COMPANY UPDATE 07 JUN 2018

Hindustan Unilever
BUY
INDUSTRY FMCG Disruptor, not disrupted
CMP (as on 6 Jun 2018) Rs 1,571 We attended HUL’s annual investor meet. Our development and share gains have been the result of
interaction with the company’s senior management superior execution.
Target Price Rs 1,701
has further increased our confidence on its earnings Our call on HUL over FY18 was that strong leadership
Nifty 10,685 trajectory over the next two to three years. and superior execution would drive gains in a
Sensex 35,179 After outperforming in FY18, HUL has ‘re-imagined’ challenging period (demonet and GST). Macro
KEY STOCK DATA strategy for the next leg of growth. Focus is now tailwinds are now kicking in (rising rural incomes,
Bloomberg HUVR IN
moving towards ‘big data analytics’ so as to (1) Know normal monsoon, faster GDP growth, GST) ergo HUL
the consumer better, (2) Become glocal, (3) Enhance should gain further. This also makes HUL a safe
No. of Shares (mn) 2,165
the supply chain, (4) Target marketing (digital) and hedge against rising volatility in Indian markets.
MCap (Rs bn)/(US$ mn) 3,401/50,786
(5) Drive cost savings. Net net, high valuations are justified, considering
6m avg traded value (Rs mn) 1,692
HUL’s core strategy revolves around premiumisation, consistent market share gain, margin expansion and
STOCK PERFORMANCE (%) market development, penetrate channels of the a hungry management not willing to lower its guard.
52 Week high / low Rs 1,625 / 1,064 future and strengthening its core portfolio. Its five Our TP rises to Rs 1,701 on 45x Jun-20E EPS (earlier
3M 6M 12M anchor brands (Lifebuoy, F&L, Surf Excel, Wheel, Mar-20). Maintain BUY.
Absolute (%) 21.5 23.2 43.9 Brooke Bond) are >Rs 20bn and another 7 brands are
Relative (%) 15.9 15.2 31.2 >Rs 10bn. HUL has a very balanced portfolio of core  Near-term outlook: With improving macros, greater
and aspirational brands, which have a presence pricing power (GST rate revision) and moderate
SHAREHOLDING PATTERN (%) across the consumption pyramid. Core strategy inflation, we believe earnings growth will continue to
Promoters 67.20 remains unchanged but we sense an aspiration to be be strong. We recommend investors to look at the
FIs & Local MFs 5.66 more agile on execution. Consistent market company’s long term potential.
FPIs 13.26
Financial Summary (Consolidated)
Public & Others 13.88 (Rs mn) FY17 FY18 FY19E FY20E FY21E
Source : BSE Net Revenue 3,31,620 3,55,450 4,03,433 4,57,915 5,19,715
EBITDA 63,396 74,989 89,433 1,06,579 1,25,042
Naveen Trivedi APAT 19,770 20,790 25,940 30,689 35,926
naveen.trivedi@hdfcsec.com EPS (Rs) 19.6 23.7 29.4 35.6 42.7
+91-22-6171-7324 P/E (x) 80.1 66.3 53.6 44.2 36.8
Siddhant Chhabria EV/EBITDA (x) 52.9 44.5 37.1 31.0 26.2
siddhant.chhabria@hdfcsec.com Core RoCE (%) 61.4 70.5 78.4 81.0 80.7
+91-22-6171-7336 Source: Company, HDFC sec Inst Research
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
 HUL: COMPANY UPDATE

FMCG continues to be a big opportunity in India

With growing per capita
income of India, FMCG
consumption would continue to
grow in tandem. This growth
will be driven by penetration
and premiumisation of FMCG
products.

Winning in Many India’s

To capitalise on this opportunity and compete in an age of disruption, HUL re-imagines its strategy
HUL believes that in an age of disruption it is crucial to be consumer centric and agile to react to changing trends (GST,
naturals, digitisation etc). After outperforming in FY18, they re-imagine their strategy for the next leg of growth. We
observed that the crux of their focus is now moving towards technology so as to (1) know the consumer better, (2) become
glocal, (3) enhance supply chain, (4) target marketing and (5) drive cost savings

(1) Re-imagining the structure

KEY THRUSTS ACTION/COVERAGE
Futuristic products Winning in Many Indias (WIMI) Cluster level strategy, empowering cluster heads for faster decision making
Building a culture for long term growth Build new business models, focus on talent, explore acquisitions

