalteahouse.com
(which sells premium tea online) influence on-line users. Further,
HUL has come out with exclusive packs and ranges that sell only on
the on-line platform. Joint business planning (JBPs) with leading e-
commerce players such as Amazon, Flipkart, Big Basket, Nykaa and
Paytm mall have also facilitated growth in this channel.
The company has developed an application “Humara Shop”, which

connects shoppers with retailers. In the process, HUL is able to
capture shopper insights that can be used to design consumer-
specific promotions in the longer run. Another application −
“Shikhar” − is designed for retailers to order HUL products as per
their convenience, search from a rich catalogue of HUL products and
get notified about the latest trade schemes.
In order to make its organisation future-ready, HUL has established

a ‘Digital Council’ as a forefront for developing niche digital skills and
capabilities of leaders as well as employees at large. HUL has been
actively investing in its workforce to improve its digital skill footprint.
Figure 30: HUL has digital at the core of what it does
Source: Company
9. Synergy benefits from the GSK Consumer merger

HUL has acquired the India business of GSK Consumer that mainly
consists of the HFD (Health Food Drinks) category.
Facts of the transaction: The transaction was announced in

December 2018 and is expected to be completed by 4QFY20. The
deal involves a merger of HUL and GSK Consumer in an all-share
deal, with a swap ratio of 4.39 HUL shares for one GSK Consumer
share. This would result in an addition of 185m shares to HUL, i.e. a
share dilution of 8.5%. As part of the deal, HUL would get a right to
distribute brands Horlicks, Boost, Viva and Maltova. In addition, HUL
will be given a distribution fee for the sale of OTC products such as
Crocin, Sensodyne, Eno and Iodex, for a period of at least five years.
Figure 31: Details of the transaction and resulting EPS accretion

(Rs m) GSK
Total revenues 47,820
Ebitda 11,410
Ebitda margin 25.3%
PAT 9,828
Swap ratio 4.39
Dilution of shares 8.5%
Purchase consideration (Rs m)* 7,700
Actual GSK price when deal was announced 7,270
5-year sales Cagr 4.7%
GSK's market share in the HFD category 54%
EPS accretion on diluted equity ex synergies (FY22) 6.3%
EPS accretion on diluted equity including synergies (FY22) 10.0%
Source: Company, IIFL Research; Note: * based on HUL’s share price as on 30-Nov-2018
Materially increases HUL’s Food and Refreshment portfolio

We estimate (pre-merger) HUL’s foods and refreshment category
sales at Rs85bn for FY21. Post the merger, these will increase by
1.64x to Rs139bn.
Figure 32: HUL’s food and refreshments segment split – FY21, Figure 33: HUL’s food & refreshments segment split – FY21,
pre-merger with GSK post-merger with GSK
Foods, Foods,
25.2% 15.4% HFD,
38.8%
Frozen
Tea, desserts,
Frozen
48.7% 8.0%
desserts,
13.0%
Coffee,
8.0%
Coffee, Tea, 29.8%
13.0%
Source: IIFL Research Source: IIFL Research
Gives HUL inroads into the chemist channel

GSK Consumer has a direct customer reach of ~1m, which is lower
than that of HUL’s 3m. While we lack related data, we believe that
GSK would be quite strong in the chemist channel and HUL could
benefit from this, as it would have a larger portfolio of products,
post-merger, to approach this channel.
Top line can accelerate due Top line synergies

to access to a wider GSK Consumer’s growth over the past five years at 5% is slower
distribution and launching than the overall FMCG sector growth.
of smaller pack sizes
Figure 34: GSK Consumer’s sales growth has been lower than overall FMCG growth
in the past five years
GSK Consumer sales growth Overall FMCG growth
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
FY15 FY16 FY17 FY18 FY19
We believe that the sales growth is much lower than the actual
potential of the category. In our report “Structural story remains
intact”, we had calculated that even if we consider that the target
group for HFD is only 5-15 years old in urban India (i.e. this cohort
consumes once a day, every day), the category size is half that of
the potential. If the all-India, all-age group is considered the target,
the category could be 30x. The slow growth is therefore not due to
the category potential being exhausted.
HUL can spur top-line growth via the following means:

• HFD is popularly available either in a single-use sachet or in a
500-gm pack size. The latter costs Rs222 and the initial outlay is
quite high for a large section of society. We believe that

launching varying pack sizes to target different sections of the
society could enhance sales growth.
• Boost and Horlicks will benefit from a larger distribution network
of HUL vs that of GSK Consumer.
• More important than the numeric distribution is the quality of
distribution. HUL’s best-in-class supply chain, predictive analysis,
OTIF order fulfilment and WIMI strategy can help the category
grow faster.
• GSK has only 12% of its sales from North and West India. The
market shares are low, with Mondelez’s Bournvita dominating
these regions due to a preference for brown powders vs GSK’s
mainly-white powders. We believe that HUL will use Boost and
Chocolate Horlicks more effectively to gain market share in the
northern and western regions.
• While GSK has done well in terms of innovating new products
such as Growth Plus, Protein Plus and Boost RTD, sales
contribution from these new innovations can be improved by
marketing these variants more effectively.
• Cross promotions could be used to increase sales via sampling.
For example, presently, HUL may be offering 10% extra volume
or a free cup with its tea. If it gives a free sachet of Horlicks, it
could help with new-user recruitment.
Bottom-line synergies
Bottom-line synergies are • Collective bargaining for media could bring down costs. GSK’s
likely on all line items such media buying cost would be higher than HUL’s, due to scale.
as employee costs, media
spends and overhead • Media spend could be optimised, as HUL would have a better
expenses. GSK’s cost system in terms of formulating a media plan, i.e. increasing
structure is the highest efficiency of ad spend.
across the industry
• GSK Consumer has one of the highest overheads (all expenses
between gross profit and Ebitda, except advertising spends) in
relation to the size of the company, at 35.5% of sales.
Figure 35: GSK’s other expenses and employee costs, as a percentage of sales, is the
highest in the sector (FY19)
40%
35.5%
35%
29.5%
30%
24.9%
25%
20.6% 20.6% 20.9%
19.0%
20% 17.1% 18.5%
15%
10%
5%
0%
Marico Dabur HUL TGBL Britannia GCPL Colgate Nestle GSK
The company has guided for ~1,000-bps cost savings on account of

the merger, but we believe that it could be even higher.
Figure 36: Synergy benefits could be higher than 1,000bps

As % of sales HUL Nestlé SKB SKB post acquisition
Personnel costs 4.9% 10.0% 14.3% 5.4%
Power and fuel 0.8% 3.1% 1.6% 1.6%
Freight 4.1% 4.7% 4.8% 4.8%
Rent 0.8% 5.0% 4.8% 2.5%
Other miscellaneous 8.4% 6.8% 10.0% 6.0%
Total 19.0% 29.5% 35.5% 20.3%
We estimate that there will be 9%/10% EPS synergies from the

merger, over FY21/22.
9-10% EPS accretion to Figure 37: We estimate 9-10% EPS accretion on account of synergies
HUL via synergies of FY21 FY22
~10ppt of GSK Consumer’s
revenues
Combined Combined
(Rs m) HUL GSK HUL GSK
entity entity
Sales 455,184 54,025 509,210 496,627 59,119 555,746
Ebitda 116,540 14,245 130,785 131,326 15,848 147,175
Net profit 84,164 13,119 97,283 95,091 14,677 109,768
Synergy benefit
2,583 3,746
(post tax)
Revised net profit 99,865 113,514
Revised EPS 42.51 48.32
Original EPS 38.88 43.93
EPS accretion 9.3% 10.0%
Source: IIFL Research
10. High return ratios

HUL has the highest return Very few businesses are able to generate Ebitda margins of ~25%,
ratios – 482% / 82%
RoIC/RoE
with nearly no invested capital − HUL is one of those businesses.
Return on invested capital (RoIC) is over 450%, since negative

working capital is nearly equal to fixed assets.
Figure 38: RoIC was over 450% in FY19

(Rs m) FY16 FY17 FY18 FY19
Fixed assets 36,880 46,830 50,100 51,860
Working capital -30,940 -34,800 -43,860 -40,530
Other long term net assets 1,670 1,700 3,020 3,730
Invested capital 7,610 13,730 9,260 15,060
NOPLAT 39,485 41,052 49,925 58,565
RoIC 596% 385% 434% 482%
In fact, in FY13, invested capital was negative, as negative working

capital was higher than fixed assets. It is possible that we may
witness this situation again in the future.
RoE at 82% is lower than RoIC, but this is on account of cash-on-

books. In fact, for the past 5 years, cash and investments have been
87% of shareholder’s equity, on an average.
Figure 39: HUL’s RoE is the highest in the sector (FY19)

(RoE)
90 82.1
80
70
60 50.8
46.1
50
40 30.3 33.6
24.0 25.9 26.6
30 22.0
16.6
20
10
0
GSK
Dabur
Nestle
Marico
HUL
Emami
Britannia
GCPL
Colgate
JYL
As a result of the negative working capital and low capex

requirement, we believe that HUL can deliver FCF at over 90%.
Business analysis by category

Figure 40: HUL – Contribution from different categories
Frozen Desserts Other Foods Water purefier
Jams/ ketchups
2% 3% 1%
2%
Coffee Others
2% 1%
Tea Soaps
9% 18%
Dish wash
5%
Toilet / Floor Cleaner
1%
Deo
1% Detergents
Colour cosmetics 27%
3%
Skin care
12%
Oral care
3% Hair oils Shampoos
1% 8%
Source: IIFL estimates
Figure 41: HUL – Contribution from different brands

Pure It
1%
Lever Ayush Others Lifebuoy
0% 7% 6%
Kissan Lux
2% Knorr
5%
Magnum 1% Dove
0% 5%
Kwality Walls
2% Pears
Bru
2%
2%
Lipton Breeze
1% 1%
Brooke Bond
Active Wheel
8%
8%
Vim Sunlight
5% 1%
Domex Rin
1% 5%
Axe
0% Elle 18 Surf Excel
0% 11%
Comfort
Lakme Ponds 1%
3% 3% Clinic Plus
Fair & Lovely 3%
Vase Line 6% Sunsilk Clear
2%
1% 0%
Pepsodent
1% TreSemme
0%
Close Up
2% Indulekha
1%
HUL’s category-brand matrix: FY19, standalone
(Rs bn) Detergents Dish wash Toilet Water Soaps Skin care Colour Sham- Hair oils Oral care Deo Tea Coffee Frozen Jams/ Packaged Others Total
/ Floor purifier (incl HW cosmetics poos Desserts ketchups soups,
Cleaner and BW) Noodles /
Other foods
Surf Excel 39.9 39.9
Active Wheel 31.5 31.5
Rin 18.2 18.2
Sunlight 5.5 5.5
Comfort 3.0 3.0
Vim 18.0 18.0
Domex 2.5 2.5
Pure It 4.3 4.3
Lifebuoy 23.0 23.0
Dove 7.1 1.6 10.3 0.3 19.3
Lux 18.4 18.4
Pears 5.8 5.8
Breeze 4.6 4.6
Fair & Lovely 24.4 24.4
Ponds 11.6 11.6
Vase Line 6.3 6.3
Lakme 2.4 10.5 13.0
Elle 18 0.8 0.8
Clinic Plus 10.1 10.1
Sunsilk 5.6 5.6
Clear 1.1 1.1
TreSemme 1.7 1.7
Indulekha 0.5 3.5 4.0
Close Up 8.7 8.7
Pepsodent 2.7 2.7
Axe 1.5 1.5
Brooke Bond 31.9 31.9
Lipton 2.8 2.8
Bru 9.4 9.4
Kwality Walls 8.5 8.5
Magnum 0.4 0.4
Kissan 7.5 7.5
Knorr 4.0 4.0
Lever Ayush 0.5 0.7 0.2 0.6 1.9
Others 4.2 0.5 8.6 0.3 6.2 5.1 24.8
Total 102.3 18.0 3.0 4.3 68.0 47.0 11.3 29.5 3.5 12.0 2.0 34.7 9.4 8.9 7.5 10.2 5.1 376.6

Fabric care: 27% of HUL sales, ~43% market share

Figure 42: Key detergent brands include Surf, Wheel, Rin, and Sunlight
HUL is the dominant player Industry landscape

(~43% market share) in Detergents is the largest home care category in India, with an
the Rs220bn detergents industry size of ~Rs220bn at the net sales level. Similar to soaps,
category and has gained
household penetration is north of 90%. However, premiumisation
share over the past few
years and, therefore, category growth in the past 10 years has been ~8%
We estimate that HUL has a market share of ~40-45% in the

detergents market. With three main brands – Wheel, Rin and Surf –
HUL has a presence across different price points. Apart from these,
HUL has the Sunlight brand, which is mainly present in South India.
It also has presence in the post-wash category, with Comfort fabric
conditioners.
The main competition for HUL is P&G, which operates with two
brands – Tide and Ariel – and a combined market share of ~11%.
Ghari (Rohit Surfactants) has a sizeable presence in the mass-end
segment and its brand size is slightly larger than Surf’s, according to
our estimate. Also, Jyothy Labs has a small presence in the
detergents market, with Henko, Mr White, Super Chek & Ujala IDD.
Figure 43: India detergents’ market landscape – HUL commands a dominant position
Brand Company Market share Brand size (Net sales, Rs bn)
Surf HUL 18% 39.9
Wheel HUL 14% 31.5
Rin HUL 8% 18.2
Sunlight HUL 3% 5.5
Ghari Rohit Surfactants 19% 42.1
Tide P&G 9% 19.9
Ariel P&G 2% 4.8
Nirma Nirma 3% 6.6
Others NA 24% 53.0
Total 100% 221.6
Market segmentation
In terms of pricing and positioning, the industry can be divided into
three sub-segments: i) mass-end (Wheel, Nirma, Ghari, Tide
Naturals); ii) mid-range (Sunlight, Rin, Tide Plus) and iii) premium-
end (all variants of Surf, Ariel and Henko). The pricing range is wide,
with the lowest being Rs45-per-kg and the highest Rs225-per-kg.
Figure 44: Both HUL and P&G have a presence across different sub-segments
(Rs per kg)
250
200
150
100
50
0
Ariel PW
Ghari
Tide Plus
Nirma
Surf QW
Wheel
Tide Naturals
Rin
Sunlight
Surf EW
Henko matic
Ariel liquid
Henko
Ariel Matic
Surf liquid
Ariel CW
Surf Matic
The premium segment has Over the past few years, the premium segment has been growing at
grown 1.5x the category the cost of the mid-range segment. The mass-end segment has
over the past 7-10 years. largely maintained its share.
We estimate HUL has an
~85% market share in the
premium category Figure 45: Detergents industry – Share of premium-end has been growing at the
expense of the mid-range segment
Premium Mid Mass
100%
17% 22%
80%
25% 21%
60%
40%
58% 57%
20%
0%
CY11 CY18
HUL has been instrumental in driving market premiumisation. We

estimate that Surf now accounts for over 85% of the market share
within the premium category.
In recent times, the premium market is growing 2x that of the mass-

end segment, and the mid-range segment is growing at half the rate
of the mass-end segment.
Figure 46: HUL has a higher market share in the premium-end vs. mid-range and mass-end detergents
2018 Segment HUL Share

Market Growth Of Segment*
PREMIUM 2X 3.6X
PRICE
MID 0.5X 2X
MASS X X
Pricing actions
As P&G has been focussing on improving profitability, the premium
of Tide Plus has seen a steady expansion vs. HUL’s Rin, from 31% in
January 2017 to 38% in October 2019. Steady price hikes in Tide
Plus have also meant that the pricing gap between Tide Plus and the
entry level SKU of Surf – Surf Excel Easy Wash – has narrowed,
resulting in consumers up-trading to Surf.
In case of P&G’s premium brand Ariel, the company has taken sharp
effective price cuts ~5 quarters ago, via consumer promotions.
However, timely response by HUL in its competing brand − Surf
Excel Quick Wash − has prevented any market share losses.
With a fairly diverse portfolio at its disposal, HUL has been a big
beneficiary of tax rate rationalisation under GST, as it has been able
to take differing pricing actions across the portfolio. This has
accomplished dual objectives of market share gains and margin
protection (or even expansion in some cases), without breaching
anti-profiteering laws.
Figure 47: Tide’s premium vs. Rin’s has steadily expanded, whereas parity has been
largely maintained in Ariel vs. Surf
Tide's premium vs Rin (LHS) Ariel's premium vs Surf (RHS)
45% 20%
40% 15%
10%
35%
5%
30%
0%
25%
-5%
20% -10%
15% -15%
Oct-17
Oct-19
Jan-17
Mar-17
Jan-18
Mar-18
Jun-18
Jan-19
Apr-19
Jun-19
We estimate Surf has Premium brands have driven growth in recent times
clocked Cagr of ~16% over HUL’s detergents category has seen Cagr of 11% over the past 16
the past 10 years. We years and of 10% over the past seven. Bulk of the growth in the
believe that Surf is now a
initial years was penetration-led, while of recent, it is the premium
~Rs40-billion brand
brands that have driven growth for the company. Surf today
accounts for ~42% of HUL’s detergent sales vs. ~33% in FY09.
Implied growth for the brand during this period has been ~16%,
whereas Wheel has grown ~8-9% and Rin has been subdued at ~5-
6% over the same period. Rin, which was classified as a +Rs20bn
brand in FY17, is now a +Rs10bn brand.
Figure 48: Detergents’ sales mix in FY09 Figure 49: Detergents’ sales mix in FY19
Sunlight, Sunlight,
8% 6%
Wheel,
Wheel,
33%
Surf, 24% 39%
Surf, 42%
Rin, 29% Rin, 19%
Source: IIFL estimates Source: IIFL estimates
Figure 50: Surf has delivered Cagr of 16% over FY09-19

18%
Sales Cagr - FY10-19 16.0%
16%
14%
12%
10%
8.0%
8% 7.0%
5.5%
6%
4%
2%
0%
Rin Sunlight Wheel Surf
Figure 51: HUL’s detergents vertical has driven Cagr of 11% over the past 16 years
(Rs bn) Detergents revenues (LHS) % growth (RHS)
120 35%
30%
100
25%
80 20%
15%
60
10%
40 5%
0%
20
-5%
0 -10%
CY03
CY04
CY05
CY06
CY07
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Source: Company, IIFL Research; Note: Revenues from FY17 are as per Ind-AS; growth rates,
however, are comparable across years
Premiumisation to lead 9% Growth outlook

sales Cagr over FY19-22ii Tailwinds from benign input costs have helped HUL up-trade
consumers to its premium products. Timely identification of a pricing
gap and P&G’s renewed focus towards profitability have further
helped HUL gain market share and drive growth. Even though room
for penetration-led growth is limited, we believe that the
premiumisation story is still solid. We estimate a sales growth of 9%
over FY19-22 in this portfolio.
Comfort fabric conditioner

Apart from detergents, fabric conditioner is another subcategory
within Fabric Care. HUL is the pioneer of this subcategory in India,
with its brand − Comfort. Although currently a small business (we
estimate ~3% of detergents for HUL), we believe that in the longer
run, this category could become large. For a user of fabric
conditioners, the per-use cost is equal to or higher-than detergents.
Dishwashing: 5% of sales, ~60% market share

Figure 52: HUL participates in the dishwash category through its Vim brand
Dishwashing industry is Industry landscape

dominated by HUL, with Size of the dishwashing industry is estimated at Rs30bn, at the net
Jyothy Labs a distant sales level. The industry is divided into bar (80% of the industry
second
revenues) and liquid (20% of the industry revenue). HUL with its
brand Vim is the market leader in both, the bar and liquid categories.
The bar market is dominated by HUL (Vim), with JYL (Exo) being the
second player. There are several other small and regional players in
the market. The liquid market is dominated by HUL (Vim), with
~75% market share; JYL (Pril) is the second largest player, with
16% market share.
Figure 53: Players in the dish wash market

Brands Company Market share Brand size (Net sales, Rs bn)
Vim bar HUL 43% 13.0
Vim liquid HUL 17% 5.0
Exo Jyothy Labs 12% 3.5
Pril Jyothy Labs 5% 1.5
Others 23% 7.0
Total 100% 30.0
Market segmentation
Both HUL and JYL operate at similar price points in dishwash bars. In
liquids, however, Pril commands a premium. Apart from HUL and
JYL, other players include Patanjali and Dabur (Odopic), other than
private labels at modern trade outlets. The pricing range is narrow,
at Rs57-167 per kg/litre.
Figure 54: Pricing ladder in dish wash

(Rs/kg)
180
160
140
120
100
80
60
40
20
0
Patanjali bar
Vim bar
Exo bar
Exo bar - round

Odopic bar
monthly pack
Pril bar
Pril bar - tub
Vim gel
Pril liquid
Vim bar -
Premiumisation from Growth drivers

proxies to bars and from • Some consumers still use proxies such as ash or sand to wash
bars to liquids will drive utensils. These consumers will shift to the dishwashing segment
growth
gradually.
• Bar market has small/regional players. HUL can snap up market
share from these and grow.
• Bar users will up-trade to liquids, which is a more premium
format.
We forecast growth of 9% for HUL over FY19-22.
Soaps: 18% of HUL sales, ~42% market share

Figure 55: Key soaps brands include Lifebuoy, Lux, Pears and Dove
Source: Company, IIFL research
HUL dominates the Industry landscape

Rs150bn soaps category, Soaps in India is one of the largest personal care categories with an
with brands such as Lux, industry size of ~Rs150bn at net sales. A steady shift from the
Lifebuoy and Dove; its
unorganised to organised sector, especially in rural, has driven
~42% market share is over
3x of its nearest growth of ~9% in the past decade, per our estimate. Of this, pricing
competitor’s growth would roughly account for half of the overall growth, given
that the earlier part of the past decade has entailed high agri
inflation and palm oil derivatives being the main input in soaps. With
category penetration at almost 100%, volume growth for the
industry is likely to be in low, or at best, mid-single-digit.
With an array of brands − such as Lifebuoy, Lux, Dove, Pears,

