FINANCIAL MODELLING OF

HINDUSTAN UNILEVER
LIMITED

TYBBA-A
Group 6
Harjas Anand, A015
Harshit Banthia, A016
Siddhi Kabra, A044
Sidhant Lodaya, A045
Yash Bhatia, A052
Introduction

Hindustan Unilever Limited (HUL) is India's biggest Fast Moving Consumer Goods
organization with a legacy of more than 80 years in the country. A vast majority of Indian
families use their products to feel better, look great and get more out of life with brands and
services that are good for them and good for others.

With more than 35 brands across 20 different categories like soaps, washing powders and
liquids, shampoos, skin care, toothpastes, antiperspirants, cosmetics, tea, coffee, packaged
foods, ice cream, and water purifiers, the company is a part of the everyday lives of millions
of consumers across India. Its portfolio incorporates leading household brands like Lux,
Lifebuoy, Surf Excel, Rin, Wheel, Glow & Lovely, Pond's, Vaseline, Lakmé, Dove, Clinic
Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Wall's and
Pureit.

The organisation has around 21,000 employees with sales of INR 38,273 crores (FY 2019-20).
HUL is an auxiliary of Unilever, one of the world's leading supplier of Food, Home Care,
Personal Care and Refreshment items with sales in more than 190 nations and an annual sales
turnover of €52 billion in 2019. Unilever has more than 67% shareholding in HUL.

Corporate Governance
Transparency and accountability are the two basic tenets of Corporate Governance at HUL.

Their approach to corporate governance is to believe that to succeed they require the highest
standards of corporate behaviour towards everyone they work with, the communities they
touch, and the environment on which they have an impact. This is their road to a sustainable
and a profitable growth while at the same time creating long-term value for their shareholders,
their people, and their business partners.

The Board of the Company has a good and diverse mix of Executive and Non-Executive
Directors with majority of the Board Members comprising Independent Directors and the same
is also in line with the applicable provisions of Companies Act, 2013 and SEBI Regulations,
2015. The Board consists of ten Directors comprising one Executive Chairman, six
Independent Directors and three Executive Directors. The composition of the Board has an
optimal mix of professionals, people with a lot of prior knowledge and experience and this
enables the Board to discharge its responsibilities and provide effective leadership to the
business. As a part of its succession planning exercise, the board periodically reviews its
composition to ensure that it is closely aligned with the strategy and long-term needs of the
Company.

Profile and Track of Existing Management

1. Mr Sanjiv Mehta (60) is the Chairman & Managing Director of Hindustan Unilever
Limited. He also leads Unilever’s South Asia business as President, Unilever, South
Asia and is a member of the Unilever Leadership Executive. He was appointed as
Chairman of the Company with effect from 30th June, 2018.

2. Mr Srinivas Phatak (49) is the Executive Director, Finance and IT and Chief Financial
Officer of Hindustan Unilever Limited (HUL). He is also the Vice President Finance
for Unilever, South Asia.

3. Mr Dev Bajpai (52) (Executive Director, Legal & Corporate Affairs, & Company
Secretary) is a Fellow Member of the Institute of Company Secretaries of India and has
a law degree from University of Delhi.

4. Mr Willem Uijen (45) is the Executive Director, Supply Chain of Hindustan Unilever
Limited. He also leads the Supply Chain function for Unilever, South Asia. He was
appointed as a Whole-time Director of the Company with effect from 1st January, 2020.

5. Mr O. P. Bhatt (63) (Independent Director) is the former Chairman of SBI (State Bank
of India).

6. Dr Sanjiv Misra (66) (Independent Director) is a retired Indian Administrative Services

(IAS) officer and a former member of the 13th Finance Commission.
 7. Ms Kalpana Morparia (65) (Independent Director) is the Chief Executive Officer of JP
Morgan, India. Ms Morparia leads each of the firm’s lines of business – Corporate &
Investment Banking and Asset Management.

8. Mr Leo Puri (57) has been appointed as an Independent Director on the Board of
Hindustan Unilever Limited effective October 12, 2018.

9. Dr Ashish Gupta (53) (Independent Director) is an entrepreneur, advisor and strategic

angel investor. He co-founded Helion Advisors in 2006 and presently represents Helion
Advisors, managing a corpus of $600 million across three funds. He also serves on the
boards of several firms including Infoedge, Simplilearn and Workspot. Dr. Ashish
Gupta was appointed as an Independent Director with effect from 31st January, 2020.

10. Dr Vibhav Sanzgiri (51) is the Global VP R&D Skin Cleansing, Site Leader R&D,
India and Executive Director R&D, Hindustan Unilever Limited

11. Ms Anuradha Razdan (44) (Executive Director – Human Resources (HR), Hindustan
Unilever & Vice President – HR, Unilever, South Asia) joined Unilever in 1999 as a
Management Trainee.