(2) Re-imagining the portfolio

KEY THRUSTS
Strengthening the core
Creating categories for the future
Market development & Premiumisation
Building naturals
Source: Company, HDFC sec Inst Research
Source: company
ACTION/COVERAGE
Focus on penetration, innovation, SKU strategy, making the core more aspirational
Opportunities to premiumise and up trade; huge headroom for growth
Futuristic products growing at ~2x HUL average
Naturals portfolio growing at 2.5x HUL average

Page | 2

Analytical platform
Jarvis: Decision making tool
Growth and profitability in
Ecommerce > Modern Trade >
Traditional channel
Ecommerce business now
~1.5% of HUL
Low penetration in premium products offers long runway for growth
(3) Re-imagining magic in marketing
KEY THRUSTS
Building brands with purpose
Building iconic engagement platforms
Building differentiated content
(4) Re-imagining trade channels
KEY THRUSTS
General trade will continue to be large With 10mn outlets, GT even after 10 years, will remain an important channel
Building channels of the future
(5) Re-imagining the value chain
KEY THRUSTS
Technology driven analytics
(6) Re-imagining customer development
KEY THRUSTS
Demand capture
Demand Fulfil
Demand generate
Source: Company, HDFC sec Inst Research
HUL: COMPANY UPDATE
ACTION/COVERAGE
Example: Lux Golden Rose awards, Lakme Fashion Week
Varied strategy based on marketing channel
ACTION/COVERAGE
Driving visibility in modern trade
ACTION/COVERAGE
Analytics driven decision making, aim to disrupt than be disrupted
ACTION/COVERAGE
Enhance salesman productivity with chatbots, scale up Shikhar app
Project shogun, scale up impact app
Scaling up B2C, leverage technology to improve shelf presence
Page | 3
 HUL: COMPANY UPDATE

(7) Re-imagining fuel for growth

KEY THRUSTS ACTION/COVERAGE
Fuel for growth
Constant reinvention Max the mix, end-end cost focus
Demand Fulfil Project shogun, scale up impact app
Demand generate Scaling up B2C, leverage technology to improve shelf presence
Source: Company, HDFC sec Inst Research

(8) Re-imagining culture of the organization

KEY THRUSTS ACTION/COVERAGE
Change in mindset Empowerment, collaboration, experimentation, ownership mindset
Source: Company, HDFC sec Inst Research

Page | 4

PC has 7 brands with >Rs 10bn
revenue size
Lifebuoy extended into
naturals segment (Haldi)
FAL has seen several value
additions to upgrade consumer
Surf Excel “Daag Achhe Hai”
campaign has been successfully
aired for the last 13 years
HUL has number 1 position in 6
F&R categories. In Ice Cream,
HUL is number 2 in pan-India
but in top-cities it is number 1
Green tea is helping the EBIT
margin in the tea portfolio
HUL: COMPANY UPDATE
HUL’s Core Strategy
HUL’s core strategy remains the same but the company tailwinds are now kicking in, HUL would remain key
consistently is looking to be more agile with respect to gainer with its strong product portfolio (covering full
execution and ahead of its competitors. Consistent pyramid).
market development and share gain have been the result HUL plays a similar strategy for all its categories which
of superior execution. The company has delivered one of are as follows:
the strongest operational performances among its peers  (A) Drive premiumisation and upgradation
in FY18 despite several challenges. Our call was that HUL
with strong leadership, superior management execution
 (B) Invest in market development
would be the key beneficiary in a challenging period  (C) Win in channels of the future
(Demonet and GST implementation). Considering macro  (D) Wining in Many Indias (WiMI)
(A) Drive premiumisation and upgradation
Categories Strategy
 Making core brands aspirational
Personal Care (PC)  Consistent focus on new benefits space and adopting the leading trends
 Pond’s pollution range is to further upgrade consumers
 Laundry has seen significant premiumisation, led by Surf Excel
Home Care  Home Care EBIT clocked ~28% CAGR during FY16-18 while revenue grew by only 9%
 Surf Excel monthly penetration is single digit, provides enough head room to grow
 Premium Tea has seen significant 5x growth in 2017 vs. category
Foods & Refreshment  Consistent brand extension of Kissan and Knorr brands has been driven by consumer upgradation
(F&R)  Co commands high EBIT margin in F&R despite Tea contributes large share in segment
 HUL has 12% volume share in Tea, enough head room for growth
Page | 5
 HUL: COMPANY UPDATE

PC portfolio to win across channels and segments To accelerate premiumisation

Source: Company, HDFC sec Inst Research

Premiumisation in laundry Tea – Strong focus on and share gain in the premium
segment