Rexona, Hamam and Liril, among others − across different price
points, HUL commands a dominant ~42% market share in soaps.
Apart from HUL brands, only Godrej No.1, Cinthol, Dettol and Vivel
have a pan-India presence. Santoor is mainly present in South India,
whereas Margo is present mostly in Tamil Nadu and West Bengal.
Figure 56: India soaps’ market landscape − HUL commands a dominant 40-45%
market share
Brand size
Brand Company Market share Brand positioning
(Net sales, Rs bn)
Lifebuoy HUL 14% 21.5 Germ protection
Lux HUL 12% 17.6 Beauty
Dove HUL 5% 7.1 Inner beauty
Pears HUL 4% 5.8 Skin care
Breeze HUL 3% 4.6 Beauty
Other HUL
HUL 6% 8.4 NA
brands
Godrej No.1 GCPL 10% 15.3 Beauty
Cinthol GCPL 3% 4.6 Freshness
Santoor Wipro 9% 13.8 Beauty
Reckitt
Dettol 9% 13.8 Germ protection
Benkiser
Vivel ITC 4% 6.1 Beauty
Margo JYL 1% 1.8 Naturals
Others 21% 32.8 NA
Total 100% 153.4
Source: IIFL Research; Note: Does not include hand wash and liquid body wash
In our estimation, HUL has lost some market share in the soaps
segment over the past few years. We believe that the market share
loss would be the highest in brands such as Lux and Breeze, while
brands such as Pears and Dove are likely to have gained.
HUL straddles the price The pricing range in the industry is wide, starting from Rs144-per-kg
pyramid with its portfolio of to more than Rs650-per-kg, with varied benefits such as germ
brands protection, skin care, beauty and freshness. As is the case across
other personal care categories, it is the naturals sub-segment that is
the fastest growing within soaps. HUL is present in this sub-segment
through the Hamam and Ayush brands.
Figure 57: HUL has multiple brands across various price points
(Price per kg)
700
600
500
400
300
200
100
0
Hamam
Lifebuoy
Lux
Pears
Godrej
Santoor
Margo
Vivel
Dove
Cinthol
Dettol
Rexona
No.1
In the past few months, both HUL and GCPL have dropped prices,
either via MRP cut or promotions, to pass on the benefits of palm oil
deflation to the consumer; this would weigh on sales growth for
FY20.
Figure 58: GCPL’s discount to HUL had widened in recent times, before being
restored last month, following HUL’s pricing actions
(Rs per kg) Lux Godrej No.1 GCPL's discount to HUL (RHS)
350 -20%
300 -25%
250 -30%
200
-35%
150
100 -40%
50 -45%
0 -50%
Mar-17
Oct-17
Mar-18
Apr-19
Oct-19
Jan-17
Jan-18
Jun-18
Jan-19
Jun-19
HUL’s growth is led by HUL’s growth driven by premiumisation

premiumisation; brands HUL’s soaps portfolio has grown at ~8% over FY09-19, slightly
such as Dove and Pears slower than the category. Brands such as Lux as well as local brands
have grown at ~1.5x HUL’s
such as Rexona, Breeze and Hamam have witnessed slower growth,
category growth, as per our
estimate whereas mass-end brands such as Lifebuoy and premium brands
such as Pears and Dove have driven growth for the company.
Concerted efforts to premiumise the portfolio have resulted in sales
contribution of premium brands such as Pears and Dove rising, from
~14% in FY09 to ~19% currently. A dominant market position has
enabled HUL to smartly play the portfolio in a largely benign input
cost environment in recent years. Attractive consumer promotions in
entry-level premium soaps has driven consumer up-trading,
resulting in robust growth in this section of the portfolio. Regional
brands, ignored in the initial part of this century, have come back in
focus as HUL has decided to play the entire portfolio.
Figure 59: Soaps have seen a Cagr of 8% over FY09-FY19

(Rs bn) Soaps revenues (LHS) Growth (RHS)
80 30%
70 25%
60 20%
50
15%
40
10%
30
20 5%
10 0%
0 -5%
CY03
CY04
CY05
CY06
CY07
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Source: Company, IIFL Research; Note: Revenues from FY17 are as per Ind-AS; growth rates,
however, are comparable across years
Figure 60: Soaps sales mix in FY09 Figure 61: Soaps sales mix in FY19
Others, Others,
29% 24%
Lifebuoy, Lifebuoy,
29% 32%
Pears, 9%
Premium
brands,
14% Dove, 10% Lux, 26%
Lux, 29%
Source: IIFL estimates Source: IIFL estimates
Figure 62: Premium brands have witnessed robust growth over FY09-19
Sales Cagr - FY09-19
12% 11.0%
10% 8.5%
7.6%
8% 6.5%
6% 5.2%
4%
2%
0%
Others Lux Overall Lifebuoy Premium brands
Frequency of use and Growth outlook

premiumisation would be Increased frequency of use and premiumisation have driven growth
the two main drivers of in recent years which, we believe, will continue in the medium term.
growth
HUL’s presence in the faster growing naturals segment is limited,
with only two brands – Ayush and Hamam, and that too limited to
South India. We do not believe that the situation is likely to change
in the next few years. While there is room to gain market share from
smaller, local players, what is lacking is a clear reason for consumers
to move to HUL brands. We estimate a sales growth of 3% over
FY19-22 in this portfolio, due to price deflation in FY20.
Skin care: 12% of HUL sales, ~58% market share

Figure 63: Key skin care brands include Fair & Lovely, Ponds, Vaseline and Lakme
HUL dominates with a 58% Industry landscape

market share in the skin Skin care is an ~Rs81-billion industry in India at the net sales level.
care category, ~6x the size Low category penetration and low frequency of use have resulted in
of the next player in this
a robust category growth of ~11% over FY09-19. The market can be
segment
divided into different sub-segments – fairness, colour cosmetics, skin
care creams, body lotions and talcum powders, among others.
HUL has a dominant ~58% market share in skin care, through an

array of brands – Fair & Lovely, Ponds, Lakme and Vaseline. Other
players include Cavin Care (Fairever), Nivea, L’Oreal, P&G (Olay),
Dabur (Fem, Gulabari) and Emami (Fair & Handsome).
Figure 64: India skin care’s market landscape – HUL has a commanding ~58% market
share with an array of brands
Market Brand size (Net
Brand Company Positioning
share sales Rs bn)
Fair & Lovely HUL 30% 24.4 Fairness
Ponds HUL 14% 11.6 Fairness, skin care
Lakme HUL 3% 2.4 Beauty
Vaseline HUL 8% 6.3 Skin care
Dove HUL 2% 1.6 Skin care
Lever Ayush HUL 1% 0.7 Naturals
Nivea Nivea 9% 7.3 Skin care
Boro Plus, Fair & Skin care, Men's
Emami 7% 5.9
Handsome fairness
Himalaya Himalaya 6% 4.9 Naturals
Fem, Gulabari Dabur 4% 3.3 Bleach, Beauty
Fairever Cavin Care 3% 2.4 Fairness
Olay P&G 3% 2.0 Anti-ageing
L'Oreal L'Oreal 2% 1.6 Skin care
Others Others 8% 6.8 NA
Total 100% 81.4
Market segmentation
With a product range offering diverse benefits, there is no standard
pricing across brands. HUL comprises products straddling across
different price points, offering various benefits such as moisturising,
fairness and naturals, among others.
Figure 65: Pricing ladder across different sub-segments

Pricing ladder Price per litre
Beauty / Fairness creams
F&L Multi vitamin 1,960
Fair and Handsome 2,167
F&L Ayurvedic Care+ 2,188
Ponds White Beauty 4,143
F&L BB face cream 4,475
L'Oreal skin perfect 20+ 5,000
L'Oreal skin perfect 30+ 7,000
Skin care
Nivea - All season multi purpose cream 1,317
Ponds moisturising cold cream 1,545
Boro Plus 1,625
Nivea soft, light moisturising cream 1,700
Vaseline skin protecting jelly 1,714
Body Lotions
Ponds triple vitamin moisturising 870
Vaseline Intensive care 890
Nivea Body lotion 933
Boro Plus moisturising lotion 950
Talcum powder
Cinthol Cool Talc 550
Dermi Cool 700
Navratna Cool talc 720
Ponds dreamflower 850
Increased penetration, the Growth drivers

creation of new sub • Per-capita consumption in India is very low compared with other
segments and Asian countries. As affluence grows, the per-capita consumption
premiumisation would be
the main growth drivers can increase.
Figure 66: Skin care per-capita consumption Figure 67: Lower penetration on shorter time periods denotes low
frequency of use
(€) 90%
79%
7 80%
5.9
6 70% 63%
60%
5
50% 45%
4 3.2 40%
3
30%
2 20%
1 0.6
10%
0 0%
India Indonesia China December 3Q Annual
Source: Company; Note: Data pertains to 2013 Source: Company; Note: Data pertains to 2013
• Development of sub segments within Skin Care can be the other

driver for growth. Currently, fairness is a very large part of the
overall skin care market; however, as consumers evolve, several
sub segments − such as anti-ageing, face masks, facewash,
under eye creams and body lotions − will grow faster.
• As consumers become more demanding of specific benefits,
companies will be able to charge a premium for these “high
science” products, leading to premiumisation.
We believe that HUL is best suited to capitalise on the

premiumisation trend in Skin Care, with its global R&D expertise.
Even in the mass-end market skin care segment, it is able to bring
innovations and efficacious products, which result in market share
gains for HUL. We forecast 10% Cagr for HUL in the skin care
category.
Hair care: 9% of HUL sales, ~53% market share

Figure 68: Key hair care brands include Dove, Clinic Plus and Sunsilk
HUL has a 53% market Industry landscape

share in the Rs56-billion In Hair Care, HUL primarily has presence in shampoos, with a small
shampoo category and has presence in hair oils via the Indulekha and Ayush brands. Shampoos
gained 590bps over the
in India is a Rs56-billion industry, at the net sales level, with a
past 6 years
household penetration that is north of 90%. Again, with multiple
brands at different price points, HUL commands a dominant ~50-
55% market share in this category. Over FY12-19, HUL’s hair care
sub-segment has delivered a Cagr of 11%.
HUL and P&G, with their array of brands across price points,
dominate the market with ~75% market share. Cavin Care, with its
brand Chik, mostly has presence in southern India. Using a sachet

strategy to increase penetration on one hand and drive
premiumisation on the other has facilitated market share gain of
590bps for HUL since FY13. Dove, which was launched in 2007, is
now the largest shampoo (incl conditioner) brand in the country.
Figure 69: India shampoos’ market landscape – HUL is the market leader
Clinic HUL 18% 10.1
Sunsilk HUL 10% 5.6
Dove HUL 19% 10.3
HUL others HUL 6% 3.5
H&S P&G 14% 7.8
Pantene P&G 6% 3.4
Chik Cavin Care 7% 3.9
L'Oreal / Garnier L'Oreal 6% 3.4
Dabur Vatika Dabur 4% 2.0
Patanjali Dabur 4% 2.2
Others NA 7% 3.8
Total 100% 55.9
Wide portfolio, straddling Market segmentation

all price points HUL has presence across pricing points with different brands – Clinic
Plus and Sunsilk in the mass-end; Dove and Tressemme in the mid-
range; and Clear in the premium-end. Apart from these brands, it
also has presence in the naturals space, with Ayush, Indulekha and
Ayurvedic variants under the Clinic Plus brand.
Figure 70: Pricing ladder in shampoos

(Rs per litre)
900
800
700
600
500
400
300
200
100
0
Chik
Dabur Vatika
Patanjali
Sunsilk
Dove
Tres Semme
Garnier Ultra
Pantene
L'Oreal
Shoulders
Clear
Clinic Plus
Head &
Blends
The pricing strategy deployed by P&G and HUL is similar to

detergents’, with P&G’s mass-end brand available at a premium vs.
HUL, while premium-end brands are available at par. However,
unlike detergents, the pricing differential has been maintained at a
steady level post the pricing actions taken by both the companies
post GST implementation.
Figure 71: Pricing ladder in shampoos (bottle)

Pantene's premium vs Sunsilk (LHS) H&S premium vs. Clear (RHS)
40% 6%
35% 4%
30% 2%
25%
0%
20%
-2%
15%
10% -4%
5% -6%
0% -8%
Jan-17 Oct-17 Mar-18 Jan-19 Jun-19
Increased frequency Growth drivers

premiumisation and Although penetration of the category is high (giving the impression
emergence of hair that scope for growth is low), actually, frequency of usage is quite
conditioners will drive
low and can drive strong growth in this segment. Within this, there
growth
are two sub-drivers:
• Increasing frequency of hair washing, which could be driven by
factors such as better availability of water and better hygiene
awareness.
• Increased usage of shampoo (vs bathing soap) during hair
washing.
• Premiumisation, in order to avail specialised benefits such as
shine, hairfall control and dandruff control.
• Growth of the hair conditioning segment in addition to shampoo.
In India, hair oils are used for conditioning; however, there is a
set of affluent, cosmopolitan young urban consumers who are
moving to hair conditioners and we expect this trend to continue.
• In the hair oils category, HUL has performed very well, growing
the brand ~4x to ~Rs.4bn since Indulekha was acquired in April
2016. Despite its super premium positioning, the brand is
growing strongly in the current weak consumption environment.
The Ayurvedic hair-fall defence category is ~10-15% of the
overall hair oil industry and is gaining share.
HUL, with an impressive suite of brands and 53% market share, is

well positioned to take advantage of the growth in the shampoo
segment. We forecast 10.2% growth over FY19-22ii for HUL. The
hair oil category for HUL should grow at 19% over the same period.
Oral care: 3% of HUL sales, ~17% market share

Figure 72: Key oral care brands include Close Up and Pepsodent
HUL is the No.2 player in Industry landscape

the Rs67-billion toothpaste Toothpaste in India is a Rs67-billion industry at the net sales level
industry, but has lost and household penetration is north of 90%. Even though the
~800bps over the past
category is highly penetrated, the toothpaste industry has clocked
decade
Cagr of ~10% over the past decade. The oral care industry growth
would be a bit lower, on account of decline in the toothpowder
segment.
Increasing consumer preference for the naturals sub-segment has

resulted in steady market share gains for the likes of Dabur and
Patanjali. While Patanjali’s recent struggles have opened a window of
opportunity for legacy players such as Colgate and HUL, we are yet
to see any significant acceleration in growth for these players.
Four companies – Colgate, HUL, Dabur and Patanjali – command

~95% market share. Others include niche brands such as Sensodyne
(GSK), Himalaya, Vicco Vajradanti and Neem (JYL), among others.
Figure 73: India oral care market landscape – HUL is the second largest player, with
17% market share
Close up HUL 13% 8.7
Pepsodent HUL 4% 2.7
Colgate Colgate 52% 34.9
Dabur Red, Meswak, Babool Dabur 15% 9.9
Patanjali* Patanjali 12% 8.1
Others NA 4% 2.9
Total 100% 67.1
Source: Company, IIFL Research. *Our estimate includes EBOs which are not tracked by Nielsen
Patanjali has garnered Since 2012, Patanjali has witnessed a phenomenal rise in oral care,
substantial market share in gaining ~8% market share in a span of seven years (the actual
the past few years and market share would be higher, at ~12%, since Nielsen does not
naturals, as a sub-category,
audit EBOs). Dabur has also benefitted from shifting consumer
accounts for a third of the
market preferences towards the naturals sub-segment. While both Colgate
and HUL have responded by launching Ayurvedic oral care products,
there has been a steady decline in their market shares post 2012.
Figure 74: Volume market share – Patanjali and Dabur have gained at the expense
of Colgate and HUL
Others Patanjali Dabur HUL Colgate
100 7.9 7.3 7.5 7.8 7.1 6.5 6.6
14.2 13.8 12.1 10.4 9.2 0.4 0.6
0.1 1.2 2.9 6.8 8.6
13.7 14.8 14.0 13.4 13.4 14.0
80 11.9 12.2 12.9 15.3
15.4 15.1
22.6 23.5 22.8 21.7 19.8 19.2
25.1 24.6 22.8 23.3 17.7
60 17.3
40
52.2 53.3 52.7 54.5 56.1 56.8 57.2 55.5 53.6 52.4
48.8 49.4
20
0
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18
HUL does not play in the Market segmentation

mass market, in the The pricing ladder is very wide, with the mass-end variants retailing
toothpaste segment at Rs375-per-kg and the most premium-end variants retailing at
Rs1,400-per-kg. Companies have launched many variants providing
specific benefits such as anti-cavity, germ protection, whitening,
freshness and relief from sensitivity, among others. However, in the
past five years, it is the naturals sub-segment that has been driving
growth in the category and today, it constitutes ~30% of the
market. While HUL has two main brands – Pepsodent and Close Up –
in the oral care space, it has recently launched Ayurvedic variants
under the Ayush brand.
Figure 75: Pricing ladder in Tooth paste

Brand Pricing per-kg Positioning
Cibaca 375 Anti Cavity
Babool 375 Ayurvedic
Patanjali Dant Kanti 400 Ayurvedic
Cibaca Ved Shakti 438 Ayurvedic
Ayush 450 Ayurvedic
Colgate Swarna Ved Shakti 460 Ayurvedic
Colgate Strong Teeth 500 Anti Cavity
Dabur Red 500 Ayurvedic
Dabur Meswak 500 Ayurvedic
Pepsodent Clove Salt 500 Natural
Pepsodent Germi check 520 Anti Cavity
Colgate Active Salt 520 Natural
Close Up 600 Freshness
Pepsodent Whitening 625 Whitening
Pepsodent 2 in 1 625 Freshness + Anti cavity
Pepsodent G Expert protection 714 Gum care
Colgate Maxfresh 729 Freshness
Colgate Total 808 Germ protection
Pepsodent Expert Protection Sensitive 1,238 Sensitivity
Colgate Sensitive 1,375 Sensitivity
Sensodyne 1,400 Sensitivity
Source: Company, IIFL Research; Note: Blue colour denotes HUL brands
Even as HUL’s oral care performance has been below par, Close Up
has done relatively better. It is Pepsodent that has been
underperforming. This has resulted in steady expansion of Colgate’s
premium vs. Pepsodent, even as Maxfresh and Close Up have
maintained similar pricing.
Figure 76: Colgate vs. HUL, relative pricing of major brands

Colgate 's premium vs Pepsodent
Maxfresh's premium vs Close Up (RHS)
40%
30%
20%
10%
0%
-10%
-20%
Jul-17
Jul-18
Jul-19
Mar-17
May-17
Sep-17
Jan-18
Mar-18
May-18
Sep-18
Jan-19
Mar-19
May-19
Sep-19
Nov-17
Nov-18
Increased frequency of use Growth drivers

and premiumisation will In the past 2 decades, toothpaste growth was largely driven by
drive growth for the sector; conversion from toothpowder. However, this story has almost fully
however, HUL may continue
played out. With rural penetration for Toothpaste at ~80% and
losing share
urban penetration at ~95%, this will be a relatively slow volume
growth industry. The growth drivers mainly are:
• There is still a cohort in rural India that does not brush daily.
Increased frequency of usage is therefore one growth driver.
• ~10% of urban Indians brush twice a day. Moving from once-a-
day to twice-a-day could theoretically be a big growth driver;
however, history has shown that it is difficult to make consumers
brush twice daily. However, this still remains a long-term growth
driver.
• Premiumisation has taken a pause with the advent of naturals.
However, gradually, premiumisation will continue, maybe with
premiumisation within the naturals sub-segment itself.
HUL has had a very poor track record in oral care. We therefore
assume no growth in this segment over our forecast period. Lever
Ayush has been launched to participate in the naturals space;
however, it has got modest response and that too mainly in South
India. If HUL is able to scale up this brand, there could be an upside
to our estimates.
HFD: 11% of sales (FY21), ~55% market share

Figure 77: GSK’s HFD portfolio includes Boost and Horlicks
Horlicks and Boost Industry landscape

dominate the industry with HFD is a Rs75-billion industry at the net sales level. The market is
a 55% market share and dominated by GSK Consumer with its brands − Horlicks and Boost.
Bournvita a distant second
These brands have been acquired by HUL and the transaction is
with 15%
pending court approval, which we expect in the next few weeks.
Horlicks (white powder) is the largest brand, with ~47% value
market share, and Boost (brown powder) has a ~8% value market
share.
Figure 78: HFD industry landscape

Brands Company Market share Brand size (Net sales, Rs bn)
Horlicks HUL 47% 35.4
Boost HUL 8% 6.0
Bournvita Mondelez 15% 11.3
Complan Zydus 7% 5.3
Protinex Dannone 5% 3.8
Pediasure Abott 9% 6.8
Others - 9% 6.8
Total - 100% 75.3
The main competition in the white segment is Complan (an erstwhile

Heinz brand, acquired by Zydus Wellness), which controls ~7%
market share, and Bournvita, the main competitor in the brown
market, has 15% market share. Pediasure in the premium segment
has garnered 9% market share. In the past few quarters, GSK
Consumer has lost market share, while Bournvita and Pediasure
have gained share.
Market segmentation
The pricing range in this category is wide, with the lowest-price
option available at Rs390 per kg, while the premium one is available
at Rs1,300 per kg. GSK has wide presence across price points,
through multiple products targeted at different audiences and with
specific benefits.
Figure 79: Pricing ladder in malted food drinks

(Rs/kg)
1,600
1,400
1,200
1,000
800
600
400
200
0
Horlicks Lite
Boost
Complan
Horlicks Women
Powervita
Chocolate
Pediasure
Horlicks Growth
Protinex
Horlicks Protein
Bournvita
Horlicks Classic
Patanjali
Horlicks
Malt - Box
Plus
Plus
Increased penetration via Growth drivers

launch of small packs, • Penetration would be the biggest growth driver for this segment;
premiumisation and the category has a low penetration of 25%. Currently, except for
distribution expansion will
drive growth sachets, no pack size smaller than ~400gram has significant
salience. We expect HUL to plug these portfolio gaps to drive
penetration.
• Premiumisation would be the other growth driver with variants −
such as Women’s Horlicks, Horlicks Protein Plus and Horlicks
growth plus − with specific benefits would grow faster than the
base variant.
• With HUL’s increased distribution strength, we expect the
contribution of West and North India to increase from the current
11%.
We forecast 9% sales growth FY20-22.
Tea: 9% of HUL sales, 23% market share

Figure 80: Key tea brands include Taaza, Red Label, Taj Mahal and Lipton, among others
HUL is the market leader Industry landscape

with ~23% market share, Tea in India is a Rs150-billion industry at the net sales level, with
with TGBL a close second.
It has gained 230bps over HUL and TGBL commanding a ~23% and ~21% market share
the past 6 years respectively. However, there is a long tail in the organised space,
with the third-largest player commanding only ~4% market share at
a pan India level. Even though category penetration is high, growth
has been driven by a steady shift, from the unorganised to the
organised space, and by premiumisation. The size of the unorganised
space (tea sold in loose form) is still as big as the organised space,
in volume terms. HUL’s tea has seen Cagr of 10% over FY12-19. In
the past 6 years, HUL has gained 230bps market share.
Figure 81: India tea’s market landscape – HUL and TGBL are the two large players
followed by a long tail
Company Brands Market share Brand size (Net sales, Rs bn)
Red Label HUL 13% 18.8
Taaza HUL 5% 7.5
Taj Mahal HUL 3% 4.5
Lipton HUL 2% 3.0
Tata Tea Premium TGBL 6% 9.0
Tata Tea Agni TGBL 4% 6.0
Tata Tea others TGBL 10% 15.1
Wagh Bakri Guj Tea Processors 4% 6.0
Society Hasmukh Rai & Co 3% 4.5
Others 51% 76.2
Total 100% 150.8
HUL straddles the price Market segmentation

ladder with its offering HUL has four brands in the tea space in India – Brooke Bond, Taaza,
starting at Rs220-per-kg, Taj Mahal and Lipton. While Brooke Bond is positioned in the mid-
going up to Rs800-per-kg
range space, Taj Mahal and Lipton are positioned at the premium-
end of the market and Taaza at the mass-end.
Figure 82: Pricing ladder in India tea