12. Ms Priya Nair (47) (Executive Director – Beauty and Personal Care (BPC), Hindustan
Unilever & Vice President – BPC, Unilever, South Asia) joined Hindustan Unilever
Limited in the Consumer Insights team in 1995.

13. Prabha Narasimhan (47) is the Executive Director – Home Care for Hindustan Unilever
and Vice President – Home Care, Unilever South Asia, responsible for Home Care
business spanning India, Pakistan, Bangladesh, Sri Lanka and Nepal.

14. Mr Sudhir Sitapati (44) (Executive Director, Foods & Refreshment) joined HUL in
1999 as a Management Trainee from IIM Ahmedabad.

15. Mr Srinandan Sundaram (45) was appointed as Executive Director - Sales & Customer
Development, HUL in September 2016.

COVID Impact

As per reports from the management, the industry was suffering from reduced demand way
before the lockdown. Post the initial lockdown, HUL’s operations were below 5% and a large
part of sales was attributed to the de-stocking of distributor and trade inventory. In the
beginning of May, the operations have already resumed in many of HUL’s plants with the
company functioning at 75-80%. However, the product mix is expected to change significantly.
As is the need of the hour, the company has increased the production of hand sanitizers by
100x. The margins will be much lower for this as it falls under the “essentials” category. Home
Care & Food & Refreshment businesses are expected to do well mainly due to short term pantry
loading and increased focus on hygiene. However, the Beauty and Personal Care (BPC)
business which falls under discretionary spends and was already suffering and further declined
(already 13.5% decline in Q4 of 2019-20). Other challenges were the supply chain disruptions
 caused due to lack of transportation and slower movement of inter-state cross border goods,
lack of labour availability (only 10-15% available in April 2020), procurement of raw
materials, and an increase in the credit period for distributors. Premiumization is also expected
to take a serious hit as the high margin BPC portfolio is lacking demand. HUL has an over
indexed premium portfolio with brands like Peers, Dove, Lipton, Taj Mahal, and Surf Excel,
etc. which might lead to some downtrading in the short term. In comparison to peers, HUL’S
premium portfolio contributes 30% more to its revenues and hence the impact on margins will
be higher for a few quarters.

On a positive note, HUL is using in-house capabilities like 'TrendsWatch' and 'People Data
Centre' to quickly pick up and decipher trends. This has enabled it to understand the shift in
demand, revamp innovation plans and adjust to channel shifts. Golden triangle of procurement,
quality and R&D have enabled HUL launch over 50 new product and pack innovations:

• Production of sanitizers was ramped up 100x.

• Several formats of Lifebuoy alcohol-based sanitizer (gels, liquids, sprays) in various
packs and sizes, as well as an alcohol-based multi-surface spray.
• Domex sodium hypochlorite-based spray for use in homes and offices.
• Lifebuoy laundry sanitiser.
• Surf excel laundry powders with enhanced germ kill.
• Indian population is highly zinc deficient and this deficiency leads to a weakening of
the immune system. Recent in-vitro studies have shown that free zinc itself may possess
potent anti-viral effects against Coronavirus replication. Horlicks historically had
4.3mg zinc/100g, which has now been boosted to 8.3mg/100g.
• World's first company to show that Lifebuoy soap, hand wash and hand sanitisers are
99.9% effective against the actual SARS-CoV-2 (COVID-19 causing) virus, based on
extensive studies done in the US.

Capital Structure
HUL has been a debt-free company since 2009-10. All its operations are funded by its Reserves
and Surplus. The company has an Authorised Share Capital of Rs 225 Crores and an Issued Share
Capital of Rs 216.48 Crores. The reserves and surplus for the year ended 2019-20 stand at around
Rs 7800 Crores.
The company issued additional share capital throughout the years but the major issue happened
in 1981 raising around 47 Crore, 1992 where they raised another 46 Crore and 54 Crore in 1998.
The major Non-Current liabilities seen in the company’s books are various Provisions and there
is no Long Term or Short-Term Debt. Most Liabilities are outstanding payables or advance from
customers and this proves the point that the company is 100% Debt Free.
Debt to Equity Ratio- 0.00
Return on Equity- 83.89%
The company has been able to generate efficient returns on the equity and the PBIT, PBT and Net
Profit Margins have increased over the years showing that the company will not need any other
kind of Debt in the future to be able to expand. The reserves have been increasing over the years
and are sufficient to fund the operations and expansions of the company.
Having 0 debt leads to lower Interest Expense and the company’s credibility stands really tall
since the Equity Shareholders are the only people invested in the company.