Source: Company, HDFC sec Inst Research

Page | 6

Indulekha has seen strong
consumer response, higher
than expected by the co at the
time of acquisition
Domex proposition is to clean
and smelly. Domex is available
in powder, liquid and rim block
Ice cream portfolio is gaining
traction through global
experience
HUL: COMPANY UPDATE
(B) Invest in market development
Categories Strategy
 Building the anti-perspirant market
 Body lotion is still has very low penetration and low uses
 WiMI is very helpful in personal care since consumer preference in personal care varies a lot
Personal Care  Axe access packs should be helpful in Deo market which as of now growing at very slow pace than
historical pace
 Sampling has increased by 1.5x in 2017 vs. 2016 to develop the market
 Building the naturals portfolio
 Liquid detergent and Matic powders are growing at 3x to laundry growth
 Focus on consumer upgradation and engagement for superior products
 Globally, dishwash is driven by liquid, while in India bar has high share than liquid. Company expects
Home Care that India would continue to shift towards liquid
 Toilet cleaners (especially for lower pyramid) has huge potential and co is focusing on developing
the market
 Water purifiers with a connector that cleans the vegetable/fruits
 Tapping the snacking opportunity
 Knorr noodles (Italian taste) has been test market in Maharashtra, strong consumer response
 Catering the natural segment with Lever Ayush brand extended to breakfast segment, test launch in
Foods & Refreshment
South
 Ice cream has significant room for market development, India’s consumption is very vs. world
 Cornetto OREO and Sandwich Ice cream would further develop the market
HUL investing in market development in PC Various ways to scale the market in PC
Page | 7
 HUL: COMPANY UPDATE

Matic and liquid laundry growing at 3x of laundry Driving liquid dishwash

ICE Cream Consumption: India vs. World Developing new segments in ice cream

Source: Company, HDFC sec Inst Research

Page | 8
 HUL: COMPANY UPDATE

(C) Win in channels of the future

Categories Strategy
 Focus on exclusive product range for ecommerce
Personal Care  Partnership with all the winners in ecommerce and modern trade
 Creating effective content for online to influence consumers
 The growth in ecommerce is 1.4x vs. other channels
Home Care  Premium segment gaining share in modern trades
 Keep consumer journey in ecommerce in mind while designing
 Kwality Wall’s presence has increased from 40 cities in 2014 to >400 cities in 2018
Foods & Refreshment  Taj Mahal has strong focus on ecommerce channel
 Digital landscape helping for several F&R products
Leading in a digital world with measurable metrics Ecommerce share is higher than other channel

KWALITY WALL’S PRESENCE: From 40 cities in 2014 to 400 cities in 2018

Source: Company, HDFC sec Inst Research

Page | 9
 HUL: COMPANY UPDATE

(D) Wining in Many Indias (WiMI)

Categories Strategy
 Consumer centric approach to upgrade consumer to premium segment
Personal Care
 WiMI helping for product upgrade (FAL, Lifebuoy, Dove presence across consumption pyramids)
 In laundry, Uttar Pradesh has more demand for mass products so co is targeting to upgrade. In
Home Care contrast, Tamil Nadu has demand for mid segment so co is focusing on liquid and value added
products
 F&R has separate consumer preference across India, WiMI is helping the category with more focused
Foods & Refreshment approach. West Bengal has seen 50% growth in F&R through WiMI
 Coffee and Tea, due to rapid consumer preference, has benefiting a lot through WiMI

Successfully developing WiMI in laundry WiMI developed in Tea and Coffee

Source: Company, HDFC sec Inst Research

Page | 10
 HUL: COMPANY UPDATE

Segmental Performance
Personal Care Performance
Particulars (Rs mn) Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18
Personal care witnessed slower Revenue 40,413 40,905 37,700 42,220 40,280 39,802 40,750 43,680 39,100 40,900 40,960
7% EBIT growth vs. 10% like- YoY Gr. (%) 2.1% -0.3% -2.7% 8.1% 3.5% 8.0% 20.0% 13.0%
like revenue growth owing to Revenue Mix (%) 48.5% 48.8% 45.3% 48.0% 47.6% 47.9% 45.9% 47.4% 47.1% 47.6% 45.0%
higher brand investment EBIT 8,906 9,907 9,030 10,210 9,226 9,208 9,840 10,790 9,480 10,070 10,660
EBIT Margin (%) 22.0% 24.2% 24.0% 24.2% 22.9% 23.1% 24.1% 24.7% 24.2% 24.6% 26.0%
EBIT Mix (%) 69.4% 70.0% 62.2% 64.7% 66.0% 68.9% 60.9% 59.4% 60.9% 65.8% 57.2%
Note: Like-to-like revenue growth for 2QFY18-4QFY18