(Rs per kg)
1,000
800
600
400
200
0
Brooke Bond
Society
Wagh Bakri
Brooke Bond
Tata Tea Agni
Lipton
Taaza leaf
Premium
Tata Tea Gold
Taj Mahal
Natural Care
Tata Tea
premium
Red label
Shift from the unorganised Growth drivers

market, market share gains • The tea industry is almost 100% penetrated and therefore,
from the long tail and overall industry volume is unlikely to grow more than 2-3%
premiumisation will drive
9.5% Cagr over FY19-22ii annually.
• The unorganised market accounts for over 40% of the volume of
the India tea industry. Like in any other category, shift from the
unorganised market is a driver of growth and therefore, the
organised industry should grow 3-5% annually.
• Within the organised market, the top-two players account for less
than 45% market share. The industry, over time, will consolidate
and the long tail will shorten. The well-run competitive company
will be able to grow volumes at 5-6% p.a.
• Premiumisation will be another driver of growth, as consumer
incomes increase.
• HUL urban market share is 2.5x its rural market share. Using the
WIMI framework, HUL can increase its rural market share.
We forecast a 9.5% sales Cagr FY19-22.
Coffee: 2% of HUL sales, ~43% market share

Figure 83: HUL participates in the coffee category through its Bru brand
Coffee is a two-player Industry landscape

market, with Nestlé leading The branded coffee market in India is a Rs22-billion industry, at the
and HUL a close second net sales level, with HUL commanding a ~43% market share. Nestlé,
through its brand Nescafe, operates within the instant coffee sub-
segment, which comprises 70% of the market. HUL, with its brand
Bru, operates in both instant coffee (Bru Gold) as well as roast and
ground coffee.
Figure 84: India coffee’s market landscape – HUL and Nestlé together command
~90% of the market
Company Brands Market share Brand size (Net sales, Rs bn)
HUL Bru 43% 9.4
Nestlé Nescafe 47% 10.3
Others Others 10% 2.2
Total 100% 21.8
Figure 85: Pricing ladder in India coffee

Brand Price per kg Product specifications
Bru Green Label 350 Roast & Ground - 53% coffee, 47% chicory
Bru Instant coffee 1800 Instant coffee - 70% coffee, 30% chicory
Nescafe sunrise 1800 Instant coffee - 70% coffee, 30% chicory
Bru Gold 2700 Instant coffee - 100% coffee
Nescafe classic 2800 Instant coffee - 100% coffee
Penetration and cultural Growth drivers

change are the main growth • Penetration of instant coffee is only ~22%. While this, to an
drivers extent, is due to cultural factors, it is also on account of
affordability. The cost of instant coffee per cup is over 5x that of
tea. As affordability improves, consumption will go up.
• Cultural factors are being changed with the advent of the cafes
such as Starbucks and Café Coffee Day.
We estimate 8.5% sales Cagr over FY19-22ii for HUL.
Processed food
Figure 86: Key foods and refreshment brands include Brooke Bond, Kissan, Kwality Walls and Bru
Jams and Ketchups

Spreads in India is a ~Rs20-billion industry, which comprises honey,
HUL is the market leader in jams, nut and seed-based spreads and chocolate spreads. Growth in
Jams and Ketchups, with its the jams sub-segment, where HUL is a player, has been subdued
brand Kissan
due to a rapid rise in nut- and seed-based spreads and chocolate
spreads. HUL’s Kissan brand is the market leader within jams, with a
commanding ~70% market share.
Figure 87: Spreads in India primarily comprise honey and jams

Chocolate
spreads, 7.9%
Nut and seed
based spreads,
13.3%
Honey, 59.6%
Jams, 19.2%
HUL is also present in the sauces and ketchups space, with its Kissan
brand. The ketchup space in India is pegged at ~Rs10bn, with Kissan
being the market leader. This is followed by Nestlé's Maggi, with a
20% market share.
Soups
HUL is the market leader in HUL also operates in the packaged foods space with its Knorr brand,
soups with its brand Knorr and mainly operates in instant noodles, soups and cooking aids.
Knorr is also a small player in the instant noodles market, which is
dominated by Nestlé and ITC.
HUL is a strong No2 in the Frozen dessert and ice-creams

frozen dessert and ice- Ice creams and frozen desserts in India is a ~Rs120-billion industry.
cream market with its Amul is the market leader in this industry, with a ~15% market
brand Kwality Walls
share, whereas HUL is the second-largest player with ~11% market
share. Typically, milk-based ice creams require a dedicated milk
procurement setup, to ensure quality and consistency. HUL mainly
operates in the frozen desserts sub-segment (which uses vegetable
oils and milk solids) through its Kwality Walls brand. Its premium
offering ‘Magnum’ is milk-based, but sourced from Thailand.
Recently, HUL has acquired Adityaa Milk, which enables it to play in

the ice-cream segment in addition to the frozen desserts segment.
Figure 88: Pricing of major brands across different categories – Jams, ketchups,
instant noodles and ice-creams/frozen desserts
Brand Price per kg
Jams
Kissan - Mixed fruit 310
Mapro - Fruity sweets 360
Kissan - Orange marmalade 365
Kissan - Berry blast 375
Ketchups
Kissan - Fresh Tomato ketchup 198
Maggi - Rich tomato ketchup 198
Heinz tomato ketchup 220
Instant noodles
Maggi 171
Yippee 167
Knorr 200
Ice creams / Frozen desserts
Amul - Butter Scotch 170
Kwality Walls - Vanilla 184
Growth drivers for processed foods

• Penetration of these categories is still low and increased
urbanisation and preference for convenience would drive growth.
• Acquisition of Adityaa milk gives HUL entry into the milk-based
ice cream segment. Access to newer markets and superior
execution skills would drive growth in the frozen desserts & ice
creams segment.
We forecast sales Cagr of 11%, 10% and 8% in frozen desserts,

jams/ketchups and other processed foods (soups, noodles, flour,
iodized salt), respectively, over FY19-22ii.
Figure 89: HUL – Market shares across categories in FY08 and currently
FY08 Current
70%
60%
50%
40%
30%
20%
10%
0%
Skin Shampoo Coffee Laundry Soaps Tea Toothpaste
Source: Company, IIFL Research; Note: FY19 market shares are IIFL estimates, and FY08 market
shares are from the HUL presentation; the numbers (FY08 vs FY19) may not be comparable
Track record
Over the past 16 years, HUL has delivered sales Cagr of 8.7% and
EPS Cagr of 8.1%. The Cagr for continuing business would be higher,
as a few businesses have been divested/defocussed.
Figure 90: Consistent performance, barring the years of the price war
Sales growth Ebitda growth EPS growth
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
CY03
CY04
CY05
CY06
CY07
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Price wars resulted in Over the past 16 years, HUL has witnessed three years of Ebitda
Ebitda decline in CY04, decline – CY04, CY05 and FY11.
CY05 and FY11
In CY04, sales declined 2%, while Ebitda declined 30%. This was
owing to multiple factors, which impacted sales and profitability
performance: Intense competition in detergents and soaps resulted
in price corrections and higher advertising spends. In shampoos, HUL
took price corrections in larger bottle packs, while focussing more on
low-price sachets. Further, rising vegetable oil prices in the first half
of the year also impacted profitability.
While sales growth improved in CY05, Ebitda declined by 1%. The

detergents segment suffered on account of intense competition
coupled with higher crude oil prices. In order to tackle the increased
competition from regional and local players in toilet soaps, HUL
increased advertising spends by as much as 32% in the segment.
Overall ad-spends in CY05 increased by 19%.
In FY11, price corrections were done in detergents, to tackle

significant competitive actions (Tide Naturals was launched by P&G,
enabling it to compete with Wheel, in addition to some price cuts on
existing brands) in the face of a large increase in crude prices, which
affected inputs such as laundry chemicals, packaging and freight
costs and thereby impacted profitability. Steep rise in vegetable oil
costs towards end-2010 impacted profitability of the soaps division.
FY12 witnessed sharp profit growth, as the price war ended and
companies took price increases.
Consecutive droughts in FY15 and FY16, followed by demonetisation

in FY17, resulted in subdued growth during these years. Even though
trade channels across FMCG were disrupted during GST
implementation, HUL has managed the transition well, with adjusted
sales growth of 12% in FY18. Tax rate rationalisation across
categories and the ability to strategically play the portfolio without
breaching anti-profiteering laws has enabled HUL to post strong

growth post GST implementation. A largely-benign input-cost
environment coupled with the company’s cost-saving initiatives has
aided margin expansion for eight consecutive years, till FY19, a trend
which is highly likely to continue in FY20 as well.
Product mix
Detergents and personal HUL’s top-line Cagr of 8.7% over CY02-FY19 has been driven by
products have witnessed an robust performance in detergents and personal products (which
increase in contribution to comprise hair care, oral care, skin care, colour cosmetics and
sales
deodorants). Share of detergents and personal products has
increased to 27% and 28% from 19% and 21% in CY02,
respectively.
Figure 91: Sales contribution from different segments

Others Frozen desserts Tea Personal products Detergents Soaps
100%
80%
60%
40%
20%
0%
CY02
CY03
CY04
CY05
CY06
CY07
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY19
Source: Company, IIFL Research; Note: FY19 data is based on IIFL estimates
Figure 92: Growth has been primarily driven by detergents and frozen desserts
(Sales CAGR) CY02-19 FY12-19
16% 14.3% 14.2%
14%
12% 10.6% 11.0%
9.6%
10% 8.7% 8.3%
8% 7.2% 6.8% 7.1%
6.1% 6.1%
6%
4%
2%
0%
Others Tea Soaps Personal Detergents Frozen
products desserts
Source: Company, IIFL estimates
Margins
Ebitda margins have Ebitda margin has steadily expanded, even adjusted for the
expanded 750bps over
FY11-19; margins have
accounting changes. From FY11 to FY19, margins have expanded for
expanded each year, eight consecutive years, by 753bps. Based on 1HFY20 trends, it is
barring price-war years highly likely that FY20 would also witness margin expansion. Lower
COGS as a percentage of sales and lower other expenses have been
the primary drivers of margin expansion during this period.
Figure 93: HUL has delivered steady margin expansion for eight consecutive years,
till FY19
Adjusted Ebitda margin
25%
20%
15%
10%
5%
0%
CY03
CY04
CY05
CY06
FY20ii
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Figure 94: Ebitda margin expansion has been driven by higher Figure 95: Among cost items, ad-spends has seen the maximum
gross margin and lower other expenses increase
Accounting adjustments Other expenses (CAGR) CY02-FY19 FY12-FY19
Staff costs Ad-spends 12%
100% 10.8%
10% 8.4%
80% 7.8% 7.9%
8% 6.6% 6.6%
60% 6.4%
5.7%
6%
40%
4%
20%
2%
0% 0%
CY02
CY03
CY04
CY05
CY06
CY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Staff costs COGS Other Ad-spends

expenses
Source: Company, IIFL Research Source: Company, IIFL Research
Capex and working capital

HUL’s capex has averaged Capex (as calculated: the difference between gross block, CWIP and
1.7% of sales over the past goodwill, which would differ from the reported capex in the annual
16 years report) over the past 16 years has averaged 1.7% as a percentage
of sales. HUL has incurred capex of Rs70bn over CY02-FY19,
whereas incremental sales during the same period have been
Rs280bn. Typically, periods of high capex have been followed by
periods of benign capex. Capex in CY05 was negative on account of
divestment of the functionalised biopolymer business (engaged in
manufacture and marketing of tapioca and corn-based specialty
modified-starches, mainly for the paper industry). In CY06, HUL
divested the Nihar brand (to Marico) and the company’s tea
plantation businesses in Assam and Tamil Nadu to McLeod Russel
and Maxwell Golden Tea Pvt, respectively.
In FY14, the overall capex was on the higher side, driven by higher
capex towards the soaps & detergents segment and acquisition of
74% stake in Aquagel Chemicals (manufacturer of precipitated
silicates). FY16 involved the acquisition of the Indulekha brand, for
Rs3.3bn. HUL also undertook divestment of its bread & bakery
business under the Modern brand, to Nimman Foods, and its rice
export business (brands such as Gold Seal Indus Valley and Rozana)
to LT Foods. In an attempt to avail fiscal benefits before the sunset
clause − pertaining to the setting up of manufacturing facilities in
certain locations − kicked in, HUL incurred high capex in FY17,
related to new manufacturing facilities at town Doom Dooma in
Assam.
Figure 96: Capex-to-sales has averaged at 1.7% of sales over the past 16 years
(Rs m) Capex (LHS) Capex to sales (RHS) (%)
15,000 5%
4%
10,000 3%
2%
5,000
1%
0 0%
-1%
(5,000) -2%
CY03
CY04
CY05
CY06
CY07
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Due to it bargaining power HUL commands a high bargaining power with its key suppliers. Being
with suppliers and associated with HUL helps suppliers get access to better financing
distributors, HUL maintains terms, which are then passed on to HUL. Hence, working capital
a negative working capital
requirements are negative, on account of higher payables. Over the
at ~10% of sales
past 16 years, HUL’s net working capital has averaged at -9.9%, as
a percentage of sales.
Lower inventories and higher payables resulted in sharp decline in

working capital in CY05 and FY10. Barring these years, the net
working capital has remained largely steady for HUL, over the years.
Figure 97: Net working capital has averaged at -9.9% over the past 16 years
(Rs m) Net working capital (LHS) As % of sales (RHS) (%)
0 0%
(5,000) -2%
(10,000)
-4%
(15,000)
(20,000) -6%
(25,000) -8%
(30,000) -10%
(35,000)
-12%
(40,000)
(45,000) -14%
(50,000) -16%
CY03
CY04
CY05
CY06
CY07
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
With moderate capex requirements and steady negative working

capital, FCF generation has been robust and averaged at 97% of net
profit. The volatility in FCF generation corresponds to years of high
capex or sharp decline in working capital, for reasons
aforementioned.
Figure 98: FCF-to-net profit has averaged at 97% over the past 16 years
(Rs m) FCF (LHS) As % of PAT (RHS) (%)
60,000 200%
50,000
150%
40,000
30,000 100%
20,000
50%
10,000
0 0%
CY03
CY04
CY05
CY06
CY07
CY08
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Recent quarterly performance

The quarters of Pipeline correction and a poor winter impacted growth in 3QFY15,
demonetisation and GST which pushed down volumes to 3%, only to bounce back to 6% the
implementation witnessed next quarter.
volume decline, but
thereafter, volume growth
was robust Volume growth was volatile in the 2QFY17-1QFY18 period. In
2QFY17, price increases coupled with promotion withdrawals in
personal wash impacted volumes, which declined by 1%. The
subsequent quarter saw a further dip in volumes (decline of 4%),
primarily impacted by demonetisation, before shaping a smart
recovery in 4QFY17. Trade de-stocking prior to GST implementation
led to flat volumes in 1QFY18. A GST rate reduction (from 28% to
18%) in categories such as detergents, dish wash, shampoos, skin
care and coffee, which comprised ~45% of HUL’s portfolio, drove a
robust volume growth of ~11% during 3QFY18-3QFY19.
In recent times, however, there has been a considerable slowdown in

the volume growth trajectory, owing to tightness in trade liquidity
and a general consumption slowdown, especially in rural India. Still,
HUL’s performance has been better than most peers’, in these
challenging times.
Figure 99: Volume growth has been steady in recent times, barring a few quarters of
blips
16% Demonetisation
Price increases
12%
in soaps
8%
4%
0%
-4% Pipeline correction,

Trade de-stocking prior to
Poor winter
GST implementation
-8%
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
HUL post margin expansion Average volume growth of 5.5% in the past 22 quarters has
in 21 of the past 22 translated into average top-line growth of 8% (adjusted for
quarters accounting and GST) during the same period, driven by price
increases and premiumisation. Benign input costs, cost-saving
initiatives and supply-chain rationalisation post GST implementation
have facilitated consistent margin expansion during this period.
Barring the demonetisation quarter, there has not been a single
quarter in the past 22 quarters when HUL has faced margin decline
(even after adjusting for the accounting changes).
Figure 100: Ebitda margin has expanded in 21 of the past 22 quarters

Sales growth Ebitda growth PAT growth
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
Figure 101: HUL has been resilient in a challenging demand environment

Avg volume growth 1HFY20
8% 7.0% 7.2%
7% 6.0%
6% 5.0%
5% 4.0% 4.0% 4.2%
4% 3.0%
3% 2.3%
2% 1.5%
1%
0%
GSK
HUL
Dabur
Emami
Bajaj Corp
Britannia
Marico
GCPL
Colgate
Jyothy
Earnings estimates
Sales
We estimate sales Cagr of 12% over FY19-22ii. Of this, organic sales
Cagr is 7.9%.
Figure 102: We estimate organic sales Cagr of 7.9% over Figure 103: Sales Cagr over FY19-22ii across different segments
FY19-22
Inorganic growth LFL sales growth Inorganic growth Organic growth
25%
35%
13.2%
20% 30%
25%
15% 20%
12.0% 10.9% 19.5%
9.3% 9.1% 15%
10% 8.3%
6.2% 10%
4.1%
5% 2.9% 5% 9.2% 9.3%
6.7%
0%
0%
Home Care Beauty and Foods &
FY15 FY16 FY17 FY18 FY19 FY20ii FY21ii FY22ii
personal care Refreshments
Source: Company, IIFL Research; Note: Adjusted for GST and Ind-AS Source: Company, IIFL Research
accounting changes
We can further break up the segment growth into categories and

brands. We estimate growth to be led by the colour cosmetics,
frozen desserts, tea, detergents, skin care, hair care and smaller
categories such as toilet/floor cleaners and water purifiers. (Refer to
Annexure 1 for detailed yearly sales by category.)
Figure 104: Category-wise sales Cagr over FY19-22ii
FY19-22 CAGR
20%
16%
12%
8%
4%
0%
Toilet / Floor…
Packaged soups,…
Oral care
Others
Colour cosmetics
Coffee
Water purefier
Detergents
Hair oils
Jams/ ketchups
Shampoos
Soaps
Dish wash
Skin care
Tea
Deo
Frozen Desserts
Similarly, we also break up growth by brands. Growth is led by

premium brands such as Indulekha, Surf Excel, Comfort and
Magnum. (Refer to Annexure 1 for detailed yearly sales by
category.)
Figure 105: Brand-wise sales Cagr over FY19-22ii
24%
20%
16%
12%
8%
4%
0%
-4%
-8%
Active Wheel
Lifebuoy
Close Up
Rin
Others
Bru
Vim
Domex
Surf Excel
Brooke Bond
Kissan
Axe
Cif
Dove
Pepsodent
Lux
Pears
Vase Line
Sunsilk
Sunlight
Lever Ayush
Lipton
Kwality Walls
Knorr
Lakme
Elle 18
Clear
TreSemme
Comfort
Magnum
Breeze
Fair & Lovely

Ponds
Pure It
Clinic Plus
Indulekha
Segment margins
In the past few years, Home Care has been a big contributor to
company margins and profit growth. FY16-19 Home Care margins
increased by 540bps (adj for GST accounting), thereby contributing
204bps to overall company margins (company total margin
expansion was 273bps).
Similarly, Home Care Ebit Cagr was 27% over FY16-19 compared
with HUL’s overall Ebit Cagr of 13.6%. Home Care contributed 42%
to HUL’s Ebit growth over the same period.
We forecast Home Care Home Care margins will continue expanding, albeit at a slower rate.
margin to improve 295bps Premiumisation will be the main driver for margins, with Surf
over FY19-22ii growing ~1.5x the overall Home Care growth over FY19-22. We
estimate that Surf Ebit margin would be ~1.35x the overall Home
Care margin. The company’s cost effectiveness plans would be the
other margin driver.
Figure 106: Margins in Home Care have steadily improved

Home care Ebit margin Home care Ebit growth (RHS)
20% 40%
35%
16%
30%
12% 25%
20%
8% 15%
10%
4%
5%
0% 0%
FY16 FY17 FY18 FY19 FY20ii FY21ii FY22ii
Source: Company, IIFL Research; Note: Margins are adjusted for GST accounting (to facilitate
comparison across years) by 164bps, i.e. Company’s reported margins FY18 onwards will be
higher by 164bps vs those shown in this chart
We forecast Personal Care Personal Care margins have improved 58bps over FY16-19. Here
margins to improve by too, margin drivers are the same. Brands such as Dove are growing
401bps over FY19-22ii faster than the overall segment. Margins in this segment could be
impacted by palm oil price. Currently, palm oil price is on a decline
and companies are passing this on to the consumer. Although over a
longer term, input cost is not a major determinant of margins, it
could lead to margin volatility in the near term.
Going ahead, we believe that Personal Care margins will expand by

401bps over FY19-22ii.
Figure 107: Modest margin improvement in Personal Care

Personal care Ebit margin Personal care Ebit growth (RHS)
30% 14%
25% 12%
10%
20%
8%
15%
6%
10%
4%
5% 2%
0% 0%
comparison across years) by 255bps, i.e. Company reported margins FY18 onwards will be
Margins of the Food & Refreshments segment are likely to materially

improve on account of the i) HFD category itself being at a higher
margin vs tea and ii) synergies that are likely to surface from the
merger.
We, accordingly, expect Ebit margins to expand 894bps over FY19-

22ii.
Figure 108: Ebit margins in Foods & Refreshments to expand significantly, post the
GSK merger
Food & refreshments Ebit margin
Food & refreshments Ebit growth (RHS)
30% 45%
150%
40%
25%
35%
20% 30%
25%
15%
20%
10% 15%
10%
5%
5%
0% 0%
comparison across years) by 49bps, i.e. Company reported margins FY18 onwards will be higher
by 49bps vs those shown in this chart
Gross margins
We expect a modest gross margin expansion of 221bps over FY19-
22 (organic), led by cost-efficiency programmes. However, overall
gross margins will improve by 382bps, as the HFD category has a
higher gross margin than HUL currently.
Figure 109: Gross margin expansion would be driven by GSK merger and cost
efficiency programmes
Gross margin Gross profit growth (RHS)
55% 30%
54%
25%
53%
20%
52%
51% 15%
50%
10%
49%
5%
48%
47% 0%
We forecast Ebitda margin Ebitda margin

expansion of 295 bps over
FY19-22ii, with 1HFY20
Ebitda margin expansion at We expect Ebitda margin expansion of 306bps over FY19-22ii,
170bps YoY organically. Ebitda margin expansion is higher than gross margin
expansion, as HUL tends to get the leverage of employee cost and
other expenses.
Total margin expansion (adjusted for accounting) will be higher, at

414bps, due to GSK merger synergies.
Figure 110: Ebitda margin to expand 414bps over FY19-22ii

Ebitda margin Ebitda growth (RHS)
30% 35%
25% 30%
25%
20%
20%
15%
15%
10%
10%
5% 5%
0% 0%
Source: Company, IIFL Research; Note: Adjusted for GST and Ind-AS accounting − Margins are
adjusted for GST accounting by 87bps FY18 onwards and for Ind-AS 116 implementation by
100bps FY20 onwards (in order to facilitate comparison across years)
Figure 111: Employee cost trends Figure 112: Other expenses trends Figure 113: Ad-spend trends
Employee costs as % of sales Other expenses as % of sales Ad-spends as % of sales
Employee cost increase (RHS) Other expenses increase (RHS) Ad-spends increase (RHS)
6.0% 35% 17% 25% 12.0% 25%
30% 16% 11.5%
5.0% 20% 20%
15% 11.0%
4.0% 25% 14% 15%
15% 10.5%
20% 13%
3.0% 10.0% 10%
15% 12% 10%
2.0% 11% 9.5% 5%
10% 9.0%
10% 5%
1.0% 5% 8.5% 0%
9%
0.0% 0% 8% 0% 8.0% -5%
FY16
FY17
FY18
FY19
FY20ii
FY21ii
FY22ii
FY20ii
FY21ii
FY22ii
FY20ii
FY21ii
FY22ii
FY16
FY17
FY18
FY19
FY16
FY17
FY18
FY19
Source: Company, IIFL Research; Note: Adjusted for GST and Ind AS accounting
Ad spends growth is currently modest in the overall FMCG industry.