Competitors, Brands & Performances

Top Competitors- ITC, Proctor and Gamble, Colgate-Palmolive, Nestle, Loreal, Dabur, Godrej
Consumer Products, Patanjali, Emami Limited, Marico
HUL is India’s biggest FMCG Firm and below is the table comparing HUL’s Market Share with
its Competitors’:
HUL Market Competitor's
Sr No. Segment
Share Share
1 Deodrant Axe (25%) FA (8.5%)
Close Up and
2 Toothpaste Colgate (52%)
Pepsodent (33%)
Glow and Lovely Cavin Kare
3 Fairness Cream
(76%) (15%)
4 Floor Cleaner Domex (11%) Harpic (80%)
Detergent Nirma Ghadi
5 Wheel (21%)
Powder (14%)
6 Lifebuoy (18%)
Soap Nirma (10%)
7 Lux (15%)
8 Dove (8%)
9 Shampoo Clinic Plus (21%) Pantene (10%)
10 Sunsilk (16%)
ITC Ashirwad
11 Aata Annapurna (26%)
(40%)
12 Tea Taj Mahal (25%) Tata Tea (56%)
Moisturising
13 Vaseline (56%) Nivea (20%)
Cream
Kissan Ketchup Maggi Ketchup
14
(26%) (47%)
Food
Mapro Jam
15 Kissan Jam (65%)
(21%)

Market Capitalization of HUL 2013-20 (in Trillion Indian Rupees

 Source- Statista

Segment Wise Revenue:

(in crores)
Home Care- Rs. 13642
Beauty and Personal Care- Rs. 17345
Food and Refreshments- Rs. 7450
Others (Exports, Infant and Feminine Care)- Rs. 348
Segment Wise PBT Margin:
Home Care- 18.75%
Beauty and Personal Care- 28%
Food and Refreshments- 16.53%
Others (Exports, Infant and Feminine Care)- 1.72%
Important Segments and Brands:
(45%) Beauty and Personal Care- Axe, Dove (India’s number 1 hair care brand), Lifebuoy, Lux,
Pepsodent, Pond’s, Sunsilk, Tresemme, Vaseline, Closeup, Glow and Lovely, Lakme, Pears,
Clinic Plus, Indulekha
(35%) Home Care- CIF, Comfort, Wheel, Rin, Surf Excel, Vim,
(20%) Food and Refreshments- Boost, Cornetto, Horlicks, Knorr, Lipton, Magnum, Bru, Kissan,
Brooke Bond- Red Label and Taaza, Taj Mahal
Beauty & Personal Care
The Indian Beauty and Personal Care (BPC) market is expected to grow at a CAGR of 9%, from
USD 14-15 billion in 2017 to USD 22-23 billion in 2022. The growth has been aided by rising
disposable income which has grown over 35-45% from 2012-2017. With the rising disposable
income, demand for enhanced products and increasing desire to look good of the Indian consumer,
presents a golden opportunity for the beauty and personal care market to grow exponentially in
India.
HUL is one of the Top 3 players in this segment and a growth in this segment will directly help
HUL grow its revenue.

Home Care Segment

HUL is again the Market Leader in this sector due to its brands like Vim and Surf Excel. The
global Home Care Market is projected to grow at a CAGR of 3.98%. The increasing rate of
urbanization and change in lifestyle, owing to rising disposable incomes boosted by improved
sanitation standards are likely to positively impact the growth of the market in the years to come.
Further, nowadays consumers are more informed and concerned about personal and
environmental health. According to several studies, more than 20% of consumers globally prefer
products with packaging that is sustainable and/or made from recycled materials, thereby
leading to the demand for products with free-from claims.
As consumers have become more conscious about personal and home hygiene, post-COVID-19
pandemic, the demand for laundry care, surface care, and toilet care related products, both
personal and commercial, have witnessed rapid growth.
Both these industries have great potential to grow in the future and since they form a major chunk
of HUL’s revenue, we can expect the revenue to grow and the company to do well in the long run.