Home Care Performance

Particulars (Rs mn) Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18
Revenue 26,908 26,617 27,980 28,760 27,770 26,891 30,040 30,470 27,390 27,410 31,020
YoY Gr. (%) 6.8% 3.2% 1.0% 7.4% 5.9% 13.0% 17.0% 21.0%
Revenue Mix (%) 32.3% 31.8% 33.6% 32.7% 32.8% 32.4% 33.8% 33.1% 33.0% 31.9% 34.1%
EBIT 2,246 2,356 3,020 3,560 2,800 2,342 3,890 4,480 3,830 3,540 5,090
Home Care EBIT growth in FY18
EBIT Margin (%) 8.3% 8.9% 10.8% 12.4% 10.1% 8.7% 12.9% 14.7% 14.0% 12.9% 16.4%
was at 35% due to EBIT Mix (%) 17.5% 16.7% 20.8% 22.6% 20.0% 17.5% 24.1% 24.7% 24.6% 23.1% 27.3%
premiumisation (Surf Excel) Note: Like-to-like revenue growth for 2QFY18-4QFY18

Refreshment Performance
Particulars (Rs mn) Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18
Revenue 10,789 10,764 11,760 12,150 11,692 11,641 13,000 13,460 12,220 12,480 14,090
YoY Gr. (%) 7.6% 8.4% 8.1% 10.5% 10.8% 4.5% 7.2% 8.4%
Revenue Mix (%) 12.9% 12.9% 14.1% 13.8% 13.8% 14.0% 14.6% 14.6% 14.7% 14.5% 15.5%
EBIT 1,469 1,595 1,943 1,921 1,726 1,713 2,190 2,550 2,140 1,690 2,560
EBIT Margin (%) 13.6% 14.8% 16.5% 15.8% 14.8% 14.7% 16.8% 18.9% 17.5% 13.5% 18.2%
Foods and Refreshment EBIT Mix (%) 11.5% 11.3% 13.4% 12.2% 12.3% 12.8% 13.6% 14.0% 13.8% 11.0% 13.7%
Note: Like-to-like revenue growth for 2QFY18-4QFY18
witnessed robust 18% EBIT
growth in FY18 Foods Performance
Particulars (Rs mn) Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18
Revenue 2,712 2,772 2,880 2,720 2,778 2,785 2,950 2,840 2,820 3,000 2,990
YoY Gr. (%) 4.7% 2.4% 0.5% 2.4% 4.4% 11.0% 18.0% 10.0%
Revenue Mix (%) 3.3% 3.3% 3.5% 3.1% 3.3% 3.4% 3.3% 3.1% 3.4% 3.5% 3.3%
EBIT 164 349 381 170 137 261 280 410 170 110 310
EBIT Margin (%) 6.0% 12.6% 13.2% 6.2% 4.9% 9.4% 9.5% 14.4% 6.0% 3.7% 10.4%
EBIT Mix (%) 1.3% 2.5% 2.6% 1.1% 1.0% 2.0% 1.7% 2.3% 1.1% 0.7% 1.7%
Source: Company, HDFC sec Inst Research| Note: Like-to-like revenue growth for 2QFY18-4QFY18

Page | 11
 HUL: COMPANY UPDATE

Quarterly Financials (Standalone)

Like-to-like revenue growth Particulars 4QFY18 4QFY17 YoY (%) 3QFY18 QoQ (%) FY18 FY17 YoY (%)
was at 16% vs. our expectation Net Sales 90,030 81,000 11.1 83,230 8.2 339,260 312,980 8.4
of 12% Other Operating Income 940 1,130 (16.8) 2,670 (64.8) 5,990 5,920 1.2
Total Income 90,970 82,130 10.8 85,900 5.9 345,250 318,900 8.3
Higher ASP spend to support Material Expenses 43,140 40,220 7.3 39,050 10.5 162,320 156,850 3.5
new launches (Lever Ayush, etc) Employee Expenses 4,000 3,880 3.1 4,910 (18.5) 17,450 16,200 7.7
and to gain market share ASP 10,700 8,530 25.4 11,070 (3.3) 41,050 34,700 18.3
Other Operating Expenses 12,650 12,990 (2.6) 14,070 (10.1) 51,670 50,680 2.0
Inspiring EBITDA growth of 24% EBITDA 20,480 16,510 24.0 16,800 21.9 72,760 60,470 20.3
YoY Depreciation 1,280 1,080 18.5 1,210 5.8 4,780 3,960 20.7
EBIT 19,200 15,430 24.4 15,590 23.2 67,980 56,510 20.3
HUL reported a one-time Other Income 1,000 830 20.5 1,520 (34.2) 5,690 5,260 8.2
expense of Rs 640mn owing to Interest Cost 40 60 (33.3) 55 (27.3) 200 220 (9.1)
deferred consideration payable PBT 20,160 16,200 24.4 17,055 18.2 73,470 61,550 19.4
on account of Indulekha Exceptional (640) (10) na (210) na (620) 2,410
acquisition PBT (after exceptional) 19,520 16,190 20.6 16,845 15.9 72,850 63,960 13.9
Tax 6,010 4,360 37.8 3,590 67.4 20,480 19,060 7.5
RPAT 13,510 11,830 14.2 13,255 1.9 52,370 44,900 16.6
>800 SKU’s have been revised APAT 14,090 11,180 26.0 11,980 17.6 51,350 42,480 20.9
owing to GST rate revision EPS (Adjusted) 6.5 5.2 26.0 5.5 17.6 23.7 19.6 20.9