However, we expect it to pick up as consumption revives, although
we do believe HUL will not need to increase ad spend as a
percentage of sales, on account of: (1) cost rationalisation plans,
which would give the same impact for a lesser cost; (2) premium
brands being advertised more than mass and premium brands
growing faster would mean that some leverage is possible.
Net profit growth

With tax rates reducing to 27% in FY20 and to 26% thereafter, profit
growth will be higher than Ebitda growth.
Figure 114: Net profit growth to be boosted by tax rate cut and the GSK merger
Net profit margin Net profit growth (RHS)
25% 40%
35%
20%
30%
15% 25%
20%
10% 15%
10%
5%
5%
0% 0%
Working capital
Due to bargaining power HUL has a negative working capital of 10% of sales, as it is able to
with suppliers and bargain for better terms from its creditors. Creditors stand at 19% of
distributors, HUL will be
sales. On the other hand, debtors are only 4% of sales. General
able to maintain negative
working capital of 9-10% of trade distributors get no credit, hence debtors are low, which is
sales attributed completely to either modern trade or CSD.
Figure 115: Net working capital is negative owing to higher operating liabilities
Overall WC Inventory Debtors Creditors
15%
% of sales
10%
5%
0%
-5%
-10%
-9.8% -10.8% -10.0% -10.5% -9.6% -9.1%
-15% -12.1%
-20%
-25%
Source: Company, IIFL Research; Note: Adjusted for GST accounting
We forecast capex at below Capex in the FMCG industry tends to be low. HUL has a high net
2% of sales asset turnover of 8.9x. We estimate a capex of ~Rs.26bn for FY19-
22ii.
Figure 116: Capex requirements are typically on the lower side

Net asset turnover Capex as % of sales (RHS)
14 5.0%
4.5%
12
4.0%
10 3.5%
8 3.0%
2.5%
6 2.0%
4 1.5%
1.0%
2
0.5%
0 0.0%
FCF generation
Over the past ten years, HUL has averaged FCF generation of 97% of
the net profit. We believe that FY17 saw accelerated capex, where
the company took advantage of the sunset clause in tax benefits.
Going ahead, we believe that capex will be relatively modest and,
therefore, FCF generation could improve to 99% of net profit,
stabilising at 95% in FY22ii.
Figure 117: FCF generation to stabilise at 95% of net profit

(Rs bn) FCF As % of net profit (RHS)
120 110%
100 105%
80 100%
60 95%
40 90%
20 85%
0 80%
Dividend pay-out
With FCF at over 90% of With high FCF generation, HUL is able to pay out most of its net
net profit, we believe that
HUL can maintain dividend
profits as dividend. Over the past 10 years, HUL has had a dividend
pay-out at 90% pay-out of 89% (including DDT). For the future, we forecast a ~90%
dividend pay-out ratio.
Figure 118: Dividend pay-out has been steady at 89% over the past decade
Dividend payout (LHS) Dividend yield (RHS)
110% 2.0%
100% 1.6%
90%
1.2%
80%
0.8%
70%
60% 0.4%
50% 0.0%
Source: Company, IIFL Research; Note: Dividend yield for all years is on CMP
Return ratios
Even after the dilution on RoE and RoIC for HUL are quite high on account of negative working
account of GSK merger, HUL capital and high fixed asset turnover.
has the highest RoE in the
IIFL coverage universe,
across sectors Figure 119: Improvement in RoE led by margins and lower taxes
DuPont FY16 FY17 FY18 FY19 FY20ii FY21ii FY22ii
Asset-to-equity 1.0 1.0 1.0 1.0 1.0 1.0 1.0
Sales turnover 4.8 4.7 4.8 5.0 4.9 4.2 3.5
Ebit margin 18.0% 18.3% 20.1% 21.6% 23.0% 24.9% 26.0%
Interest burden 1.1 1.1 1.1 1.1 1.1 1.1 1.1
Tax burden 0.69 0.69 0.71 0.70 0.73 0.74 0.74
RoE 64.2% 64.9% 74.7% 82.1% 88.7% 85.4% 73.9%
By FY22, we expect the RoE to decrease to 74% on account of the

GSK merger. At 74% too, HUL is expected to post the highest RoE in
the FMCG industry, with Nestlé at 67.5% being second.
Figure 120: Cash (including investments) forms a substantial portion of the balance
sheet
Shareholder's funds Cash (incl investments) as % of shareholders' funds (RHS)
180 105%
(Rs bn)
160
140 100%
120
95%
100
80
90%
60
40 85%
20
0 80%
Change in estimates
Our EPS estimates remain
We reduce our sales estimates on account of poor demand situation.
unchanged, although we
moderate sales growth However, our Ebitda estimates do not change, as we believe that
HUL can deliver margin expansion better than estimated earlier. On
an organic basis, we estimate Ebitda margin expansion of 97bps per
year over FY20-22 which is lower than the 123bps expansion per
year over FY17-20. In 1HFY20, HUL has already delivered 170bps
Ebitda margin expansion; we forecast a similar number for the rest
of the year.
Figure 121: Changes to our estimates

FY20 (Rs m) Old New Change
Sales 413,132 409,586 -0.9%
Ebitda 102,139 102,977 0.8%
PAT 71,959 72,969 1.4%
Sales 508,380 497,514 -2.1%
Ebitda 134,020 134,476 0.3%
PAT 99,085 99,865 0.8%
Sales 559,923 542,646 -3.1%
Ebitda 153,369 152,779 -0.4%
PAT 113,764 113,514 -0.2%
Valuation
P/E valuation
HUL’s PER has more than A decade ago, HUL was trading at a 1-year forward P/E of ~25x.
doubled over the past 10 Today, this has more than doubled, to over 50x. Interestingly, the
years, while performance performance has remained largely range-bound during this period.
has remained range bound
Figure 122: HUL’s 1-yr forward multiple has steadily expanded in the past decade,
even as growth has been range-bound
1 yr fwd PE Sales growth (RHS) Ebitda growth (RHS)
60 35%
55 30%
50 25%
45 20%
40 15%
35 10%
30 5%
25 0%
20 -5%
15 -10%
Jul-10
Jul-17
Aug-14
Mar-15
Oct-15
May-16
Dec-09
Feb-11
Sep-11
Apr-12
Nov-12
Jun-13
Jan-14
Dec-16
Feb-18
Sep-18
Apr-19
Nov-19
Source: Bloomberg consensus, IIFL Research
In fact, many FMCG stocks have re-rated over this period; however,
the rerating for HUL has been higher than most others’. Since June
2017, HUL’s premium to other FMCG stocks has averaged 10%,
while over Jan-2010 to Jun-2017, HUL traded at the same multiple
as peers.
Figure 123: HUL’s premium to peers has increased in the past few quarters
30%
% premium
20%
FY17-20
10%
0%
-10%
-20% Average: 10%
-30% Average: 0%
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
Source: Bloomberg consensus, IIFL Research; Note: Peer group PER is a market cap weighted
PER of Colgate, Nestlé, GCPL, Dabur, Marico, Asian Paints and Britannia
Unilever buyback, lower Reasons for the re-rating are:

bond yields, lack of other • The PER was largely stable (although with an upward bias), from
investible ideas and margin 2009 till end-2012. The P/E witnessed some expansion
expansion plan are some of
the reasons for the rerating thereafter, as the second price war ended and HUL started
posting robust growth numbers.
• In May 2013, Unilever announced a buyback plan for HUL, at
21% premium to the market price, which resulted in the share
price spiking up. Unilever bought 15% of the company in the

buyback and this resulted in its stake going up to 67%.
• In 2014, the BJP government was elected, resulting in improved
investor confidence and increased fund flow into equity markets.
While there was a secular boost, money chased good quality
names with visibility on performance.
• 10-year government bond yields fell, from 9% in April 2014 to
6.5% currently, resulting in a reduction in WACC for consumer
companies.
• In April 2017, Unilever announced a margin enhancement target
to 20% in CY20 from 16.4% in CY16. HUL, too, stated that it
would have to contribute to this target and that Home Care
margins had scope to move up. In anticipation of the accelerated
likely profit delivery, multiples moved up.
Figure 124: HUL’s P/E multiple expansion has been driven by various reasons at
different points in time
BJP govt elected to power Parent announces margin
60
Buyback improvement program
55 announcement
50
45
40 End of price war
35
30
25
20 Decline in bond yields
15
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Source: Bloomberg consensus, IIFL Research
HUL’s premium to peers has In the past 3 years HUL has outperformed peers on profit growth
increased as its profit The premium to the sector at 10% for the past 2-3 years vs nil
growth has been higher earlier can be explained on account of higher profit growth for HUL
vs the sector: Over FY17-20, HUL sales Cagr at 8.2% is in line with
sector, but its Ebitda Cagr at 17.5% and EPS Cagr at 19.1% are
higher than the sector’s.
Figure 125: HUL profit growth higher than peers

(FY17-20) HUL Bunch of FMCG stocks
25%
19.1%
20% 17.5%
15% 13.0%
11.3%
10% 8.2% 8.7%
5%
0%
Sales CAGR Ebitda CAGR PAT CAGR
We value HUL at 48x Dec P/E-based valuation

2021 EPS, to arrive at our HUL is currently trading at 53x its 12-month forward P/E. We believe
price target of Rs2,250 that this is expensive and builds-in benefit from the tax rate cut and
the GSK merger to a large extent.
HUL has averaged a P/E of 45x over the past 5 years and of 37x
over the past 10. We value HUL at 48x its Dec-2021 EPS, to arrive at
our price target of Rs2,250.
• 48x is a ~10% discount to the current multiple, which we believe
is frothy.
• 48x is a slight premium (~7%) to the 5-year average P/E, which
we believe may prevail on account of lower interest rates and
high EPS Cagr of 19% over FY19-22ii, driven by tax rate cuts and
GSK Consumer synergy benefits.
DCF valuation
We believe that in stable state, HUL can generate FCF-to-net profit
of ~95%.
Figure 126: Stable-state FCF generation for HUL would be ~95%

(Rs m) FY19 FY20ii FY21ii FY22ii
NOPLAT 58,565 68,689 91,825 104,577
Depreciation 5,650 8,883 10,388 11,458
Change in working capital -3,330 4,407 5,239 2,025
Capex -6,600 -7,634 -8,590 -9,736
Change in deferred taxes -710 0 1,139 0
FCF 53,575 74,344 100,000 108,324
Net profit 62,146 72,969 99,865 113,514
FCF as % of net profit 86.2% 101.9% 100.1% 95.4%
Our DCF assumptions are:

• FCF growth of 12% over FY22ii-41ii
• Terminal growth of 5% post FY41ii
• Discounting rate of 10% (risk free rate: 6.5%, beta: 0.65)
On this basis, we arrive at a DCF value of Rs2,254, quite close to our

P/E based price target of Rs2,250.
While a 12% profit growth Some notes on our aforementioned assumptions:

over FY22-41 and a • For 12% profit growth, sales growth at 10% with a margin
consistent 95% FCF expansion of nearly 60bps each year is required. This is not an
conversion is not easy,
terminal growth of 5% is impossible mark, but no doubt prices-in excellent execution.
conservative and investors • Our assumptions mean that FCF will need to continue at 95% of
may be comfortable with a net profit. This means that working capital as a percentage of
lower than 10% WACC
sales would need to largely remain constant, which may be
difficult in an environment where e-commerce and modern trade
grow faster than general trade. However, it is possible that HUL
offsets this by bargaining for a better credit period with suppliers.
• Our terminal growth estimate of 5% is probably on the lower
side. At a growth rate of ~6%, our per capita income will take 40
years to go up to USD20,000. If we take a terminal growth
estimate of 6% instead of 5%, the fair value goes up by 14%.
• A WACC of 10% seems reasonable; however, given the lack of

investment opportunities elsewhere, some investors may be
willing to invest at a lower hurdle rate in a reliable, high quality
company such as HUL. If we reduce our discounting rate by
50bps to 9.5%, the fair value goes up 14%.
Figure 127: WACC vs semi-explicit FY22ii-41ii growth rate

DCF sensitivity table Semi explicit growth rate (FY22-41)
11.0% 11.5% 12.0% 12.5% 13.0%
9.0% 2,591 2,775 2,972 3,185 3,414
9.5% 2,250 2,405 2,571 2,749 2,942
WACC 10.0% 1,981 2,112 2,254 2,406 2,570
10.5% 1,763 1,877 1,999 2,130 2,271
11.0% 1,584 1,683 1,789 1,903 2,025
Figure 128: WACC vs terminal growth rate

DCF sensitivity table Terminal growth rate
4.0% 4.5% 5.0% 5.5% 6.0%
9.0% 2,594 2,762 2,972 3,242 3,602
9.5% 2,291 2,417 2,571 2,763 3,010
WACC 10.0% 2,042 2,139 2,254 2,395 2,571
10.5% 1,836 1,910 1,999 2,104 2,234
11.0% 1,662 1,721 1,789 1,870 1,967
RoE vs P/B
HUL’s high P/B is justified HUL trades at a high P/B of 32.5x FY21ii. However, this is also
due to its high RoE versus backed by a high RoE of 85% in FY21ii. We plot all the NIFTY
consumer peers as well as companies on a chart, with their RoE on the X axis and P/B on the Y
across sectors
axis, and then run a best fit line through it. We find that HUL is
almost on the best fit line, meaning that compared with other stocks
on this metric, it is only marginally expensive. Evidently, this
analysis should be taken with a pinch of salt, because there is a third
element to an RoE vs P/B comparison − ‘g’, i.e. growth – which our
analysis does not factor-in.
Figure 129: HUL’s valuation vs NIFTY stocks is in line on ROE vs P/B metric
40
35
HU
30
25
P/B
20
15
10
0
0 10 20 30 40 ROE 50 60 70 80 90
Another way to interpret this is the required growth for HUL to justify
its relative valuation, almost in line with the other companies overall,
in this analysis.
If we conduct the same exercise for the consumer sector, we find

that HUL is cheaper relative to other stocks.
Figure 130: HUL offers more value relative to its peer set
40
NEST
35
HUVR
30
CLGT
25
P/B
20
15 BRIT
TTAN APNT
MRCO
JUBI
10 GCPL DABUR
UNSP
VBL HMN
5 TGBL
JYL ITC
0
0 10 20 30 40 50 60 70 80 90
ROE
Figure 131: Valuation matrix

Avg Daily
Mkt Cap CMP TP Reco EPS EPS growth
Turnover
Company (US$ m) (US$ m) (Rs) (Rs) FY20 FY21 FY22 FY20 FY21 FY22
HUL 61,162 47.0 2,008 2,250 ADD 33.7 42.5 48.3 17.4 26.1 13.7
ITC 41,191 56.0 241 295 BUY 12.4 13.9 15.6 21.6 12.0 11.9
APNT 23,308 34.5 1,726 1850 BUY 28.7 33.2 39.6 27.4 15.8 19.2
Nestle 19,315 19.0 14,233 15,500 ADD 206.8 248.0 291.8 22.0 19.9 17.7
Titan 14,721 45.8 1,178 1280 ADD 18.6 21.7 25.9 6.9 16.7 19.4
Dabur 11,515 13.4 465 485 BUY 9.1 10.7 12.1 7.1 17.9 13.0
Britannia 10,332 21.7 3,058 3,500 ADD 58.1 67.4 82.3 20.4 16.2 22.0
GCPL 9,463 10.6 658 700 REDUCE 15.2 17.2 19.4 4.5 13.5 12.5
Marico 6,171 10.8 341 370 REDUCE 8.4 9.3 10.7 17.1 9.7 15.2
UNSP 5,994 11.5 586 580 REDUCE 11.7 14.7 17.3 26.2 25.3 17.5
Colgate 5,615 18.3 1,467 1,550 ADD 32.3 35.9 41.2 16.5 11.0 14.7
JUBI 2,930 22.3 1,577 1550 ADD 31.9 35.8 42.3 28.5 12.2 18.0
TGBL 2,802 14.1 315 310 BUY 8.3 9.8 10.9 21.9 18.4 10.8
VBL 2,716 3.9 705 750 BUY 15.5 22.6 28.9 44.6 46.1 27.8
Emami 2,017 2.3 316 405 BUY 13.4 14.8 16.7 23.6 10.6 12.6
Jyothy 818 0.7 158 200 BUY 6.1 6.6 7.4 7.9 9.1 12.4
Bajaj Corp 495 3.6 238 315 ADD 16.0 16.6 18.4 4.5 3.4 11.0
Agrotech 209 0.1 610 640 BUY 16.8 18.6 23.5 19.4 11.1 26.2
PER RoE Div yield EBIT Margin EV/EBITDA FCF Yield
Company FY20 FY21 FY22 FY19 FY19 FY20 FY21 FY20 FY21 FY22 FY19 FY20 FY21
HUL 59.6 47.2 41.6 82.1 1.0 23.0 24.9 41.7 31.4 27.6 1.7% 2.3% 2.5%
ITC 19.4 17.3 15.5 22.6 2.4 35.5 35.8 14.1 12.4 10.9 4.1% 4.7% 5.3%
APNT 60.2 52.0 43.6 24.1 0.6 16.3 16.5 38.2 33.4 28.6 1.6% 1.9% 2.2%
Nestle 68.8 57.4 48.8 46.1 0.8 20.9 21.7 46.8 40.4 34.5 1.7% 1.9% 2.2%
Titan 63.4 54.3 45.5 27.2 0.4 10.4 10.6 42.4 36.3 30.4 0.5% 1.3% 1.4%
Dabur 51.1 43.4 38.4 26.6 0.6 19.2 20.0 41.8 35.9 30.9 1.8% 2.0% 2.3%
Britannia 52.7 45.3 37.2 30.3 0.5 14.4 14.9 39.4 33.8 27.8 1.4% 1.6% 1.8%
GCPL 43.3 38.2 33.9 22.0 1.4 20.2 20.5 29.7 26.4 23.4 2.3% 2.5% 2.8%
Marico 40.3 36.8 31.9 33.6 1.4 18.6 18.8 27.8 25.5 22.1 2.5% 2.5% 2.9%
UNSP 49.9 39.8 33.9 24.5 - 13.3 14.2 28.3 23.8 20.7 0.8% 1.3% 1.7%
Colgate 45.4 40.9 35.6 50.8 1.6 24.2 24.7 29.6 26.5 23.4 2.5% 2.6% 2.9%
JUBI 49.4 44.0 37.3 27.7 0.3 12.6 12.2 30.3 26.4 22.4 1.6% 2.1% 2.6%
TGBL 38.0 32.1 29.0 6.0 0.8 10.3 11.2 19.3 16.5 14.9 2.6% 2.6% 3.1%
VBL 45.6 31.2 24.4 15.5 0.2 12.9 14.0 16.5 12.7 10.9 -6.5% 5.3% 6.1%
Emami 23.6 21.3 18.9 24.0 1.3 16.8 21.1 17.5 15.8 14.1 4.3% 4.5% 4.8%
Jyothy 26.1 23.9 21.3 16.6 1.9 14.5 14.7 17.7 15.8 13.8 4.5% 4.8% 5.3%
Bajaj Corp 14.9 14.4 13.0 45.7 5.9 28.6 26.7 13.1 12.7 11.3 6.1% 6.2% 6.9%
Agrotech 36.3 32.7 25.9 9.6 0.4 5.6 6.1 22.2 19.1 15.8 2.9% 2.4% 3.0%
Risks
Downside risks
Demand recovery may not happen
A lack of demand recovery, We have built-in 8% organic sales growth for HUL in FY21 and FY22,
lower than expected margin
expansion, price war
which is a recovery from the current 6-7%. However, if demand
breaking out, change in remains subdued, we may see our number downgraded.
retail landscape and selling
pressure from GSK The recent increase in telecom pricing and possible hikes in GST
Consumer are the main
downside risks
rates to compensate the states for revenue shortfall could squeeze
the consumer’s wallet, resulting in lower spends on FMCG products.
Although there is no indication of a revival in demand as of now,

there is hope that the government will take measures to revive the
economy. Moreover, FY20 is pressured due to price cuts in the soaps
division. We expect some price increases in FY21/22 on this low
base.
Margin expansion may lose steam

HUL has been expanding margins every year since the past several
years and, looking at the track record, we do not think there is a
material risk to margin expansion going ahead. However, there is
indeed a risk that the extent of margin expansion may reduce. We
have built in an annual margin expansion of 194bps over FY20-22ii,
on an organic basis. While this is lower than the annual margin
expansion of 103bps over FY16-20, there is a risk that it may be
even lower. Main reasons for such a risk materialising could be the
poor demand scenario resulting in lower effective price increases or
sharper than expected cost inflation.
Figure 132: HUL has delivered steady margin expansion, the pace of which may
come off in the medium term
Adjusted margin expansion
160 146
140
120 110 113
106
96
100 88
80 72
60 45
40
20
0
FY15 FY16 FY17 FY18 FY19 FY20ii FY21ii FY22ii
During FY16-19, Home Care Ebit margin expanded by 701bps, while

Personal Care margin expanded by 312bps. We believe that this
huge margin expansion in Home Care cannot continue at the same
rate. We have factored in a reduction in margin expansion to
~100bps each for both the segments; however, if it is slower than
that, our estimates are at risk.
Price war
There has been no price war since FY11. While we believe that the
risk and possible impact of a price war has declined (as explained in
the investment thesis section), we cannot completely rule out such a
possibility. In CY04, the price war had a very bad impact, resulting in
EPS decline of 34%. In FY11, despite the impact being lower, EPS
growth was almost flat.
Figure 133: Price wars had a significant negative impact on profit growth
Sales growth EPS growth
40%
30%
20%
10%
0%
-10%
-20%
-30% Price war years
-40%
CY03
CY04
CY05
CY06
CY07
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Change in the retail landscape

The modern trade and ecommerce segment is growing faster than
general trade for HUL. It accounts for ~20% of the company’s sales
at present. Profitability of these channels is at least equal to that of
general trade. However, as these channels see expansion, their
bargaining power will increase, giving rise to the risk that they may
ask for higher margins, which may result in margin squeeze for HUL.
The Ebit margins that HUL enjoys in India are higher than its global
margins (Ebit margins at 18% for Unilever consolidated vs 22% for
HUL); one of the reasons for such a difference is the lower share of
organised retail. Moreover, these channels may push private label
brands, resulting in revenue growth slowdown for HUL in addition to
margin pressure.
The counter argument is:

• HUL’s margins have been continuously expanding till now, while
modern trade share has seen an upswing, from a low single-digit
to 20%.
• Market-leading brands will not be impacted much by this change
in landscape, because organised retail will need these to drive
footfalls.
However, working capital requirements may go up, as this channel

gains scale.
Selling pressure from GSK Plc

As part of the GSK Consumer merger, HUL will issue ~134m shares
(6% of HUL’s equity) to GSK Plc. GSK Plc would want to sell these
shares as soon as possible, thereby gaining funds for paying off the
debt associated with the Novartis acquisition. This supply of stock
could act as a dampener on the share price.
Upside risks
Higher than expected Synergies from the GSK acquisition
synergies from the GSK We have not assumed any significant top-line synergies for GSK. Our
acquisition, faster pace of FY21/22 growth estimates for the HFD category are 9% each. As
market share gain, and
pickup in inflation are the
explained in the investment thesis section earlier, we believe several
main upside risks top-line synergies could materialise.
Secondly, we have assumed ~680bps margin synergies in FY21 and

another ~265bps in FY22, i.e. a total of ~950bps. While this is in line
than management guidance, we believe there can be even higher
synergies on account of GSK’s cost structure being heavier than
HUL’s.
Market share gains

While HUL has been growing competitively, the pace of market share
gain accelerating would be an upside risk, as players find it difficult
to operate in an industry facing stress of a demand/consumption
slowdown and increased compliance (GST).
Pickup in inflation
HUL is able to increase margin, irrespective of input cost inflation
(Figure 14). If inflation rises, sales growth may increase on account
of pricing lever and the fact that for staple categories, volume
backlash is generally lower than price increase. This will, in turn,
lead to better profit growth as well.
The risk to this story is that if input cost inflation picks up but is not
seen in wage inflation or agri inflation, in which case the volume
backlash of a price increase may be more severe, as consumer-
income growth lags input-cost inflation.
Figure 134: Farm inflation has picked up in 1HFY20, while core inflation continues to
be benign
Core inflation Farm inflation Crude inflation (RHS)
7% 40%
6% 30%
20%
5%
10%
4% 0%
3% -10%
-20%
2%
-30%
1% -40%
0% -50%
FY15 FY16 FY17 FY18 FY19 1HFY20
Environment, Social, Governance

Figure 135: Unilever’s sustainable-living plan
Source: Company
We present below some of HUL’s important programmes.
To improve the health of Improving health and well being

consumers, HUL runs
programmes − such as
hand-washing, safe 1. Swachh Aadat, Swachh Bharat (SASB)
drinking water and toilet Literally translated as “clean habit, clean India”, the SASB
academy − that are programme promotes good health and hygiene practices.
synergistic with its product
Swachhata Doot is a volunteering programme that enables any
portfolio
person to become a change agent in his/her community. Through
its 2,000 employees, HUL has reached out to 6 million people in
2018; 13.5 million have been cumulatively reached.
2. Handwashing behaviour change programme

0.9m children under the age of 5 die in India due to diseases
such as diarrhoea, the incidence of which can be reduced with
handwashing. From 2010 till date, the company has reached out
to 68m people through the handwashing behaviour change
programme, mainly in the states of Uttar Pradesh, Jharkhand,
Orissa, Madhya Pradesh and Maharashtra.
3. Project Prabhat
This project aims to contribute to the development of local
communities around HUL manufacturing locations. In 2018, an
initiative called ‘Project Mooo’ was instrumental in increasing
productivity of cows via an app. Also, in another programme,
HUL employees volunteered as ‘nutrition ambassadors’ to explain
the importance of healthy eating & living to school children. Such
ambassadors interacted with 46,000 children last year.
4. Domex Toilet Academy (DTA)

Since 2014, DTA has trained 600 micro entrepreneurs and
masons to help build and maintain toilets. DTA also provides
access to micro financing, to create demand for toilets for over
1m people. In 2017, DTA moved focus from access to usage.
Partnering with PSI India, the programme has reached out to
0.28m people in 101 villages in Andhra Pradesh and, as a result,
toilet usage has gone up materially.
5. Asha Daan, Ankur

Asha Daan is a home for differently-abled children, HIV-positive
patients and destitute people, housing 350-400 inmates. Ankur is
a similar initiative in Assam, providing educational and vocational
training for 359 differently-abled children.
6. Sanjeevani
Sanjeevani is a free medical service camp for the local
community near HUL’s factory in Assam. More than 0.33m
patients have been treated since inception in 2003.
7. Safe drinking water

HUL’s Pureit has provided 89 billion litres of safe drinking water
till date.
8. Nutrition and well-being initiatives

As per USLP (Unilever Sustainable Living Plan) commitments, by
2020, the company aims to double the proportion of the portfolio
that meets the highest nutritional standards, based on globally
recognised guidelines. In 2018, in India, 46% of the portfolio met
these standards.
HUL has made meaningful Reducing the impact on the environment

improvement in terms of
reducing waste; in the past
10 years, CO2 emissions 1. Water conservation project
per tonne for HUL HUF (Hindustan Unilever Foundation) partners with NGOs to
production reduced 59% address India’s water challenges, especially in rural India.
and water usage (cubic
Through HUF’s water conservation and farm-based livelihood
meter per tonne) reduced
55% initiatives, cumulatively, HUL has created water-saving potential
of over 700 billion litres, generating over 0.80 million tonnes of
additional agriculture production and over 7.5 million person-
days of employment till financial year 2017-18. In financial year
2018-19, HUF’s water conservation capacity stood at 900 billion
litres cumulatively. One billion litres of water can meet the
drinking water needs of over 0.8 million adults for an entire year.
2. Plastic waste management

HUL has, via partnering with NGOs across 20 cities, worked on
reducing plastic waste. During the year, the company has been
able to process about 15,000 tonnes of plastic waste and convert
it to electricity.
3. Reducing GHG waste and water usage

Compared with 2008, in 2018, CO2 emissions per tonne for
HUL’s production reduced 59%, share of renewable energy at the
company’s sites increased to 43% and water usage (cubic meter
per tonne) reduced 55%. Total waste generated reduced 58%.
The company maintained the status of zero non-hazardous waste
to landfill and 100% of the non-hazardous waste generated at
HUL factories was recycled in environment-friendly ways.
4. Sustainable sourcing
HUL’s goal is to sustainably source 100% of agriculture raw
materials by 2020. In 2018, 100% of tomatoes used in Kissan
ketchup and 65% of tea in India procured for Unilever brands
was sourced from sustainable sources.
Programmes such as Enhancing livelihoods

Project Shakti, Fair and
Lovely Career Foundation
and Rin Career Academy 1. Project Shakti
help enhance livelihoods, The objective of Project Shakti is to provide employment to rural
while also making such women. Women are employed in selling HUL products. Across 18
offerings “brands with a
states, Project Shakti has 109,000 women entrepreneurs.
purpose”
2. Dove self-esteem program

In light of 6 girls of every 10 not having high body esteem, Dove
endeavours to ensure that girls grow up with a positive self-
image and increase their self-esteem so as to realise their full
potential. The company is working with partners to reach out to
2m girls by 2020.
3. Fair and Lovely Career Foundation

The foundation provides career guidance, skill-based courses and
training for job opportunities for women via a mobile platform.
The foundation partners with NIIT edX, English Edge and start-
ups such as www.testbook.com and www.idreamcareer.com.
Over 0.6m women have enrolled on the platform till date, and
0.2m women have accessed career guidance resources and
online courses. 50,000 women have opted for job-oriented tests
and profile builder.
4. Clinic Plus scholarship

The scholarship provides financial help to mothers so that their
daughters from class 5th to 12th can complete secondary
education. In 2018, over 124 girls were awarded a scholarship of
Rs6,000 each.
5. Rin Career Ready Academy

Rin Career Ready Academy provides English training to youth
from modest backgrounds. This includes a web course available
on www.rin.in. So far, over 0.52m people have benefitted from
this programme.
6. Kwality Wall’s Vending Operations

The programme has helped 14,566 people in India become
entrepreneurs operating Kwality Walls vending machines.
Figure 136: HUL’s CSR spends pertaining to different projects

Cumulative expenditure
CSR Project / Activity up to 31st March, 2019 (Rs m)
Project Shakti 434
Swachh Aadat Swacch Bharat 478
Water Conservation Project 90
Asha Daan 148
Project Prabhat 61
Sanjeevani 7
Ankur 3
CM Relief Fund 10
Contribution to Medical Institutions 35
Total 1,265
Gender equality
40% of managers at HUL In 2018, women comprised more than 40% of HUL managers. The
are women Company’s onsite Day-Care Centre in Mumbai is an award winning
one, providing child care support to parents on site.
Gender balance in HUL has improved by 2,000bps in the past 8

years.
Inclusiveness
HUL’s FY19 annual report states: “We are committed to including
persons with disability into our employment ecosystem and
workforce. Additionally, we are building an accessible workplace for
persons with disability with over 15 of our sites already audited and
work underway to convert them. The Company is taking first steps
towards inclusion of LGBT employees through inclusive policies and
benefits, converting infrastructure and a powerful awareness and
culture campaign to nudge the culture towards pride and allyship.”
Board composition and management committee

Please see Annexures 7-8 for details.
Questions
What led to the slowdown, Questions, in consideration with the overall consumption
what will drive the climate
recovery, and when will we HUL is the largest FMCG company in India and its comments on the
see a recovery?
consumption environment have generally been correct in the past. It
collates information from Nielsen, Kantar, its own ‘feet on the street;
as well as other macro indicators, for providing a fairly
comprehensive and accurate demand depiction.
• There was a pick-up in sales growth in 2HFY18 and 1HFY19.
What then are the underlying reasons for demand to have again
slowed down in the past 2-3 quarters?
• What do you think is needed for sales growth to pick up? Is there
anything that the government can contribute? Why, in your
opinion, have the several state farm-loan waivers, better
targeting of subsidies via DBT, LPG connections in rural areas,
and other such social schemes not been able to boost demand?
• All factors considered, when do you think we should see demand
reviving?
• Rural FMCG growth has dipped below urban, for the first time in
several decades, and that too in a year that did not face a
drought or one-time shocks such as demonetisation/GST
implementation. Why is this so?
• While there is an overall slowdown, please give some colour on
the categories that are worst-affected. Which price-points are
consumers gravitating towards?
• How do we marry the fact, that there is a deep slowdown in
consumption, with the phenomenon of premium brands growing
faster than mass-market brands? It seems quite counter
intuitive.
• Which LSM/SEC has been the worst-affected by the slowdown in
rural and in urban India?
• In the long run, what is the potential for FMCG in India? It is
common to compare per-capita consumption vs Indonesia, China,
Philippines, etc., but factors such as cultural habits and customs
may result in differences. Maybe a better comparison would be
one of SEC A with the rest of India. Can you share some data of
this kind?
What will drive growth in a Soaps

well penetrated category, • This seems to be a fairly penetrated category. What will drive
and what are the formats of volume growth at a category level here? Are there still
the future?
consumers who do not bathe daily? If so, please share some data
on this, for us to be able to estimate the category size in a
scenario where all Indians bathed daily.
• We see a lot of niche brands or private labels playing at the super
premium-end of soaps. Hand-made soaps with very innovative
fragrances/ingredients are available and occupy a non-trivial
share of shelf in modern trade. Why is it that you are not present
in this subcategory? (Dove and Pears, though premium brands,
are very different from a sensorial and perception point of view
vs these super premium soaps)
• Since the past decade, we have been expecting India to slowly
transition, from being a bar-soap market into a body-wash
(liquid) market, like other developed countries. However, the
progress on this path seems much slower than anticipated. What
is body wash as a percentage of personal wash today and how
does this compare with the number 10 years ago? What is the
past 10-year Cagr for this category? Would not pursuing

premiumisation via premium handmade soaps (which sell up to
5x the price of Dove) be a better route than via body-wash?
• With a 40-45% market share in the soaps industry, you are the
market leader. However, there are other strong players too, such
as GCPL (Godrej No1, Cinthol) Wipro (Santoor) and Reckitt
(Dettol). Against this backdrop, how do you plan to grow market
share? What has been the change in your market share over the
past few years and who have been the gainers and losers?
• In line with palm oil deflation, you have taken ~6% price cut in
soaps recently, though in some SKUs it is as high as 20-30%.
Please explain the thought process behind such a big skew in
pricing? Also, please inform us of the geographies where the
price cut has been higher than national average.
What will drive company Fabric care

margins, as fabric care • You have performed exceedingly well in this segment, growing
margins mature? your profit by 3.6x in 7 years. Now with Ebit margin at a
respectable 16-17%, do you think that the pace of profit growth
will come off?
• In the premium segment, we estimate that your market share is
~85% and you have gained significant share in this segment in
the past few years. While the segment would be a fast growing
one due to premiumisation, it seems the headroom for further
market share gains is limited. In light of this, would your sales
growth see a slowdown?
• In the premium-end, Surf has clearly outperformed Ariel,
whereas in the mid-tier, Tide is larger than Rin. What are the
learnings here? Why are you so successful in one segment, but
not so much in another?
• What has been your experience with new categories such as
fabric conditioners? Has the adoption rate or frequency of use
suffered due to the slowdown? What is the current size of that
category and how do you see it evolve? What percentage of
fabric care market can fabric conditioners be by 2030?
• You have been the pioneer of liquid detergents in India. What
value do consumers see in liquids vs powders? Do they entail
better cleaning or better clothes care or some other additional
benefit? Why is liquid detergent better for HUL? Are the sales per
use the same? How do the profit margins pan out?
• There has been a substantial margin expansion in laundry (home
care margin expansion up 700bps over the past three years).
What has driven this margin expansion? How much of this would
you attribute to benign input costs?
What is the story behind Hair care

the 560bps market share • You have witnessed a 560bps increase in market share over the
gain, and what is the future past seven years in this category. What is the story behind these
of hair conditioners in a
hair oil using country? numbers?
• Dove is the largest hair care brand in the country. Tresemme too
has been performing well. The premiumisation witnessed in hair
care in the past one decade is unlike any other category’s. What,
in your view, is the reason for this?
• There is a huge difference between the pricing of a shampoo
sachet and a shampoo bottle. Such a big difference is not seen in
any other category. Would up-trading not hasten if bottle prices
are slightly reduced and sachet prices increased, so that overall
price change is flat?
• What has been your experience in the hair conditioners category?

What are the growth rates and what is the category size
compared to the shampoo category? Do you believe that this can
become a considerably large category in India, given that Indians
use hair oils for conditioning?
• What are the levers for growth in shampoos, with penetration at
over 90%? What is the average number of times a month Indians
use shampoo and how does that compare with other Asian
countries?
Is there a certain level of Oral care

market share loss that is • HUL’s performance over the past ~15 years has been quite
acceptable? lacklustre in oral care, with market share falling from ~30% to
the high teens currently. What is the reason for this fall?
• You seem to have given up on Pepsodent as a brand. Pepsodent
was a major disruptor for Colgate sales in the 1990s, but has
steadily lost steam thereafter. What led to the decline of the
brand?
• What is the company’s position on oral-care market share? Is a
certain level of market-share loss acceptable?
• What is the acceptance rate of Ayush toothpastes? Given that the
oral-care industry has seen a large shift to the naturals/Ayurvedic
segment, how do you plan to play in that segment?
• You do not participate in the mass market, in the oral-care
division; this is in deviation to your overall strategy of straddling
the price pyramid. Why is this category an exception?
With per capita Skin care

consumption 1/25th of • You have affirmed that you are a socially-responsible company.
Thailand, why isn’t skin In light of this, how do you justify a brand like Fair and Lovely
care growing faster?
(FAL), which is seen by some sections of the society as
perpetrating harmful stereotypes?
• FAL is the largest brand within the skin-care portfolio. Has its
contribution reduced over the past decade? By how much?
• You have, in the past, given the example of Thailand, where per-
capita skin-care consumption is 25x that of India. However, your
growth in skincare in the past decade has not been materially
different than the overall company’s. What is the reason that the
growth opportunity is not playing out as expected?
• Do we see climate as a detriment to skincare growth. The overall
temperate climate in India means that moisturising needs of
Indians are as much as those living in colder climates.
• What sub segments of skin care (apart from fairness) do we see
emerging and becoming large in the next decade. Anti-ageing
was anticipated as the next big thing, but it has not really caught
on. Your comments on this subject please.
• Please give your viewpoint on the competitive landscape of skin
care. Unlike laundry or hair care, your presentations do not
mention any significant market share gains in the category.
Is the fragmented nature of Beverages (Tea/coffee)

the tea industry reducing in • In tea, you have gained 230bps market share over the past
reality? seven years. Has the gain come at the expense of large national
players or from the long tail?
• Conventional wisdom states that the fragmented nature of the
tea industry will change and there will be a gradual consolidation.
Have you seen that happen in the past? If so, please share some
data on this.
• There are two possible drivers for growth in tea: (1) shift from
loose to branded; (2) market share gain within branded. Which
do you think has been the bigger growth lever for you in the
past? Which lever do you see playing a bigger role in the future?
• In recent times, lower-end brands such as Tazaa have grown
faster. This is different from the experience in other categories
such as soaps and detergents, where it is the mass market
brands that are facing the heat. Why is the experience different
in tea vs other categories?
• The coffee market size in India is very small, at ~1/6th of the tea
industry. Is the coffee segment growing faster than tea? If so, is
the growth coming more from new users or from increased
frequency of use? If it is the former, is it from new geographies
that are not traditionally coffee-drinking areas?
• In developed countries, coffee has evolved into many different
formats, such as Nespresso and K-cups. How do you see the
evolution of the industry panning out in India?
• Why has coffee always remained a mainly two-player market? Do
you believe the industry is ripe for disruption, sitting on high
gross margins?
How do you manage a cold Frozen desserts and ice-creams

chain across a wide town • Can you explain the work that went behind increasing the town
coverage? network coverage by 6 times in five years, as cold chain is the
most critical factor in this segment?
• The ice cream business is fragmented and regional/local brands
have a material salience. Are you witnessing consolidation of the
industry in favour of large brands?
Why are you present in Processed foods

categories that will remain • Jams category in India, after so many decades, is still fairly
small even in the long run, small, at less than Rs10bn. Growth rates too are not particularly
and absent in categories
with scale? exciting. What was the reason for choosing this category, given
that it is not a large foods category in India presently and is
unlikely to even become one in the long term?
• Soups and ketchup tell the same story; ketchup is dominated by
HoReCa and soups is too small. The overarching question in
foods therefore is: What is the choice behind these categories
that will remain small as a percentage of the foods industry, even
in the long term?
Which driver has been Costs and margins

dominant in margin • You have a cost-saving target of 7% of sales every year. We
expansion – understand that although a large part of this is re-invested in the
premiumisation, cost
efficiency, or the spread of business, 7% is itself a very large number. At this rate, in 11
pricing over cost inflation? years, your total cost saving would be more than the total cost in
the business (total cost as a percentage of sales is ~75%).
Please elaborate on this calculation.
• Can you please give a few concrete examples of your aforesaid
cost efficiency programmes.
• Please give a breakdown of the levers of margin expansion in the
past 3 years, between premiumisation, cost efficiency programs
and the spread of pricing over input cost inflation.
• You have a target of modest margin expansion every year and
have delivered well on this mark. What are you doing differently
vs other companies, given that no other FMCG company has such
a consistent track record?
• Do you think that with fabric care Ebit margins now at a

respectable 16-17% (fabric care contributed ~200bps of the
~400bps Ebitda margin expansion over the past three years), the
pace of margin expansion will slow down? If not, what other
driver can replace fabric care margin expansion, which probably
will not be able to sustain the past pace of over 200 a year?
• If you keep increasing margins, will not the segment become too
attractive for disruption? Beyond a point, will it not be better to
cap margins, but accelerate sales growth?
What changes in the supply Supply chain

chain have you effected, • Last we heard, a few years ago, your direct distribution was
post GST, and what benefits ~3.3m outlets. However, given that the universe is ~10m, there
did you accrue from these?
is scope for increase. Are you comfortable with the 3.3m or have
you plans/do you plan to increase it further?
• You have been running a pilot on moving goods directly from the
warehouse to the retail point (i.e. bypassing the distributor) in
some cases. Please explain the benefits of doing this. And what
has changed to make this possible now, i.e. if there were clear
benefits, what prevented you from taking this step earlier?
• After demonetisation and GST implementation, wholesale trade
has been weak. What measures have you taken to ensure that
stock levels at retail stores (for indirectly covered stores) are
maintained?
• In what aspects are your analytics and IT systems superior at the
front-end compared with other FMCG companies?
• There are certain apps such as Udaan, Peelworks, Jumbotail and
shopkirana that supply goods to the retailer. Do you view these
as an opportunity or a threat?
• Please explain how you have changed your factory and
warehouse infrastructure post GST implementation and how this
has benefitted you. Are the savings mainly in the form of lower
freight cost or lower warehousing costs?
• HUL is committed to making 100% of its plastic packaging
reusable, recyclable or compostable, by 2025. Further, 25% of
the plastic to be used by HUL is expected to come from recycled
sources by 2025. What changes will that require in your supply
chain? What do you estimate will be the annual cost of these
changes?
Competition has been Competition

benign in the past few • How would you describe the competitive activity in the market in
years; is there a risk of it the past few years? Would you characterise it as rather benign,
becoming more intense if
demand revives? given that not just yours but almost all companies have
witnessed margin expansion? (The high level of promotional
activity is more than offset by tax rate cuts and benign input
costs). One cannot say that competitive intensity is high and at
the same time, the industry as a whole witnesses margin
expansion. What is the missing link here, in your opinion?
• Do you think that companies have decided to at least clock good
bottom-line growth in an environment where top-line growth is
hard to come by?
• Growth in industry ad spends over the past 2 years has been
weak at 9%, flat as a percentage of sales. Is this a result of the
slowdown?
• Do you expect competitive intensity to pick up if the consumption
scenario improves? In that case, what measures will you take to
mitigate yourself against the ill effects of the same?
• You had a price war with P&G in CY04 and FY11. However, it has
now been almost 9 years since the last price war. What do you
think is the reason for this change in behaviour by P&G?
• If you had to take a longer term view of history, say the past 20
years, what in your view has changed in terms of local/regional
competition? About a decade ago, a lot was heard from HUL on
the competition from these brands, but there has not been much
noise since the past 3-5 years. Why has the threat from small
regional brands ebbed? Is it because of demonetisation and GST
or is there some other factor as well? If it is only the former, then
do you see these factors ebbing over time and regional
competition re-emerging?
How do you protect yourself Disruption

against e-commerce or • In developed markets, private labels account for ~15-20%
modern trade launching market share. India is just embarking upon this journey, but in
private labels and
negotiating for better modern retail chains like the Future Group and Reliance and now
margins? even D-Mart, we see this playing out. Do you see India following
the developed markets’ path in the long run or will it be different
for some reason?
• Your distribution is one of your main strengths and one of your
key success factors. However, e-commerce acts like an equaliser
for distribution. A small upstart brand can target anyone with a
smartphone the same way a 100-year old brand can. The moat
created by your physical distribution infrastructure does not hold
good in e-commerce. In such a situation, will not your
competitiveness erode, as and when e-commerce becomes big?
• As modern trade and ecommerce salience grow, they will have
better bargaining power and negotiate for higher margins. Also,
as this channel requires credit, working capital will suffer. What
drivers do you have, if any, to offset the negative effects of these
factors?
• As modern trade and ecommerce grow, GT will start declining at
some point in time. Some companies are already witnessing such
a phenomenon. This would result in GT distributors witnessing a
structural decline in their sales. As it is difficult to reduce their
costs at the same rate, their margins would take a hit. In such a
scenario how would you ensure that distributor RoI remains
remunerative?
On what parameters is the Organisation / HR

senior management • Please briefly explain the organisation structure of your company.
evaluated? We understand that certain roles such as brand development are
undertaken at the Asia level. How does this tie in with the WIMI
strategy?
• Your employee cost in the past 5 years has seen a Cagr of only
4%. You do not have any material ESOP plan either. The increase
in the number of shares over the past 5 years has been only
0.1%. Considering these, how do you keep your employees
motivated to deliver a good performance?
• What is the senior management evaluated on? Is it volume
growth, market share, profit growth or a combination of these?
Or is it some other parameters altogether? Has there been any
change in the evaluation framework in the past few years?
Annexure 1 – Categorywise and brandwise estimates