Fiscal tax benefit (Assam and As % Of Net Revenue 4QFY18 4QFY17 YoY (bps) 3QFY18 QoQ (bps) FY18 FY17 YoY (bps)
Uttaranchal excise free zones) Material Expenses 47.4 49.0 (155) 45.5 196 47.0 49.2 (217)
contributing ~4% of revenues Employee Expenses 4.4 4.7 (33) 5.7 (132) 5.1 5.1 (3)
were added to other operating ASP Expenses 11.8 10.4 138 12.9 (112) 11.9 10.9 101
income Other Operating Expenses 13.9 15.8 (191) 16.4 (247) 15.0 15.9 (93)
EBITDA Margin 22.5 20.1 241 19.6 296 21.1 19.0 211
Tax Rate 30.8 26.9 386 21.3 948 28.1 29.8 (169)
APAT Margin 15.5 13.6 188 13.9 154 14.9 13.3 155
Source: Company, HDFC sec Inst Research

Page | 12
 HUL: COMPANY UPDATE

Quarterly Segmental (Standalone)

Home care reported healthy
Year to March (Rs mn) 4QFY18 4QFY17 YoY (%) 3QFY18 QoQ (%) FY18 FY17 YoY (%)
21% like-to-like growth. Segmental Revenues
Popular and premium laundry Home Care 31,020 30,040 3.3 27,410 13.2 116,290 113,461 2.5
business continued to do well. PC 40,960 40,750 0.5 40,900 0.1 164,640 163,051 1.0
Foods 2,990 2,950 1.4 3,000 (0.3) 11,650 11,233 3.7
PC registered 13% like-to-like Refreshment 14,090 13,000 8.4 12,480 12.9 52,250 48,483 7.8
growth. Personal wash Others 1,910 2,010 (5.0) 2,110 (9.5) 7,200 8,185 (12.0)
witnessed strong growth. Total 90,970 88,750 (150.0) 85,900 (118.2) 352,030 344,413 2.2
Segmental EBIT
Home Care 5,090 3,890 30.8 3,540 43.8 16,940 12,593 34.5
PC 10,660 9,840 8.3 10,070 5.9 41,000 38,484 6.5
Refreshments grew by 14% on a Foods 310 280 10.7 110 181.8 1,000 848 17.9
like-to-like basis. Refreshment 2,560 2,190 16.9 1,690 51.5 8,940 7,549 18.4
Others 20 (40) (150.0) (110) (118.2) (210) (204) 2.9
Total 18,640 16,160 15.3 15,300 21.8 67,670 59,270 14.2
Food grew by 18% on like-to- (a) Interest Cost & Bank Charges 40 60 (33.3) 50 (20.0) 210 215 (2.1)
like basis, with Kissan Ketchups (b) Other Un-allocable Expenses 20 (40) (150.0) (110) (118.2) (5,380) (4,911) 9.5
PBT 19,520 16,190 (28.9) 16,850 20.8 72,840 63,967 13.9
leading the growth
Capital Employed
Home Care (7,650) (4,450) na (8,570) na (7,650) (4,450) na
PC 13 2,820 (99.5) (1,940) na 13 2,820 (99.5)
Home care segment continued Foods (170) 460 na (450) na (170) 460 na
to show premium segment-led Refreshment 6,190 7,350 (15.8) 4,960 24.8 6,190 7,350 (15.8)
growth. Home Care EBIT grew Others 640 900 (28.9) 530 20.8 640 900 (28.9)
by a stellar 31% Total (977) 7,080 na (5,470) na (977) 7,080 na
Unallocable Capital Employed 71,610 57,820 23.8 62,800 14.0 71,610 57,820 23.8
Total Capital Employed 70,633 64,900 8.8 57,330 23.2 70,633 64,900 8.8
Source: Company, HDFC sec Inst Research

EBIT Margin
EBIT Margin 4QFY18 4QFY17 YoY (bps) 3QFY18 QoQ (bps) FY18 FY17 YoY (bps)
Home Care 16.4 12.9 346 12.9 349 14.6 11.1 347
PC 26.0 24.1 188 24.6 140 24.9 23.6 130
Foods 10.4 9.5 88 3.7 670 8.6 7.5 103
Refreshment 18.2 16.8 132 13.5 463 17.1 15.6 154
Others 1.0 (2.0) na (5.2) na (2.9) (2.5) na
Total 20.5 18.2 228 17.8 268 19.2 17.2 201
Source: Company, HDFC sec Inst Research

Page | 13
 HUL: COMPANY UPDATE

We are encouraged by HUL’s Segment Revenue Performance (Like to like)

4QFY18 FY18
broad-based growth
Segments Like-to-like Rev. Gr. (%) EBIT Gr. (%) Like-to-like Rev. Gr. (%) EBIT Gr. (%)
Personal Care 13% 8% 10% 7%
Home Care 21% 31% 15% 35%
Refreshment 14% 17% 12% 18%
Food 10% 11% 11% 18%
Total 16% 15% 12% 14%
Source: Company, HDFC sec Inst Research

HUL grew by an impressive Net Revenue Growth Underlying Volume Growth

12% YoY in a year (FY18) % 17 %
18 12 11 11
marked by disruptions 16
10
15
8 7
12 6 6 6
10 6
8 4 4 4 4
9 4
6
6 5 5 2
4 4 0
4
3 0
3 1
-2 -1
- -4
(1) -4
(3) -6

Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
Note: Like-to-like growth for 2QFY18-4QFY18

Page | 14
 HUL: COMPANY UPDATE

EBITDA APAT
Consistent expansion in EBITDA
EBITDA EBITDA Margin (%) - RHS APAT NPM (%) - RHS
margin for the last five years
Rs mn % Rs mn %
24,000 22.0 16,000 16
HUL’s strategy is to drive 20,000
volume growth resulting in 19.0 12,000 14
16,000
favourable operating leverage
led margin expansion, which is 12,000 16.0 8,000 12
reinvested in brands to drive
8,000
volumes 13.0 4,000 10
4,000
NPM continued to expand and - 10.0 - 8
touched 15.5% during the

Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18

Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
quarter

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Indulekha has performed Personal Care Performance Home Care Performance

better than mgt’s expectation. Revenue EBIT Margin - RHS Revenue EBIT Margin - RHS
Oral care growth was driven by Rs mn % Rs mn %
44,000 30.0 32,500 16.0
new naturals variant. Lever 31,000
Ayush received positive 42,000
29,500
14.0
response post the pan-India 25.0
40,000 28,000 12.0
launch in 2QFY18.
26,500
38,000 25,000 10.0
GST led price-cuts are aiding in 20.0
23,500
driving growth for premium 36,000 8.0
products 22,000
34,000 15.0 20,500 6.0

Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Page | 15
 HUL: COMPANY UPDATE

HUL expanded its distribution Refreshment Performance Food Performance

for Ice-creams resulting in Revenue EBIT Margin - RHS Revenue EBIT Margin - RHS
double-digit volume growth Rs mn % Rs mn %
13,800 20.0 3,000 16.0

13,200 18.0 14.0

12.0
12,600 16.0 2,750
10.0
12,000 14.0 8.0
11,400 12.0 6.0
2,500
4.0
10,800 10.0
2.0
10,200 8.0
2,250 -

Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18

Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

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 HUL: COMPANY UPDATE

Assumptions
Revenue recovered and grew by
FY17 FY18 FY19E FY20E FY21E
6.4% with 3% UVG while UVG
Revenue Growth (%)
was down by 4% in 3QFY17
Soaps and Detergents 4.4 12.5 12.8 12.4 12.3
Personal Products 2.3 10.1 13.6 13.4 13.6
60% of portfolio gained market
Beverages (1.7) 11.0 13.1 14.0 14.0
share
Packaged Food 2.8 12.0 15.6 17.8 18.3
Total 3.0 6.9* 13.1 13.1 13.2
GM declined by marginally
Gross Margin (%) 51.0 52.9 54.0 54.8 55.5
16bps to 51%
Employee (% of sales) 5.3 5.2 4.9 4.7 4.4
ASP (% of sales) 10.7 11.7 12.0 12.0 12.0
Employee expenses were down Distribution (% of sales) 4.6 4.3 4.2 4.1 4.1
by 12% as bonus was in Other Expenses (% of sales) 11.3 10.6 10.7 10.7 10.9
4QFY16. Employee expense was EBITDA Margin (%) 19.1 21.1 22.2 23.3 24.1
up by 3% in FY17 Tax Rate (%) 30.5 28.5 29.0 28.5 28.0
Source: Company, HDFC sec Inst Research
ASP expense has rationalised *FY18: Like-to-like revenue growth 12%
by 1.4% and stood at 10.4% of
sales. ASP expense was down
by 4% in FY17