Figure 137: Category wise estimates
(Rs m) FY19 Growth FY20 Growth FY21 Growth FY22
Soaps (incl HW and BW) 68.0 -3.2% 65.8 5.1% 69.2 6.1% 73.4
Detergents 102.3 9.2% 111.7 9.2% 122.0 9.2% 133.2
Shampoos 29.5 9.0% 32.2 10.5% 35.5 11.0% 39.4
Hair oils 3.5 17.0% 4.1 20.0% 4.9 20.0% 5.9
Oral care 12.0 0.0% 12.0 0.0% 12.0 0.0% 12.0
Skin care 47.0 9.0% 51.2 9.0% 55.8 10.5% 61.7
Colour cosmetics 11.3 9.0% 12.3 12.0% 13.8 13.0% 15.5
Deo 2.0 9.0% 2.2 10.0% 2.4 11.0% 2.7
Toilet / Floor Cleaner 3.0 11.0% 3.3 12.0% 3.7 13.0% 4.2
Dish wash 18.0 9.0% 19.6 9.0% 21.4 10.0% 23.5
Tea 34.7 10.0% 38.2 9.0% 41.6 9.5% 45.5
Coffee 9.4 9.5% 10.3 8.0% 11.1 8.0% 12.0
Frozen Desserts 8.9 13.0% 10.1 10.0% 11.1 9.0% 12.1
Jams/ ketchups 7.5 11.0% 8.3 10.0% 9.2 9.0% 10.0
Packaged soups, Noodles / Other foods 10.2 5.0% 10.7 9.0% 11.6 9.0% 12.7
Water purifier 4.3 12.0% 4.9 12.0% 5.4 14.0% 6.2
Others 5.1 -8.0% 4.7 9.0% 5.1 10.0% 5.6
Total standalone 376.6 6.6% 401.4 8.6% 435.8 9.1% 475.6
GSK sales (incl other operating income) 57.5 9.7% 63.1
Implied subsidiaries 16.5 -6.3% 15.5 2.7% 15.9 6.9% 17.0
Total consolidated 393.1 6.1% 416.9 22.1% 509.2 9.1% 555.7
Source: IIFL Research. Note: Total consolidated sales will not match with the revenue on page 1/96 as the former includes other operating
income
Figure 138: Brand wise estimates

(Rs m) FY19 Growth FY20 Growth FY21 Growth FY22
Lifebuoy 23.0 -5.5% 21.7 4.0% 22.6 4.5% 23.6
Lux 18.4 -5.4% 17.4 3.0% 17.9 4.0% 18.7
Dove 19.3 8.0% 20.8 11.0% 23.1 12.0% 25.9
Pears 5.8 -3.0% 5.7 6.0% 6.0 7.0% 6.4
Breeze 4.6 -7.0% 4.3 2.0% 4.4 3.0% 4.5
Active Wheel 31.5 7.0% 33.7 7.0% 36.0 7.0% 38.5
Sunlight 5.5 6.0% 5.9 6.0% 6.2 6.0% 6.6
Rin 18.2 -1.0% 18.0 0.0% 18.0 5.0% 18.9
Surf Excel 39.9 15.5% 46.1 14.5% 52.7 12.0% 59.1
Comfort 3.0 15.0% 3.5 15.0% 4.0 15.0% 4.6
Clinic Plus 10.1 9.0% 11.0 9.5% 12.0 9.5% 13.1
Sunsilk 5.6 9.0% 6.1 9.5% 6.7 10.0% 7.3
Clear 1.1 13.0% 1.2 13.5% 1.4 14.0% 1.6
TreSemme 1.7 14.0% 1.9 14.0% 2.2 14.0% 2.5
Indulekha 4.0 17.0% 4.7 20.0% 5.6 20.0% 6.7
Close Up 8.7 1.0% 8.8 1.0% 8.9 1.0% 9.0
Pepsodent 2.7 -3.0% 2.6 -3.0% 2.5 -3.0% 2.4
Fair & Lovely 24.4 8.5% 26.5 8.5% 28.7 10.0% 31.6
Ponds 11.6 8.5% 12.5 8.5% 13.6 10.0% 15.0
Vase Line 6.3 11.5% 7.1 11.0% 7.9 12.5% 8.8
Lakme 13.0 9.0% 14.1 12.0% 15.8 13.0% 17.9
Elle 18 0.8 9.0% 0.8 12.0% 0.9 13.0% 1.0
Axe 1.5 9.0% 1.6 10.0% 1.8 11.0% 2.0
Domex 2.5 11.2% 2.8 12.4% 3.1 13.6% 3.5
Vim 18.0 9.0% 19.6 9.0% 21.4 10.0% 23.5
Brooke Bond 31.9 9.9% 35.1 8.8% 38.2 9.4% 41.7
Lipton 2.8 10.5% 3.1 10.0% 3.4 10.0% 3.7
Bru 9.4 9.5% 10.3 8.0% 11.1 8.0% 12.0
Kwality Walls 8.5 12.8% 9.6 9.7% 10.5 8.7% 11.4
Magnum 0.4 17.0% 0.5 15.0% 0.6 15.0% 0.7
Kissan 7.5 11.0% 8.3 10.0% 9.2 9.0% 10.0
Knorr 4.0 10.0% 4.4 11.0% 4.9 12.0% 5.5
Lever Ayush 1.9 8.0% 2.0 8.0% 2.2 10.0% 2.4
Pure It 4.3 12.0% 4.9 12.0% 5.4 14.0% 6.2
Others 27.2 0.0% 27.2 7.3% 29.2 8.1% 31.5
Total standalone 376.6 6.6% 401.4 8.6% 435.8 9.1% 475.6
GSK sales (incl other operating income) 57.5 9.7% 63.1
Implied subsidiaries 16.5 -6.3% 15.5 2.7% 15.9 6.9% 17.0
Total consolidated 393.1 6.1% 416.9 22.1% 509.2 9.1% 555.7
Source: IIFL Research. Note: Total consolidated sales will not match with the revenue on page 1/96 as the former includes other operating
income
Annexure 2 – Innovations
Figure 139: Innovations
Personal
Fabric Care Hair Care Skin Care Oral Care Foods & Refreshments Others
wash
Dove shampoo and
FY08
conditioners
3 roses Mindsharp,
Kissan Amaze MFD,
FY09 Rin matic
Knorr ready to cook
range
Brooke Bond
Lakme studio - a Pureit Compact, Cif
Sehatmand tea, Lipton
FY10 premium salon multi purpose
Clear Green, Knorr
format cleaner
Soupy noodles,
Vaseline skin cream,
male grooming,
Kissan fruit and soya
Comfort fabric premium jelly and
milk, mayo based
FY11 conditioners, OK lip formats, Lakme Sure anti perspirants
spreads and Nutrismart
Bar perfect radiance skin
malted food drinks
lightening compact
and foundation
Dove body lotion
Rin perfect shine range, Lakme
FY12
fabric whitener Absolute long wear
make-up range
Lux women's
TRESemme range of Bru exotica Guatemala deodorant, Vim anti
Closeup
shampoos and conditioners,Lakme Eyeconic FDC, Fruttare Ice candy germ bar and
FY13 Eucalyptus
Dove elixir range of hair Kajal in three variants - monthly tub pack,
Mint
oils mango, grape and litchi Pureit Advanced and
Pureit Marvella UV
Lakme youth infinity
Pureit Marvella Slim
Surf Excel skin cream, Lakme
FY14 RO, Pureit Ultima
detergent liquid Complexion Care
UV+ RO
cream
Pond's men Closeup
facewash and Diamond
Axe Signature
Toni & Guy haircare moisturisers, Lakme attraction -
FY15 perfume spray, Vim
portfolio Absolute hydration premium
250gm SKU
range, Lakme gloss whitening
range variant
Lever Ayush range
Lever of products, F&L BB
Lever Ayush range of Lever Ayush
Ayush cream, Lakme Magnum Choco Pureit Ultima RO+UV
FY16 products, Indulekha hair range of
range of Mousse foundation, Brownie with Oxytube
oils products
products Lakme Absolute eye
liner
Baby Dove range,
Baby Dove Surf Excel Matic Natural variants in Clinic International flavours in
FY17 Natural variants in
range liquids Plus, TRESemme soups
F&L
Vim anti smell,
Domex toilet
Kissan Tropical blast,
cleaning powder,
FY18 Rin matic liquid Indulekha shampoos Kwality walls Oreo
Axe ticket, Pureit
variant
mineral RO range,
Pureit air purifier
Flexipacks in
Brylcreem exclusive range
detergent liquids
FY19 of men's grooming products Pureit Copper+
and fabric
for hair and beard
conditioners
Annexure 3 – The Billionaire Club

Figure 140: HUL’s +Rs5bn club
Bn brands Rs20bn+ Rs10bn+ Rs5bn+
Rin, Surf, Wheel, F&L, Brooke Bond,
FY11
Lifebuoy, Lux
FY13 Lifebuoy, Lux, Dove, Ponds, Clinic
Plus
Closeup, Pears, Vaseline, Red Label,
FY14 Lifebuoy, Lux, Dove, Ponds, Clinic
Lakme, Kissan, 3 Roses, Bru
Plus, Vim
Rin, Surf, Wheel, F&L, Brooke Bond, Bru, Closeup, Lakme, Vaseline,
FY15 Lux, Dove, Ponds, Clinic Plus, Vim
Lifebuoy Pears, Kissan
Lifebuoy
Lifebuoy
Sunsilk, Sunlight, Pears, Bru,
Surf, Wheel, F&L, Brooke Bond, Lux, Dove, Ponds, Clinic Plus, Vim,
FY19 Closeup, Kissan, Kwality Walls,
Lifebuoy Lakme, Rin
Vaseline
Source: Company, IIFL Research; Note: In some years, when the Rs20bn+ has not been disclosed, it may be possible that some brands denoted
in the Rs10bn+ category had already crossed the Rs20bn mark.
Annexure 4 – BCG Matrix

Figure 141: Most of HUL’s brands are cash cows
Annexure 5 – Porter’s five forces model

Figure 142: Low bargaining power of buyers and suppliers, low threat of substitutes
Threat of substitutes: Low
 HUL has market leading positions in

highly penetrated categories such as
soaps, detergents, shampoos, oral care,
skin care, tea, among others.
 These are mostly daily use categories
and have high penetration levels even
globally.
Bargaining power of
buyers: Low
Rivalry among competitors:  In most categories,
Bargaining power of Moderate there is a plethora of
brands available for the
suppliers: Low  HUL’s main competitors are MNC consumers. However,
FMCG companies such as P&G, HUL has high market
 HUL is the market leader Colgate, GCPL, Dabur, as well as shares in most
in large categories such regional players categories and over the
as soaps, detergents, years consumers have
 Even though HUL commands
skin care, shampoos, tea, built some level of brand
dominant position in most
among others. categories it is present in, we have affinity
1
 The scale of HUL’s witnessed profitability erode in  Moreover, as buyers are
operations provides high times of price wars. extremely fragmented
bargaining power to HUL (HUL would have ~1bn
 However, the last price war was
with its suppliers. end consumers) they are
witnessed in FY11 and the
 Also, association with a competition has remained largely unable to exercise
big and reputed company stable. buying power
such as HUL results in  Further, HUL’s product portfolio is  A HUL distributorship is
better credit terms for its considered a good
very wide compared to
suppliers which are sought after business
competition, which gives it much
eventually passed on to more flexibility to tackle increased with ~20% ROI.
HUL. competitive intensity. Moreover, HUL has
thousands of distributors
and it has been seen
that they are not able to
dictate terms to HUL
Threat of new entrants: Moderate
 Even though FMCG industry typically
requires low initial capital investments, HUL
over time has built strong brands through
continuous investments.
 With a direct reach of ~3mn outlets, HUL’s
distribution coverage is extensive in terms of
reach and robust in terms of quality. Both
aspects are difficult to replicate.
 With growing salience of MT and e-
commerce, threat of private labels and new
brands, however has increased.
Annexure 6 – HUL’s manufacturing footprint

Figure 143: HUL’s Pan-India manufacturing footprint
Annexure 7– Profile of the Board of Directors

Name and Designation Description
Sanjiv Mehta Sanjiv Mehta is the Chairman and Managing Director of HUL since 30th June, 2018.
He has been leading Unilever’s business in India and South Asia since October 2013
Chairman and
as CEO and Managing Director, HUL and Executive Vice President, Unilever, South
Managing Director
Asia. M. Mehta was appointed President, Unilever - South Asia, and is a member of
the Unilever Leadership Executive, effective May 2019.
Mr Mehta has been with Unilever for 26 years and, during the last 17, has led
businesses in different parts of the world. He has been the Chairman and Managing
Director of Unilever Bangladesh (2002-06), Chairman and CEO of Unilever Philippines
Inc. (2007-08) and Chairman of Unilever - North Africa & Middle East (2008 –
September 2013).
Mr Mehta chairs the FMCG Committee of FICCI as well as the national committee on
MNCs of CII. He also chairs Xynteo's 'India 2022', a purpose-driven business coalition
of top Indian and MNC companies formed with an intention to solve some of the
intractable environmental and social issues, and is working to create a new model of
growth. He co-chairs the Advisory Network to the High Level Panel for a Sustainable
Ocean Economy. Mr Mehta is a member of the India Advisory Board of Harvard
Business School and a Director on the Board of The Indian School of Business. He is
also a member of the Board of Directors of Breach Candy Hospital Trust, Mumbai.
Mr Mehta is a Chartered Accountant from The Institute of Chartered Accountants of
India. He has also completed the Advanced Management Programme at Harvard
Business School.
Srinivas Phatak Srinivas Phatak has been with Unilever for 20 years and worked extensively in India
Executive Director, and different parts of the world. His experiences cover all aspects of the finance
Finance & IT and Chief function. He has been Vice President Category Finance for Deodorants and Oral Care
Financial Officer (2012-2013), Vice President Supply Chain Finance Americas (2014-2016) and Head of
Financial Shared Services for Unilever (2017).
Mr Phatak is a Chartered Accountant (ICAI – 1996) and Cost & Works Accountant
(ICWAI – 1996).
Pradeep Banerjee Pradeep has held a series of assignments in Supply Chain, Research & Development
Executive Director, and Categories at Hindustan Unilever (HUL). He became the Vice President -
Supply Chain Technical (Home and Personal Care) in 2003 and later moved to the UK in 2005 as
Vice President, Global Supply Chain for Personal Care Category. He has also served as
the Vice President for Global Procurement in Singapore.
He was appointed Executive Director, Supply Chain of the Company in March 2010.
Mr Banerjee leads Unilever Nepal as the Chairman. He is also a member of the HUL
Risk Management Committee.
Mr Banerjee holds a Bachelor’s Degree in Engineering (Chemical) from IIT Delhi.
Aditya Narayan Aditya Narayan (62) began his career as a Management Trainee with ICI India (now
Independent Director Akzo Nobel India) in 1973. He grew through diverse functions and businesses
including a role as a Corporate Planning Manager at ICI Group. with HQs in London.
He served as the Managing Director of ICI India during 1996-2003 and then as its
Non-Executive Chairman over 2003-2010. He also served as the President and CEO of
BHP Billiton India during 2005-2009.
Mr Narayan is a B. Tech. from IIT Kanpur and also has formal qualifications in Law.
He was a Fellow in Interdisciplinary Sciences at the University of Rochester, USA. He
was a Commonwealth Scholar at the Manchester Business School in 1991 and a
Fellow at the Aspen Institute, Colorado, USA in 1998.
Mr Narayan joined the Board of the Company as an Independent Director in 2001.
He is the Chairman of the Audit Committee and a Member of the Nomination and
Remuneration Committee and Corporate Social Responsibility Committee of the
Company.

S Ramadorai S Ramadorai (69) has been in the public service since February 2011, currently acting
Independent Director as Chairman of National Skill Development Agency (NSDA) in the rank of a Cabinet
Minister. The NSDA is a newly formed autonomous body which will coordinate and
harmonise the skill development efforts of the Government and the private sector,
to achieve the skilling targets of the nation. He is also Chairman of the National Skill
Development Corporation (NSDC), a Public Private Partnership arm of the
Government of India for creating large, for-profit vocational institutions. Mr
Ramadorai continues as the Vice Chairman of Tata Consultancy Services.
In recognition of Mr Ramadorai’s commitment and dedication to the IT industry he
was awarded the Padma Bhushan, India’s third highest civilian honour, in January
2006. In April 2009, he was awarded the CBE (Commander of the Order of the British
Empire) by Her Majesty Queen Elizabeth II for his contribution to the Indo - British
economic relations.
Mr Ramadorai’s academic credentials include a Bachelor degree in Physics from
Delhi University, a Bachelor of Engineering, degree in Electronics and
Telecommunications from Indian Institute of Science, Bengaluru and a Master
degree in Computer Science from the University of California, USA. Mr Ramadorai
attended the MIT Sloan School of Management’s highly acclaimed Senior Executive
Development Programme in 1993.
Mr Ramadorai joined the Board of the Company as an Independent Director in May
2002. He is a Member of the Audit Committee and the Chairman of the Nomination
and Remuneration Committee of the Company.
OP Bhatt OP Bhatt (63) is the former Chairman of SBI (State Bank of India). In the 36 years that
Independent Director Mr Bhatt served at SBI, he worked on several important national and international
assignments. Mr Bhatt led SBI through challenging times by capitalising on the bank’s
strengths. As Chairman of SBI, he was heading the largest financial group in India,
comprising, in addition to SBI, seven associate banks, five international banking
subsidiaries and nine financial services companies in India. Under his leadership, SBI
rose on the Global List rankings of Fortune 500.
Mr Bhatt was nominated ‘Banker of the Year’ by Business Standard and CNN – IBN
Indian of the Year for Business in 2007. Mr Bhatt was Chairman of the Indian Banks’
Association. He was Chairman of the Indian Banks’ Association. He has also been a
part of India’s eco-diplomacy as member of the Indo - US, Indo - Russia and Indo-
French CEOs Forum. Presently, he is the Governor on the Board of Centre for
Creative Leadership, USA.
Mr Bhatt holds a Graduate degree in Physics and a Post Graduate degree in English
literature (Gold Medal).
Mr Bhatt was appointed an Independent Director on the Board of the Company in
December 2011. He is a Member of the Audit Committee and Nomination and
Remuneration Committee of the Company. He is the Chairman of the Stakeholders’
Relationship Committee and Corporate Social Responsibility Committee of the
Company.