EBITDA margin expanded by

103bps to 20.1%

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 HUL: COMPANY UPDATE

Income Statement (Consolidated) Balance Sheet (Consolidated)

(Rs mn) FY17 FY18 FY19E FY20E FY21E (Rs mn) FY17 FY18 FY19E FY20E FY21E
Net Revenues 331,620 355,450 403,433 457,915 519,715 SOURCES OF FUNDS
Growth (%) 3.0 7.2* 13.5 13.5 13.5 Share Capital - Equity 2,164 2,164 2,164 2,164 2,164
Material Expenses 162,573 167,300 185,579 206,978 231,273 Reserves 65,500 72,907 84,740 101,012 123,627
Employee Expense 17,430 18,601 19,907 21,405 23,015 Total Shareholders Funds 67,664 75,071 86,905 103,176 125,792
ASP Expense 35,420 41,530 48,548 55,105 62,541 Minority Interest 220 200 178 154 127
Distribution Expenses 15,255 15,284 16,944 18,775 21,308 Long Term Debt - - - - -
Other expenses 37,546 37,746 43,021 49,075 56,536 Short Term Debt 2,770 - - - -
EBITDA 63,396 74,989 89,433 106,579 125,042 Total Debt 2,770 - - - -
EBITDA Growth (%) 5.4 18.3 19.3 19.2 17.3 Net Deferred Taxes (2,033) (2,033) (2,033) (2,033) (2,033)
EBITDA Margin 19.1 21.1 22.2 23.3 24.1 Long Term Provisions & Others 11,530 15,550 16,505 17,566 18,699
Depreciation 4,320 5,200 5,290 5,569 5,848 TOTAL SOURCES OF FUNDS 80,151 88,788 101,554 118,863 142,584
EBIT 59,076 69,789 84,143 101,010 119,194 APPLICATION OF FUNDS
Other Income (Including EO Net Block 44,190 45,280 44,490 43,421 42,073
6,060 3,510 5,306 6,671 9,114
Items) CWIP 2,290 4,610 2,305 1,153 576
Interest 350 260 - - - LT Loans & Advances 7,046 7,805 8,646 9,578 10,612
PBT 64,786 73,039 89,450 107,681 128,307 Total Non-current Assets 53,526 57,695 55,441 54,152 53,261
Tax 19,770 20,790 25,940 30,689 35,926 Distribution Expense 25,410 25,130 28,222 31,795 35,842
RPAT 44,896 52,269 63,531 77,016 92,408 Debtors 10,850 13,100 14,868 16,876 19,154
adjustment (2,416) (919) - - - Other Expenses 13,807 14,071 14,880 15,770 16,749
APAT 42,480 51,350 63,531 77,016 92,408 Cash & Equivalents 52,053 64,934 80,172 98,602 122,662
APAT Growth (%) 2.0 20.9 23.7 21.2 20.0 Total Current Assets 102,120 117,235 138,142 163,043 194,406
Adjusted EPS (Rs) 19.6 23.7 29.4 35.6 42.7 Creditors 61,860 71,700 76,719 82,089 87,836
EPS Growth (%) 1.9 20.9 23.7 21.2 20.0 Other Current Liabilities & Provns 13,635 14,442 15,309 16,243 17,248
Source: Company, HDFC sec Inst Research Total Current Liabilities 75,495 86,142 92,028 98,332 105,083
*FY18: Like-to-like revenue growth 12%
Net Current Assets 26,625 31,093 46,113 64,711 89,323
TOTAL APPLICATION OF FUNDS 80,151 88,788 101,554 118,863 142,584
Source: Company, HDFC sec Inst Research

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 HUL: COMPANY UPDATE

Cash Flow Statement (Consolidated) Key Ratios (Consolidated)