Dr Sanjiv Misra Dr Sanjiv Misra (66) is a retired Indian Administrative Services (IAS) officer and a
Independent Director former member of the 13th Finance Commission, a constitutional position with the
rank of a Minister of State.
Prior to joining the Finance Commission, Dr Misra has served in a wide range of key
positions in the Federal and State Governments, including as Managing Director of
the Gujarat Industrial Development Corporation and stints at senior levels in the
Government of India in the Cabinet Office, the Ministry of Petroleum, the Ministry of
Health & Family Welfare and the Ministry of Finance. He served as a Secretary in the
Ministry of Finance till his superannuation.
Dr Misra has represented India in various international conferences, seminars and
negotiations. Till recently, Dr Misra was a Member of the Advisory Council of the
Asian Development Bank Institute, Tokyo. He was also a member of the Committee
on Fiscal Consolidation (Kelkar Committee) set up by the Finance Minister in August
2012 to chart out a road map for fiscal consolidation for the Indian economy.
Dr Misra graduated in Economics from St Stephen’s College, Delhi. He has a Master’s
degree in Economics from the Delhi School of Economics, a Master’s degree in Public
Administration from John F Kennedy School of Government, Harvard University, USA
and a Ph. D. from the Jawaharlal Nehru University, New Delhi. In recognition of
exceptional academic strengths and leadership qualities, Dr Misra was designated as
Lucius N Littauer Fellow of 1987 at Harvard University.
Dr Misra was appointed as an Independent Director on the Board of the Company in
April 2013. He is a Member of the Audit Committee and Nomination and
Remuneration Committee and Corporate Social Responsibility Committee of the
Company.
Kalpana Morparia Ms Morparia also holds the responsibility for the Service Groups operating in India,
Independent Director including Global Research, Finance, Technology and Operations. Internationally, Ms
Morparia is a member of JP Morgan’s Asia Pacific Management Committee.
Prior to joining JP Morgan India, Ms Morparia served as Vice Chair on the Boards of
ICICI Group Companies. She was a Joint Managing Director of ICICI Group from 2001
to 2007. She had been with the ICICI Group since 1975.
A graduate in law from Bombay University, Ms Morparia has served on several
Committees constituted by the Government of India. She has been recognised by
several International and National media for her role as one of the leading women
professionals. She is also a Member of the Governing Board of Bharti Foundation.
Ms Morparia was appointed as an Independent Director on the Board of the
Company with effect from 9th October, 2014. She is also a Member of the Audit
Committee and Corporate Social Responsibility of the Company.
Kalpana Morparia was appointed as an Independent Director on the Board of the
Company with effect from 9th October, 2014. She is also a member of the Corporate
Social Responsibility Committee of the Company.
Leo Puri Until recently, Mr Puri was the Managing Director of UTI Asset Management
Independent Director Company. Prior to joining UTI Asset Management Company in August 2013, Mr Puri
was Director at McKinsey & Company until 2007, and has also been a Senior Advisor
to the Firm. He was a Managing Director at Warburg Pincus, a leading Private Equity
Firm, from 2007 to 2011. Earlier in his career he worked in the UK, US and Singapore
with A.T. Kearney, Spicer & Oppenheim and Lloyds Bank.
In the past, he has also served as an Independent Director in companies including
Max New York Life Insurance Company, Infosys and Bennett Coleman & Co.
Annexure 8– Management profile

Sanjiv Mehta Sanjiv Mehta is the Chairman and Managing Director of HUL since 30th June, 2018.
He has been leading Unilever’s business in India and South Asia since October 2013
Chairman and
as CEO and Managing Director, HUL and Executive Vice President, Unilever, South
Managing Director
Asia. M. Mehta was appointed President, Unilever - South Asia, and is a member of
the Unilever Leadership Executive, effective May 2019.
Mr Mehta has been with Unilever for 26 years and, during the last 17, has led
businesses in different parts of the world. He has been the Chairman and Managing
Director of Unilever Bangladesh (2002-06), Chairman and CEO of Unilever Philippines
Inc. (2007-08) and Chairman of Unilever - North Africa & Middle East (2008 –
September 2013).
Mr Mehta chairs the FMCG Committee of FICCI as well as the national committee on
MNCs of CII. He also chairs Xynteo's 'India 2022', a purpose-driven business coalition
of top Indian and MNC companies formed with an intention to solve some of the
intractable environmental and social issues, and is working to create a new model of
growth. He co-chairs the Advisory Network to the High Level Panel for a Sustainable
Ocean Economy. Mr Mehta is a member of the India Advisory Board of Harvard
Business School and a Director on the Board of The Indian School of Business. He is
also a member of the Board of Directors of Breach Candy Hospital Trust, Mumbai.
Mr Mehta is a Chartered Accountant from The Institute of Chartered Accountants of
India. He has also completed the Advanced Management Programme at Harvard
Business School.
Srinivas Phatak Mr Phatak has been with Unilever for 20 years and worked extensively in India and
Executive Director, different parts of the world. His experiences cover all aspects of the finance function.
Finance & IT and Chief He has been Vice President Category Finance for Deodorants and Oral Care (2012-
Financial Officer 2013), Vice President Supply Chain Finance Americas (2014-2016) and Head of
Financial Shared Services for Unilever (2017).
Mr Phatak is a Chartered Accountant (ICAI – 1996) and Cost & Works Accountant
(ICWAI – 1996).
Pradeep Banerjee Mr Banerjee has held a series of assignments in Supply Chain, Research &
Executive Director, Development and Categories at Hindustan Unilever (HUL). He became the Vice
Supply Chain President - Technical (Home and Personal Care) in 2003 and later moved to the UK in
2005 as Vice President, Global Supply Chain for Personal Care Category. He has also
served as the Vice President for Global Procurement in Singapore.
He was appointed as Executive Director, Supply Chain of the Company in March
2010. Mr Banerjee leads Unilever Nepal as the Chairman. He is also a member of the
HUL Risk Management Committee.
Mr Banerjee holds a Bachelor’s Degree in Engineering (Chemical) from IIT Delhi.
Dev Bajpai Dev Bajpai (52) has been a member of the Management Committee of HUL since
Executive Director, Legal May 2010 and was inducted on the Board of Directors of HUL as a Whole Time
& Corporate Affairs and Director with effect from January 2017.
Company Secretary Mr Bajpai is a Fellow Member of the Institute of Company Secretaries of India and
has a law degree from the University of Delhi. He completed an Executive Program
for Corporate Counsels at Harvard conducted by Harvard Law School.
He has 30 years of experience in diverse industries that include Automobiles, FMCG,
Hospitality and Private Equity, in the areas of Legal, Governance, Tax and Corporate
Affairs.
In the past, he has worked with Maruti Udyog, Marico, Indian Hotels Company and
ICICI Venture Funds Management Company. He has been part of Committees of
Apex Industry Organisations such as CII & FICCI. Dev has also represented the
Industry before Parliamentary Committees.

BP Biddappa Over the last 20+ years, Mr Biddappa has worked in a variety of roles starting off in a
Executive Director, factory in Orai (UP), then working in supervisory development, Corporate Learning
Human Resources and R&D. He has held global positions for Unilever - with Unilever Maghreb
(Casablanca), Unilever Bangladesh as HR Director and then in Unilever Asia,
Singapore as Vice President, Human Resources for the Supply Chain in Asia, Africa
and Russia.
Mr. Biddappa was appointed as the Executive Director-HR for HUL with effect from
February 1, 2013. He also leads HR for Unilever South Asia as Vice President, HR for
South Asia. Prior to joining HUL in 1992, Mr. Biddappa worked in consulting firms for
a little over two years.
Mr. Biddappa has a Bachelor’s Degree in Economics from Delhi University and an
MBA in HR from XLRI, Jamshedpur.
Priya Nair Priya Nair brings with her a diverse and rich experience including Consumer Insights,
Executive Director, Customer Development and Marketing. In her earlier roles, she has worked across
Home Care various brands such as Dove, Axe, Rexona, Closeup and Pepsodent.
As VP – Laundry, she led the entire detergents portfolio of HUL. Under her
leadership, the Laundry business has been able to win share on the core and lead
market development of emerging segments like Fabric Conditioners & Liquids, and
bring the business back to competitive growth. More recently, she led the launch of
HUL’s path breaking rural mobile marketing initiative ‘Kan Khajura Tesan’ which
received three Gold Lion awards at the 2014 Cannes Lions International Festival of
Creativity.
Sandeep Kohli Sandeep Kohli joined HUL in 1993 and worked across the Home & Personal Care
Executive Director, (HPC) and Foods businesses. In 2004, he moved to Philippines as the Head of
Beauty & Personal Care Marketing, Foods. In 2007-08, he became the Global Brand Director, Savoury based
in UK and moved on to lead Brand Development for Foods across China, South East
Asia and Australasia.
He joined the South East Asia and Australasia Leadership Team as Vice President,
Marketing Operations. In this role he successfully built programmes across
marketing, customer development, media and CMI. In his most recent role, he was
Vice President of Unilever in Myanmar, Cambodia & Laos, leading the Unilever entry
into this strategically important geography.
Mr Kohli completed his MMS from Jamnalal Bajaj Institute, Mumbai after graduating
with an MSc (Hons) in Mathematics and a BE (Hons) in Mechanical Engineering from
BITS Pilani.
Sudhir Sitapati Sudhir Sitapati was appointed Executive Director, Foods & Refreshment with effect
Executive Director, from July 1, 2018. He joined the company in 1999 and has worked on various roles in
Foods & Refreshment Customer Development and Marketing, most recent being the Executive Director,
Refreshment.
Before his appointment as the Executive Director, Refreshment. Mr. Sitapati was
Regional Category Vice President, Refreshment (South Asia & Africa), Unilever. He
brings a rich experience of working in diverse markets in Europe, South East Asia and
Africa in addition to India.
In 2017 Mr Sitapati was awarded the Young Alumni Achiever at his alma mater IIMA.
Srinandan Sundaram Over the past 18 years, Srinandan Sundaram has had stints spanning Customer
Executive Director, Development (CD) and Marketing across a number of categories. Mr Sundaram has
Sales and Customer held leadership roles in CD across General Trade and Modern Trade. Since 2009, He
Development has led several categories in the Personal Care business including Oral Care,
Deodorants, Hair Care and most recently Skin Care.
Company snapshot
Background: Hindustan Unilever (HUL) is India's largest fast-moving consumer-goods (FMCG)
company. It is a subsidiary of Unilever, with strong local roots in more than 100 countries across the
globe. Unilever has ~67% shareholding in HUL. It is mainly present in the Home & Personal Care and
Foods & Beverages categories. Its >35 brands spanning 20 distinct categories − such as soaps,
detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice
cream, and water purifiers − clearly emphasise that HUL is a behemoth in India FMCG. It has a plethora
of brands with strong brand equity & recall, including Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair &
Lovely, Pond’s, Vaseline, Lakmé, Dove, Pepsodent and Closeup .
Others, Domestic volume growth (%)

Food & 0% 15%
Refreshm
ents, 19% 10%
Personal 5%
care, 47%
0%
Home
care, 34% -5%
Revenue mix: FY19 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
FY17 FY18 FY19
PE chart EV/Ebitda
12m fwd PE Avg +/- 1SD 12m fwd EV/EBITDA Avg +/- 1SD
60.0
(x) (x)
52.0 40.0
44.0 33.0
36.0
26.0
28.0
19.0
20.0
12.0 12.0
Apr-08 Aug-10 Nov-12 Apr-15 Jul-17 Nov-19 Apr-08 Aug-10 Nov-12 Apr-15 Jul-17 Nov-19
Assumptions Management
Y/e 31 Mar, Consolidated FY18A FY19A FY20ii FY21ii FY22ii Name Designation
Personal care revenue growth 0.9 7.3 3.8 7.7 8.8
Home care revenue growth 2.5 10.7 9.2 9.2 9.2 Sanjiv Mehta CEO
A&P (% of sales) 11.9 11.9 11.9 12.0 12.0 Srinivas Phatak CFO
Financial summary
Income statement summary (Rs bn)
Revenues 348 386 410 498 543
Ebitda 75 89 103 134 153
Depreciation and amortisation (5) (6) (9) (10) (11)
Ebit 70 83 94 124 141
Non-operating income 4 6 7 12 13
Financial expense 0 0 (1) (1) (1)
PBT 73 88 100 135 153
Exceptionals 0 (2) 0 0 0
Reported PBT 73 87 100 135 153
Tax expense (21) (26) (27) (35) (40)
PAT 52 61 73 100 114
Minorities, Associates etc. 0 0 0 0 0
Attributable PAT 52 61 73 100 114
Ratio analysis
Per share data (Rs)
Pre-exceptional EPS 24.2 28.7 33.7 42.5 48.3
DPS 18.0 21.0 25.2 31.9 36.2
BVPS 33.6 36.3 39.7 63.0 67.8
Growth ratios (%)
Revenues 7.5 10.9 6.2 21.5 9.1
Ebitda 18.3 18.4 16.0 30.6 13.6
EPS 21.1 18.7 17.4 26.1 13.7
Profitability ratios (%)
Ebitda margin 21.6 23.0 25.1 27.0 28.2
Ebit margin 20.1 21.6 23.0 24.9 26.0
Tax rate 28.5 30.1 27.1 26.0 26.0
Net profit margin 15.0 15.7 17.8 20.1 20.9
Return ratios (%)
ROE 74.7 82.1 88.7 85.4 73.9
ROCE 102.7 116.0 121.3 115.3 99.8
Solvency ratios (x)
Net debt-to-equity (0.5) (0.5) (0.6) (0.8) (0.8)
Net debt-to-Ebitda (0.5) (0.4) (0.5) (0.9) (0.9)
Interest coverage NM NM NM NM NM
Balance sheet summary (Rs bn)

Cash & cash equivalents 35 38 51 121 136
Inventories 25 26 27 33 36
Receivables 13 18 16 25 30
Other current assets 24 22 23 28 31
Creditors 91 90 96 117 127
Other current liabilities 15 16 16 20 22
Net current assets (9) (3) 6 71 84
Fixed assets 49 51 49 48 46
Intangibles 1 1 1 1 1
Investments 29 27 27 27 27
Other long-term assets 3 4 4 3 3
Total net assets 73 80 87 149 161
Borrowings 0 1 1 1 1
Other long-term liabilities 0 0 0 0 0
Shareholders’ equity 73 79 86 148 159
Total liabilities 73 80 87 149 161
Cash flow summary (Rs bn)

Ebit 70 83 94 124 141
Tax paid (21) (25) (27) (35) (40)
Depreciation and amortisation 5 6 9 10 11
Net working capital change 8 (4) 4 6 2
Other operating items 0 0 0 0 0
Operating cash flow before 62 59 80 106 115
interest
Financial expense 0 0 (1) (1) (1)
Non-operating income 4 3 7 12 13
Operating cash flow after interest 65 62 86 117 127
Capital expenditure (8) (7) (8) (9) (10)
Long-term investments 10 2 0 0 0
Others 0 0 0 0 0
Free cash flow 66 56 78 108 117
Equity raising 0 0 0 52 0
Borrowings (3) 1 0 0 0
Dividend (47) (55) (65) (90) (102)
Net chg in cash and equivalents 17 3 13 70 15
Disclosure: Published in 2019, © IIFL Securities Limited (Formerly ‘India Infoline Limited’) 2019
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A graph of daily closing prices of securities is available at http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp, www.bseindia.com and

http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the “three years”
period in the price chart).
Name, Qualification and Certification of Research Analyst: Percy Panthaki(Chartered Accountant), Avi Mehta, CFA(PGDBM), Sameer
Gupta(PGPM)
The author of this note has in the past been an employee of Hindustan Unilever Ltd.
IIFL Securities Limited (Formerly ‘India Infoline Limited’), CIN No.: U99999MH1996PLC132983, Corporate Office – IIFL Centre, Kamala
City, Senapati Bapat Marg, Lower Parel, Mumbai – 400013 Tel: (91-22) 4249 9000 .Fax: (91-22) 40609049, Regd. Office – IIFL House, Sun
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Stock Broker SEBI Regn.: INZ000164132, PMS SEBI Regn. No. INP000002213, IA SEBI Regn. No. INA000000623, SEBI RA Regn.:-
INH000000248
Key to our recommendation structure
BUY - Stock expected to give a return 10%+ more than average return on a debt instrument over a 1-year horizon.
SELL - Stock expected to give a return 10%+ below the average return on a debt instrument over a 1-year horizon.
Add - Stock expected to give a return 0-10% over the average return on a debt instrument over a 1-year horizon.
Reduce - Stock expected to give a return 0-10% below the average return on a debt instrument over a 1-year horizon.
Distribution of Ratings: Out of 226 stocks rated in the IIFL coverage universe, 100 have BUY ratings, 8 have SELL ratings, 85 have ADD ratings
and 32 have REDUCE ratings
Price Target: Unless otherwise stated in the text of this report, target prices in this report are based on either a discounted cash flow valuation or
comparison of valuation ratios with companies seen by the analyst as comparable or a combination of the two methods. The result of this
fundamental valuation is adjusted to reflect the analyst’s views on the likely course of investor sentiment. Whichever valuation method is used there
is a significant risk that the target price will not be achieved within the expected timeframe. Risk factors include unforeseen changes in competitive
pressures or in the level of demand for the company’s products. Such demand variations may result from changes in technology, in the overall level
of economic activity or, in some cases, in fashion. Valuations may also be affected by changes in taxation, in exchange rates and, in certain
industries, in regulations. Investment in overseas markets and instruments such as ADRs can result in increased risk from factors such as exchange
rates, exchange controls, taxation, and political and social conditions. This discussion of valuation methods and risk factors is not comprehensive –
further information is available upon request.
Hindustan Unilever: 3 year price and rating history Date Close Target Rating Date Close Target Rating
price price
(Rs) Price TP/Reco changed date price price
(Rs) (Rs)
2,500 (Rs) (Rs)
25 Sep 2017 1255 1270 ADD
14 Nov 2019 2081 2250 ADD
2,000 19 Jul 2017 1158 1225 ADD
23 Sep 2019 1970 2100 ADD
22 Jun 2017 1123 1100 ADD
1,500 24 Jul 2019 1693 1710 REDUCE
18 May 2017 1009 1075 ADD
10 Jun 2019 1831 1750 REDUCE
1,000 24 Mar 2017 900 950 ADD
06 May 2019 1693 1700 REDUCE
24 Jan 2017 862 870 ADD
500 18 Jan 2019 1752 1830 REDUCE
05 Jan 2017 822 900 ADD
15 Oct 2018 1570 1700 ADD
0
17 Jul 2018 1751 1800 ADD
Feb-17
Feb-19
Feb-18
Oct-17
Oct-18
Oct-19
Aug-18
Aug-19
Aug-17
Jun-17
Jun-19
Jun-18
Apr-17
Apr-18
Apr-19
Dec-16
Dec-17
Dec-19
Dec-18
15 May 2018 1504 1500 ADD

19 Feb 2018 1352 1450 ADD
13 Nov 2017 1291 1375 ADD
31 Oct 2017 1234 1300 ADD
www.iiflcap.com
Detailed
report
India - Strategy RBL Bank BUY India - Life Insurance Institutional Equities
India - Steel India - FMCG
Institutional Equities Institutional Equities
Institutional Equities
CMP Rs675 All set to scale-up Dairy Products

Target 12m Rs800 (18%) RBL Bank (RBK) is likely to witness a sustained increase in
Market cap (US$ m) 4,144 scale and profitability for the next few years and graduate
into a large-size private bank. A well-set management team,
Bloomberg RBK IN clearly articulated strategies, focus on sectors with high
Sector Banking & Fin growth potential, ability to acquire adequate deposits and

access to equity capital are key ingredients that will aid such

growth. Improving revenue intensity, both fee-based and
18 April 2019
fund-based, will be RoA drivers over FY19-22ii. We estimate a
52Wk High/Low (Rs) 692/438 30% balance sheet CAGR, 34% EPS CAGR and a ~27bps RoA
Shares o/s (m) 426 expansion to ~1.5% over FY19-22ii. We value RBK at 2.8x
Daily volume (US$ m) 18 FY21ii BVPS post-money (implied 22.7x EPS), attributing the
Dividend yield FY20ii (%) 0.5 high multiple to high growth and improvement in profitability.
Free float (%) 100.0
Right focus to drive strong balance sheet growth: RBK can
Shareholding pattern (%) deliver 35% Cagr in loans and 32% in deposits over FY19-22ii. Loan
Promoters 0.0 growth would be driven by the credit cards, MFI and SME/MSME
Pledged (as % of promoter share) 0.0 segments within retail banking. Within wholesale banking, large
FII 18.8 client acquisitions and deepening relationships will drive growth.
DII 21.3 Deposits would be driven by branch expansion and focus on

improving the productivity of existing branches.
Price performance (%)
1M 3M 1Y
RBL Bank 6.1 18.6 32.4
Several levers for RoA improvement: Over FY19-22ii, RoA
Absolute (US$) 4.6 21.4 25.5 expansion would be driven by an increase in the mix of credit cards
Rel. to Sensex 3.2 11.0 18.6 and MFI to ~25% of loans as well as better operating efficiencies and
CAGR (%) 3 yrs 5 yrs lower credit costs in both businesses. Other segments are likely to
EPS 31.1 42.9 see better revenue intensity, led by higher fees and faster re-pricing

in yields. We estimate revenues to contribute ~35bps to RoA, with
Stock movement expenses and credit costs partially offsetting this impact. Overall, we
Vol('000, LHS) Price (Rs., RHS)
estimate ~27bps RoA expansion over FY19-22ii.
40,000 800
30,000 600
Valuations reflecting higher growth, improving profitability:
20,000 400 We value RBK at 2.8x FY21ii BVPS (22.7x EPS) or Rs800/share. We
10,000 200 have assumed a ~Rs35bn capital infusion in FY20ii in our estimates.
0 0 The high valuation is based on the high growth potential, given a
Mar‐17
May‐17
Jul‐17
Sep‐17
Nov‐17
Nov‐18
Jan‐18
Mar‐18
May‐18
Jul‐18
Sep‐18
Jan‐19
Mar‐19
supportive operating environment, strong execution, outlook of

improving profitability and its well-regarded management team. High

dependence on credit-cards/MFI and challenges in raising adequate
Return on Assets (%)
(%)
liabilities would be key risks to our call.
1.6 1.5
1.4 1.3
1.4 Financial summary (Rs bn)
1.2
1.2
1.1 Y/e 31 Mar, Parent FY18A FY19A FY20ii FY21ii FY22ii
1.0 Pre prov. operating inc. (Rs bn) 13.3 19.4 26.0 35.1 47.8
0.8
0.6 Pre‐exceptional PAT (Rs bn) 6.4 8.7 12.3 16.8 23.3
0.4 Reported PAT (Rs bn) 6.4 8.7 12.3 16.8 23.3
0.2
0.0
Pre‐exceptional EPS (Rs) 15.1 20.3 25.7 35.2 48.7
FY18 FY19 FY20ii FY21ii FY22ii Growth (%) 27.5 34.1 26.5 37.2 38.3
Source: Company IIFL Research
IIFL vs consensus (%) (5.8) (1.2) NA

Abhishek Murarka PER (x) 44.6 33.3 26.3 19.2 13.9

abhishek.murarka@iiflcap.com Book value (Rs) 159 177 256 287 330
91 22 4646 4645 PB (x) 4.2 3.8 2.6 2.4 2.0
Uphill trek Moving on in Life Consolidating & Expanding The rise and rise of private dairies

1Q2019
CAR (%) 15.3 13.5 15.1 12.6 10.7
4Q2019 Arash Arethna
arash.arethna@iiflcap.com ROA (%) 1.1 1.2 1.3 1.4 1.5 3Q2018 3Q2018
91 22 4646 4655

ROE (%) 11.5 12.2 12.4 13.0 15.8
Source: Company, IIFL Research. Price as at close of business on 18 April 2019.
Resetting our Expectations (RoE) www.iiflcap.com
1 From ‘Save’ to ‘Protect’ Growing volumes amid a conducive cycle Milk the opportunity
Detailed Detailed
report
India - Pharma India - Cement

report

Biocon BUY India - Oil & Gas Institutional Equities
Motherson Sumi BUY
CMP
Target 12m
Rs533
Rs700 (31%)
The dark horse in biosimilars CMP Rs353 A behemoth in the making
Target 12m Rs450 (28%)
Market cap (US$ m) 4,996 Motherson has grown into a USD7.3bn global auto parts
Biocon-Mylan has established its credentials as a leading Market cap (US$ m) 11,350
Enterprise value (US$ m) 5,086 major, helped by sound operating and financial principles. We
biosimilar player in the global markets, with the partnership
Bloomberg BIOS IN Enterprise value (US$ m) 11,855 believe a good mix of businesses with steady growth
having already received approval for Trastuzumab in US. We
Sector Pharma Bloomberg MSS IN (standalone, SMR) and turnaround potential (SMP, PKC)
expect 2018 to be a year of approvals for Biocon-Mylan with
would drive 28% EPS Cagr over FY17-20. Motherson is a

4-5 approvals coming up this year across US and EU. Addition Sector Auto
17 January 2018
of US/EU revenues from the first wave of biosimilars could

turnaround specialist with a highly credible history of value
creation through acquisitions. Motherson’s FY20 revenue

52Wk High/Low (Rs) 564/295 potentially help Biocon’s profits to grow ~6x over the next 14 November 2017
Shares o/s (m) 600 five years. Biocon has also resolved its manufacturing issues, target of USD18bn entails acquisitions of USD6.2bn that
Daily volume (US$ m) 25 while growth in Syngene will continue to pick up. Maintain 52Wk High/Low (Rs) 374/185 would result in EPS accretion and offer sizeable upside risk.
Dividend yield FY18ii (%) 0.9 BUY with an upgraded TP of Rs700. Shares o/s (m) 2105
A global giant built on sound operating/financial principles:
Free float (%) 39.3 Daily volume (US$ m) 14
Clear runway for bagging regulated market approvals for the Starting out as a wiring harness (WH) supplier to Maruti in 1986,
Dividend yield FY18ii (%) 0.7