(Rs mn) FY17 FY18 FY19E FY20E FY21E FY17 FY18 FY19E FY20E FY21E
Reported PBT 64,786 73,039 89,450 107,681 128,307 PROFITABILITY (%)
Non-operating & EO Items - - - - - GPM 51.0 52.9 54.0 54.8 55.5
Interest Expenses 350 260 - - - EBITDA Margin 19.1 21.1 22.2 23.3 24.1
Depreciation 4,320 5,200 5,290 5,569 5,848 EBIT Margin 17.8 19.6 20.9 22.1 22.9
Working Capital Change 5,527 11,674 332 (38) (454) APAT Margin 12.8 14.4 15.7 16.8 17.8
Tax Paid (19,470) (20,790) (25,940) (30,689) (35,926) RoE 63.7 72.0 78.4 81.0 80.7
OPERATING CASH FLOW ( a ) 55,513 69,383 69,131 82,522 97,776 RoIC 250.4 350.1 708.2 1,277.4 2,227.8
Capex (14,140) (8,610) (2,195) (3,348) (3,924) RoCE 61.4 70.5 78.4 81.0 80.7
Free Cash Flow (FCF) 41,373 60,773 66,936 79,175 93,852 EFFICIENCY
Investments (12,280) 5,980 (3,500) (3,500) (3,500) Tax Rate (%) 30.5 28.5 29.0 28.5 28.0
Non-operating Income 447 - - - - Fixed Asset Turnover (x) 4.3 4.3 4.6 5.0 5.4
INVESTING CASH FLOW ( b ) (25,973) (2,630) (5,695) (6,848) (7,424) Inventory (days) 28.0 25.8 25.5 25.3 25.2
Debt Issuance/(Repaid) 1,000 (2,770) - - - Debtors (days) 11.9 13.5 13.5 13.5 13.5
Interest Expenses (350) (260) - - - Other Current Assets (days) 15.2 14.4 13.5 12.6 11.8
FCFE 42,023 57,743 66,936 79,175 93,852 Payables (days) 68.1 73.6 69.4 65.4 61.7
Share Capital Issuance - - - - - Other Current Liab & Provns (days) 15.0 14.8 13.9 12.9 12.1
Dividend (36,793) (36,793) (43,286) (50,861) (58,436) Cash Conversion Cycle (days) (28.0) (34.7) (30.8) (27.0) (23.4)
Others (7,150) (7,150) (8,412) (9,884) (11,356) Net D/E (x) (0.7) (0.9) (0.9) (1.0) (1.0)
FINANCING CASH FLOW ( c ) (43,293) (46,973) (51,698) (60,745) (69,792) PER SHARE DATA (Rs)
NET CASH FLOW (a+b+c) (13,753) 19,780 11,738 14,930 20,560 EPS 19.6 23.7 29.4 35.6 42.7
EO Items, Others (430) 919 - - - CEPS 21.6 26.1 31.8 38.2 45.4
Closing Cash & Equivalents 14,113 32,974 44,712 59,642 80,202 Dividend 17.0 20.0 23.5 27.0 30.5
Source: Company, HDFC sec Inst Research Book Value 31.3 34.7 40.2 47.7 58.1
VALUATION
P/E (x) 80.1 66.3 53.6 44.2 36.8
P/BV (x) 50.3 45.3 39.1 33.0 27.0
EV/EBITDA (x) 52.9 44.5 37.1 31.0 26.2
EV/Revenues (x) 10.1 9.4 8.2 7.2 6.3
OCF/EV (%) 1.7 2.1 2.1 2.5 3.0
FCF/EV (%) 1.2 1.8 2.0 2.4 2.9
FCFE/Mkt Cap (%) 1.2 1.7 2.0 2.3 2.8
Dividend Yield (%) 1.1 1.3 1.5 1.7 1.9
Source: Company, HDFC sec Inst Research

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 HUL: COMPANY UPDATE

RECOMMENDATION HISTORY
Date CMP Reco Target
HUVR TP 5-Jun-17 1,086 BUY 1,200
19-Jul-17 1,158 BUY 1,304
1,700 22-Sep-17 1,240 BUY 1,363
1,600 10-Oct-17 1,220 BUY 1,363
26-Oct-17 1,272 BUY 1,401
1,500 13-Nov-17 1,291 BUY 1,458
27-Dec-17 1,347 BUY 1,514
1,400
12-Jan-18 1,375 BUY 1,514
1,300 28-Feb-18 1,340 BUY 1,514
11-Apr-18 1,390 BUY 1,559
1,200
15-May-18 1,504 BUY 1,615
1,100 7-Jun-18 1,571 BUY 1,701

1,000 Rating Definitions

Apr-18
Sep-17

Feb-18
Jun-17

Jun-18
Jul-17

Mar-18
Dec-17
Oct-17
Aug-17

Nov-17

Jan-18

May-18
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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 HUL: COMPANY UPDATE

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 HUL: COMPANY UPDATE

HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
Senapati Bapat Marg, Lower Parel,Mumbai - 400 013
Board : +91-22-6171 7330www.hdfcsec.com

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