Shareholding pattern (%) first wave of biosimilars; potential to quintuple profits in five Motherson has grown to become the WH leader in India, the leader
Free float (%) 36.9
Promoter 60.7 years: Biocon has continued to surprise us positively as it worked
in CV WH globally, the second largest auto mirror maker globally,
FII 15.4 toward putting together pieces for biosimilar approvals in the US/EU. Shareholding pattern (%) and a leading global supplier of plastic auto components.
DII 3.8 With Trastuzumab approval being the first in class, Biocon-Mylan has Promoter 63.1 Motherson’s growth has been supported by sound operating/financial
Others 20.1 established its credentials as a leading biosimilar player in the global FII 19.7 principles: i) focus on quality, costs, ROCE; ii) increasing content per
car to drive growth; iii) backward integration to increase value-

Price performance (%) markets. With 4-5 approvals coming up this year, we expect 2018 to DII 6.8
be a year of approvals for Biocon-Mylan. These approvals will provide Others 10.4 addition, cost/competitive advantage; and iv) making acquisitions
1M 3M 1Y
Biocon 2.3 42.2 60.3 further visibility to earnings and continue to de-risk the business. with customer buy-ins, which significantly protects the downside.
Addition of US/EU revenues from the first wave of biosimilars would Price performance (%)
Absolute (US$) 2.3 43.7 70.9 Mix of businesses with steady growth and turnaround
Rel. to Sensex (1.6) 35.7 32.9 help Biocon’s profits to grow ~6x over the next five years. 1M 3M 1Y potential to drive 28% EPS Cagr: Motherson’s standalone
CAGR (%) 3 yrs 5 yrs Motherson (0.8) 9.1 75.5 operations (WH) and its subsidiary SMR (mirrors) are well established,
Strong execution aided by tailwinds: Biocon overcame Absolute (US$) (1.5) 7.6 81.5
EPS 14.1 12.7 compliance challenges of USFDA inspections in April and June 2017 in terms of market standing, margins, and return ratios. We forecast

Rel. to Sensex (2.6) 3.3 52.3 mid-to-high-teen earnings growth in standalone (led by volume and
Stock movement rather quickly. Pegfilgrastim (Neulasta) started as a competitive
CAGR (%) 3 yrs 5 yrs value) and SMR (led by market share gain, slight margin expansion).
Vol('000, LHS) Price (Rs., RHS) product. However, competition has whittled down further to only two
projects looking at near-term approval. Insulin Glargine (Lantus) is EPS 28.0 36.1 On the other hand, SMP (plastics) and PKC (CV WH) are operating at
60,000 600
also expected to remain a low-competition product in the foreseeable

low margins (sub-2% net margin) and return ratios. We forecast
Stock movement 220bp/400bp Ebitda margin expansion for SMP/PKC by FY20. This
40,000 400 future, due to requirements of a dedicated manufacturing facility. Vol('000, LHS) Price (Rs., RHS)
would result in multi-fold rise in earnings of these two subsidiaries.
20,000 200
Syngene back on track after an incidence of fire: About 20% of 40,000 400
History of value creation through acquisitions offers sizeable
0 0 Syngene’s business suffered due to a fire at one of its facilities in late 30,000 300
upside risk: Motherson’s stock is up ~19x in the past 10 years. We
FY17. However, the company regained lost ground, reflected in strong
Jan‐16
Mar‐16
May‐16
Jul‐16
Sep‐16
Nov‐16
Jan‐17
Mar‐17
May‐17
Jul‐17
Sep‐17
Nov‐17
Jan‐18
20,000 200
estimate ~40% of these returns have been generated through cheap
growth in recent quarters. Syngene remains an important value driver
MH 06 2018
IND
10,000 100 acquisitions and their subsequent turnaround. Motherson’s FY20 revenue
for Biocon. We believe that foray into large-scale manufacturing, client
Strong earnings visibility from FY20ii 0 0 target of USD18bn implies acquisitions of USD6.2bn. Low cost of
accretion in biology, and maturing of newly added dedicated centres
Nov‐15
Jan‐16
Mar‐16
May‐16
Jul‐16
Sep‐16
Nov‐16
Jan‐17
Mar‐17
May‐17
Jul‐17
Sep‐17
Nov‐17
borrowing (last debt raise was at 1.8%) and potential turnarounds
Revenue (USD mn) (LHS) are long-term growth drivers for Syngene, which would help it register
Ebitda margins (RHS)
~20% revenue growth over the next five years. should make these acquisitions highly EPS-accretive.
1,600 40%
1,400 35% Financial summary (Rs m)
Financial summary (Rs m)
1,200 30% Y/e 31 Mar, Consolidated FY16A FY17A FY18ii FY19ii FY20ii
1,000 25% Y/e 31 Mar, Consolidated FY16A FY17A FY18ii FY19ii FY20ii
800 20% Revenues (Rs m) 33,372 38,763 39,049 45,868 74,311 Revenues (Rs m) 372,163 424,934 564,744 663,081 768,746

600 15%
400 10% Ebitda margins (%) 22.3 24.5 20.0 22.0 37.5 Ebitda margins (%) 9.5 10.1 9.7 10.7 11.3

200 5% Pre‐exceptional PAT (Rs m) 4,021 6,121 3,360 4,340 15,663 Pre‐exceptional PAT (Rs m) 12,276 16,517 19,259 26,920 35,388

0 0%
Reported PAT (Rs m) 5,504 6,121 3,360 4,340 15,663 Reported PAT (Rs m) 12,923 15,543 19,259 26,920 35,388
FY18ii
FY19ii
FY20ii
FY21ii
FY17

Pre‐exceptional EPS (Rs) 6.7 10.2 5.6 7.2 26.1 Pre‐exceptional EPS (Rs) 6.2 8.1 9.1 12.8 16.8
Source: Company IIFL Research
Growth (%) 0.1 52.2 (45.1) 29.1 260.9 Growth (%) 22.5 30.6 13.3 39.8 31.5

IIFL vs consensus (%) (13.9) (9.6) (3.7)

Dr Abhishek Sharma IIFL vs consensus (%) (29.4) (41.9) 63.6 Joseph George

abhishek.sharma@iiflcap.com PER (x) 79.6 52.3 95.2 73.7 20.4 joseph.george@iiflcap.com PER (x) 57.0 43.7 38.6 27.6 21.0
91 22 4646 4668 ROE (%) 11.0 13.8 6.9 8.7 27.8 91 22 4646 4667 ROE (%) 31.8 26.1 21.6 25.6 28.0

Net debt/equity (x) 1.0 0.7 0.4 0.2 (0.1)
India formulations market Producers bitten by the capacity bug 2Q2018 High octane acceleration
Rahul Jeewani Net debt/equity (x) 0.0 0.0 0.0 0.1 0.1
3Q2018 rahul.jeewani@iiflcap.com EV/Ebitda (x) 43.4 34.2 41.8 32.7 11.9 4Q2017 Suraj Chheda
suraj.chheda@iiflcap.com
EV/Ebitda (x) 29.5 26.0 19.6 15.1 11.8
91 22 4646 4673 Price/book (x) 7.4 6.1 5.9 5.8 4.6 Price/book (x) 15.9 8.7 7.8 6.5 5.4
91 22 4646 4656
www.iiflcap.com Source: Company, IIFL Research. Price as at close of business on 16 January 2018. www.iiflcap.com Source: Company, IIFL Research. Price as at close of business on 13 November 2017.
Source of sustainable cash generation Price deflation will cause earnings to flatline 1 Changing landscape of fuel retailing
1
India - NBFC Institutional Equities
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Adept swimmers pull ahead
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ITC BUY Lodha Developers Nestle India REDUCE

(Unlisted) Institutional Equities
Institutional Equities Institutional Equities Institutional Equities
Growth, re-ignited ‘Banking’ on Mumbai Market Product launches may not launch growth

CMP Rs272 Scale of operations CMP Rs6489

Target 12m Rs350 (29%) mn sq ft Target 12m Rs6300 (‐3%)
We expect growth to revive for ITC (FY17-19 EPS Cagr of Ongoing Projects 41 Lodha Developers (LDPL), the largest real estate developer in Nestlé’s stock price has moved up 30% in the past six months
Market cap (US$ m) 50,821 Market cap (US$ m) 9,337
13% vs. 5% for FY14-17) as tax regime turns more rational, Upcoming Projects 51 India by sales value, is primarily focused on residential spurred by a flurry of new launches. We believe that the huge
Enterprise value (US$ m) 49,466 non-tax issues are in the base and consumption revives. India development. More than 90% of its sales, projects, and land Enterprise value (US$ m) 9,265
Land Bank 390 benefit of doubt Nestle enjoys is unjustified, given its track
Bloomberg ITC IN has one of the most favourable industry structures (virtual bank are located in the Mumbai Metropolitan region (MMR). Bloomberg NEST IN record. Moreover, we estimate that these new launches will
Source: Company, IIFL Research.
Sector FMCG monopoly, FDI ban), which reduces volatility in earnings LDPL has set an aggressive target of more than doubling Sector FMCG increase CY20 sales by just 6% and the larger debate should

delivery. Moreover, ITC’s capital allocation has improved, turnover over the next five years. Despite the challenging
be what the company is doing to strengthen the core, i.e. the

with FCF conversion of ~80%. In light of these factors ITC’s demand environment in the near term, we believe LDPL is

09 May 2017 Largest market share in Mumbai 01 September 2016 remaining 90%+ of its business. We believe that Nestlé’s
35% discount to HUL currently (vs. 12% prior to FY13) is set well placed given the strong growth drivers in the long term.
pricing policy, under-investment in brands, and narrow
52Wk High/Low (Rs) 293/209 to contract, driving 29% upside to our price target of Rs.350. FY16 Sales value (Rs bn) 52Wk High/Low (Rs) 7390/4981 definition of target market will prevent it from realising its
A change in incidence or structure of tax under GST regime is Strong project pipeline and land bank to support long-term
Shares o/s (m) 12147 Shares o/s (m) 96 full potential. Maintain REDUCE.
the main risk to our BUY rating. growth: LDPL has more than 90mn sq. ft. of projects planned. Out
Daily volume (US$ m) 48 Daily volume (US$ m) 4
LDPL, of this, an ongoing 41mn sq. ft. are at various stages of completion
Dividend yield FY17ii (%) 1.7 Growth is set to revive: In the past two budgets, average increase Dividend yield FY16ii (%) 1.5 Poor track record of launches: At a time when the company is
Mumbai
65 and LDPL will execute an upcoming 51mn sq. ft. over the next 5-10
Free float (%) 100.0 in excise duty has been 8% vs. 18% for the four years prior to that, Free float (%) 37.2 struggling to grow (H1CY16 LFL sales growth approximately flat) it
Rs636 bn years (largely in MMR). Beyond this, it has more than 390mn sq. ft.
Shareholding pattern (%) possibly as the government realizes that a higher tax rate does not of high-quality contiguous developable area in the extended suburbs Shareholding pattern (%) could do well to focus its energies on fixing its core business.
increase tax collections but encourages illegal trade. Non tax of Mumbai. LDPL’s strong brand, aggressive sales strategy, and Nestlé’s launch track record is poor; we estimate products launched
Promoter 0.0 Promoter 62.8
regulations such as pictorial warnings and ban on public smoking are robust execution capability should ensure strong cash flow and over the past 10 years have increased CY15 sales by ~5%. Our dip-
FII 20.0 Other, FII 14.4
already in place and others such as banning loose cigarettes are hard 571 earnings. stick survey of 75 respondents in our office revealed that 25 of them
DII 35.7 DII 5.7
to implement. Moreover, revival in consumption would benefit ITC had not consumed even one of Nestlé's seven major innovations of
Others 44.2 Source: Bloomberg, Liases Foras, Balance sheet health to improve as execution gathers pace: Others 17.2 the past few years.
just as it would benefit other FMCG companies.
Company, IIFL Research. LDPL’s operations have been cash-neutral-to-positive over the past
Price performance (%) Best industry structure: ITC is a virtual monopoly accounting for Price performance (%)
five years, underpinned by robust growth in customer collections. Factors holding Nestle back: Nestlé is over-earning in India with
1M 3M 1Y 86% of cigarette industry sales and 96% of profits. Moreover, FDI in 1M 3M 1Y
Largest player in India by Sales Despite this, its debt levels have tripled over the last past five years Ebitda margins higher than those of its parent. India needs to be
ITC (0.4) (2.2) 26.1 cigarette manufacture is banned. Due to these factors ITC has high Nestle India (6.7) 1.5 8.1
FY16 Sales Value* Rs bn due to aggressive land buying across the premium markets of treated as an “invest to grow” market. Launches should serve the
Absolute (US$) (1.0) 1.9 35.1 Ebit margins of 66% in the cigarette division vs. global average of Lodha Developers 65 Absolute (US$) (6.9) 2.4 7.8
Mumbai and London. LDPL plans to deleverage by: 1) increasing dual objectives of premiumisation and penetration – the latter is
Rel. to Sensex (1.2) (7.9) 9.6 33%. Absence of competition gives ITC pricing power and reduces Godrej Properties 50 Rel. to Sensex (8.2) (4.9) (2.5)
focus on execution to accelerate collections; 2) monetizing missing due to the narrow definition of target audience which
CAGR (%) 3 yrs 5 yrs the risk of market share loss or margin erosion. Moreover, DLF 32 completed or near-complete inventory of Rs60bn; 3) moderating its CAGR (%) 3 yrs 5 yrs
excludes 75% of the population. Investment in A&P needs to go up
EPS 8.7 13.8 government officials have stated that GST is likely to be tax neutral Prestige Estates 31 capex in land; and 4) reducing its borrowing costs. In the near term, EPS (5.6) 1.9 dramatically and price premium to competition needs to reduce.
– thus GST is unlikely to materially alter the industry structure. Source: Company, IIFL Research. * Gross however, demonetisation could delay deleveraging until sales

Stock movement Stock movement
Reasonable valuation in the light of improved capital Sales reported by Company. momentum recovers. Volume (LHS) Analysis of new launches: We analyse products launched by
Vol('000, LHS) Price (Rs., RHS) Shares (000') (Rs)
allocation: ITC generates 75-80% of its net profit as FCF, vs. an Price (RHS) Nestle in the past few months and estimate that they will account for
100,000 400
Brighter days ahead for organized players; Mumbai remains 1,000 8,000
average of 55% over FY03-15. Moreover, ITC trades at a discount of 8% of CY20 sales and add 6% to the top line (the difference being
80,000 300 the best bet: Reforms initiated by Government of India (GoI) in the 800 6,000 cannibalisation). Hot heads would be the biggest contributor and
35% to HUL (with similar expected growth for FY17-19) vs. an
60,000
real estate sector will help organized players to gain market share in 600
40,000
200 average of 12% prior to FY13 when ITC’s EPS growth faltered due to 400
4,000 then a long tail of products contributing small amounts. Insta-filter
the medium-to-long term and reduce competition from small
20,000 100 an adverse tax regime. With growth reviving, we believe that this 200 2,000 could be successful, but will cannibalise existing products. Nestlé is
unorganized players due to increased cost of compliance and spreading itself too thin by clubbing so many launches in a short
0 0 discount would shrink, resulting in an attractive 29% return to our 0 0
financing. Mumbai, the largest real estate market in India, enjoys
period, which could result in sub-optimal outcomes.
Nov‐14
Nov‐15
Jul‐15
Jul‐16
Sep‐14
Mar‐15
Sep‐15
Mar‐16
Sep‐16
Jan‐15
Jan‐16
May‐15
May‐16
TP. Our extended DCF (terminal FY39) suggests an even higher

Jul‐15
Jul‐16
Sep‐15
Jan‐16
Sep‐16
Jan‐17
May‐15
Nov‐15
May‐16
Nov‐16
May‐17
Mar‐16
Mar‐17
the highest pricing premium, given strong demand for housing amid
upside of 46%.
supply constraints. LDPL is well positioned to benefit from the region,
Financial summary (Rs bn) given its dominant market share in MMR and its diversified 360 Financial summary (Rs m)

Y/e 31 Mar, Consolidated FY15A FY16A FY17ii FY18ii FY19ii degree offering from affordable to luxury housing. Y/e 31 Dec, Parent CY14A CY15A CY16ii CY17ii CY18ii

Revenues (Rs bn) 384 391 413 463 519 Revenues (Rs m) 98,063 81,233 95,413 110,785 126,062
Financial summary (Rs m)
Ebitda margins (%) 21.4 20.3 21.1 21.7 22.0
Ebitda margins (%) 37.0 38.5 37.7 38.2 38.6

Y/e 31 Mar, Consolidated FY12A FY13A FY14A FY15A FY16A

Pre‐exceptional PAT (Rs bn) 97 99 104 118 134

Pre‐exceptional PAT (Rs m) 11,800 8,988 11,476 13,925 16,293

Percy Panthaki Revenues (Rs m) 29,626 35,102 47,127 62,699 83,198 Percy Panthaki
percy.panthaki@iiflcap.com Reported PAT (Rs bn) 97 99 104 118 134 percy.panthaki@iiflcap.com Reported PAT (Rs m) 11,847 5,633 11,476 13,925 16,293
Ebitda (Rs mn) 7,232 7,373 8,990 14,212 20,112
91 22 4646 4662 Pre‐exceptional EPS (Rs) 8.0 8.2 8.6 9.8 11.1 91 22 4646 4662 Pre‐exceptional EPS (Rs) 122.4 93.2 119.0 144.4 169.0
Ebitda margins (%) 24.4 21.0 19.1 22.7 24.2
Growth (%) 8.2 2.3 5.2 13.4 13.2 Growth (%) 6.5 (23.8) 27.7 21.3 17.0
Avi Mehta Pre‐exceptional PAT (Rs m) 3,771 3,728 4,206 7,249 6,313 Avi Mehta
IIFL vs consensus (%) (1.6) (2.1) (1.5) IIFL vs consensus (%) (3.3) (4.1) (0.8)
avi.mehta@iiflcap.com Reported PAT (Rs m) 3,819 3,948 4,205 7,249 6,318 avi.mehta@iiflcap.com
PER (x) 33.9 33.2 31.5 27.8 24.6 PER (x) 53.0 69.6 54.5 44.9 38.4
91 22 4646 4650
ROE (%) 32.8 30.2 29.0 29.5 29.9 Pre‐exceptional EPS (Rs) 17.5 17.3 19.5 33.6 29.2 91 22 4646 4650
ROE (%) 45.3 31.8 40.7 49.4 57.8
Growth (%) 44.4 (1.1) 12.8 72.4 (12.9)
Sameer Gupta Net debt/equity (x) (0.2) (0.2) (0.1) (0.1) 0.0
Sameer Gupta Net debt/equity (x) (0.2) (0.2) (0.3) (0.5) (0.7)

Mohit Agrawal ROE (%) 40.8 25.3 19.0 26.0 18.1
91 22 4646 4672
EV/Ebitda (x)
Price/book (x)
22.3
10.2
21.3
9.6
20.6
8.6
18.3
7.7
16.2
6.9
mohit.agrawal@iiflcap.com
91 22 4646 4675
ROCE (%) 12.8 7.7 6.3 8.3 9.0
91 22 4646 4672
EV/Ebitda (x)
Price/book (x)
29.6
22.1
37.7
22.2
30.6
22.2
25.4
22.2
21.9
22.2
The 2016 JIO Olympics begins 3Q2016

Net debt/equity (x) 4.5 6.4 5.1 4.9 4.0
Source: Company, IIFL Research. Price as at close of business on 01 September 2016.
www.iiflcap.com Source: Company, IIFL Research. Price as at close of business on 09 May 2017. www.iiflcap.com

www.iiflcap.com Source: Company, IIFL Research.
1 1 1 Shake off the Heebie GBs
IIFL - India IIFL - UK IIFL - USA

IIFL Securities Limited IIFL Wealth (UK) Limited IIFL Inc.
9th Floor, IIFL Centre, 19 Berkeley Street 1120 Avenue of the Americas
Kamala City, Senapati Bapat Marg, London - W1J 8ED, Suite 1505,
Lower Parel (W), United Kingdom New York,
Mumbai - 400013 Tel +44 (0) 20 707 87208 NY 10036
Tel +91-22-4646-4600 Tel +1-212-221-6800
Fax +91-22-4646-4700 Fax +1-646-417-5800

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Hindustan Unilever ADD

CMP Rs2010 Mr Reliable

Y/e 31 Mar, Consolidated FY18A FY19A FY20ii FY21ii FY22ii

Investment thesis ...................................................................... 5

Business analysis by category .................................................... 26

Earnings estimates ................................................................... 56

Environment, Social, Governance ............................................... 73

Financial Statements ................................................................ 96

Our previous KYC reports

HUL’s business snapshot

Figure 1: HUL has dominant market position in all categories it is present in

Moreover, despite market leading positions, HUL is growing market

Excerpts from conference calls

4QFY19: “I think Skincare is a different market. There is mass,

As explained in our note “Disaggregating Farm income growth”,

2. Straddling the price pyramid

1. HUL can target a significantly large percentage of the population.

Mid priced brands

Mass end brands

Source: Company, IIFL Research

Figure 4: HUL has a higher market share in premium categories

Source: Company, Note: * sourced from Nielsen (urban + rural)

3. In case of down-trading owing to an economic slowdown, HUL

3. Best-in-class market development & brand

Figure 5: HUL is investing behind ‘categories of the future’

Source: Company, IIFL Research

These categories have room to become considerably large in the

In addition, HUL is using powerful brands to extend into different

Source: Company, IIFL Research

Moreover, HUL has introduced new brands (or ramped up subscale

Figure 10: List of brands launched in the past few years

is a great success story. Acquired in April 2016 for

Source: Company, IIFL Research

4. Able to manage a downturn well

In the current scenario, when consumption is under pressure, we

-6% -4.7% -5.0%

5. Proven track record of margin expansion

Source: Company, IIFL Research

HUL has consistently delivered margin expansion, irrespective of the

HUL’s philosophy is to HUL’s philosophy

Some corollaries to the aforementioned statement:

Premiumisation and cost How does HUL do it?

Source: Company, IIFL Research

• Tight control on other expenses - Over the past ~10 years,

• Cost-saving plans – HUL has almost doubled its cost savings,

Figure 19: Cost savings as a percentage of turnover have steadily improved

Why does ability to expand margins matter?

Source: Company, IIFL Research; Source: Company, IIFL Research;

• Since HUL’s margin expansion is not related to the input-cost

To understand HUL’s margin expansion story better, please refer to

1. In CY04, P&G cut prices of its major shampoo and detergent

Future seems brighter

Ghari detergent resulted in some 500 small and local brands

Source: Company, IIFL Research

In FY16, P&G cut shampoo (Pantene as well as Head and Shoulders)

In conclusion, we believe that the probability of a price war is low

Despite the threat of modern trade and ecommerce, general trade is

Moreover, HUL has innovated rural distribution models such as

As of FY19, HUL has implemented Project Shakti in 18 states and

Source: Company, IIFL Research

Figure 27: HUL imagines India as a collection of 15 consumer clusters

MP, Chhattisgarh, West

Source: Company, IIFL Research