Distribution Channels
HUL has around 45 Manufacturing Units in India- Mangalore, Mysore, Pondicherry, Assam,
Nashik, Silvassa and others.
HUL's products, manufactured across the country, are distributed through a network of about
7,000 Redistribution Stockists (RS) covering about one million retail outlets. The RS is required
to provide the distribution units to the company salesman. The RS finances his stocks and provides
warehousing facilities to store them. The RS also undertakes demand stimulation activities on
behalf of the company. The distribution network directly covers the entire urban population. In
addition to the ongoing commitment to the traditional grocery trade, HUL is building a special
relationship with the small but fast emerging modern trade. Their scale enables them to provide
superior customer service including daily servicing, improving their range availability whilst
reducing inventories. They are using the opportunity of interfacing more directly with consumers
in this retail environment through specially designed communication and promotions. This is
building traffic into the stores while yielding high growth for their business
The general trade comprises grocery stores, chemists, wholesale, kiosks
andgeneral stores. Hindustan Unilever provides tailor made services to each of its channelpartners.
It has developed customer management and supply chain capabilities for partnering emerging self‐
service stores and supermarkets
Hindustan Lever Network
It is the company's arm in the Direct Selling channel, one of the fastest growing in India today. It
already has about several lakh consultants ‐ all independent entrepreneurs, trained and guided by
HLN's expert managers. HLN has already spread to over 1500 towns and cities, covering 80% of
the urban population, backed by 42 offices and 240 service centres across the country. It presents a
range of customised offerings in Home & Personal Care and Foods
Project Shakti
This model creates a symbiotic partnership between HUL and its consumers. Started in the late 2000,
Project Shakti had enabled Hindustan Lever to access 80,000 of India's 638,000villages. HUL's
partnership with Self Help Groups (SHGs) of rural women, is becoming an extended arm of the
company's operation in rural hinterlands. Project Shakti has already been extended to about 12 states
The project with social orientation and innovative approach conceived by HUL was Project Shakti.
It dramatically shifts the paradigm in rural distribution and communication, touching very large
number of rural Indians in a compelling manner. Project Shakti creates a win-win partnership for
consumers, rural women and Hindustan Lever. Project Shakti provides microenterprise opportunities
for women from Self-help Groups, making them direct-to-home distributors of Hindustan Lever.
Project Streamline
To cater to the needs of the inaccessible market with high business potential HULinitiated a
Streamline initiative in 1997. Project Streamline is an innovative and effective distribution network
for rural areas that focuses on extending distribution to villages with
less than 2000 people with the help of rural sub‐stockists/Star Sellers who are based in these very
villages. As a result, the distribution network directly covers as of now about 40per cent of the rural
population.

Future Economic, Industry, and Company Indicators for Strengths &

Weaknesses

Changing industry regulations/market trends if any

Key FMCG market trends observed based on historical data and projections are as follows:

1. Migration of Linear Supply Chains to Connected Supply Chains

The distribution network of an FMCG brand is both its strength and a key differentiator in
India. Brands have relied on an army of distributors, stockists and sub-stockists to distribute
their products to retailers. But retailers have become tech-savvy and rely on online
marketplaces to replenish their stocks. Brands have realised that by enabling the retailer, they
can maintain an edge over everyone else.
More brands will migrate to connected supply chain system to drive self-ordering from
retailers, launch new products directly to retailers, passing differential commission and
other outcomes.
2. A Tech-Focus will Help Boost Rural Growth
Rural consumption has slowed down. It was growing at 1.4-1.5x of urban but has dropped and
in some cases trailing behind urban growth. Brands which had a lower footprint in rural, have
posted higher growth rates than their peers
Depressed growth has been due to more than slowing down consumption. Wholesale
distributors or local “me-toos” have traditionally fulfilled rural needs. So, brands don’t know
which outlet in which village is serviced by the wholesaler. It gives the wholesaler undue
advantage where he can switch brands and loyalty for meagre benefits or reduce stock
movement of particular a particular brand to provide a competitive advantage to another.
Brands have often lost market shares due to inconsistent service from their rural distributors.
Digital solutions and retail intelligence platforms place the performance of a brand squarely in
its hands. Brands can digitise not only their salesforce but also distributors to ensure direct
servicing of outlets in rural. It is thereby making rural a primary lever of growth for brands
3. Rise of the FMCG Start-ups

Millennials are eclectic in their food preferences, and FMCG start-ups have capitalised by
launching innovative products. Epigamia took off on the popularity of their Greek yoghurt
range. When they introduced the product, it was unthinkable that India’s dairy market would
welcome anything other than the staples of milk and sour curd. And yet, Epigamia has posted
double-digit growth. FMCG giants thus far have failed to either identify or capitalise on the
changing trends of millennials.

It’s the early capture of the market that gives the start-up brands a head start. They have created
their niche and in doing so have grown their toppling in excess of 50% YoY while the
traditional brands struggle with single-digit growth.
4. Gamification Will Come of Age
The digital world is chock-full of offers to lure consumers. Digital payment companies like
Paytm are primarily known to offer cash backs on their apps. Google Pay made financial
transactions fun by offering cashback through scratch cards. It gamified the experience for
consumers. More and more brands are ensuring repeat customers by making transactions
entertaining where completing specific tasks promises rewards through cashback, discounts or
coupons. This is gamification.
The launch of Hershey’s Kisses brand is an excellent example of an FMCG brand that used
gamification to increase its market share successfully. The brand leveraged the gamification
tech provided by Bizom to encourage their salespeople to widen the placement of their products
and increase offtakes. Another brand is Halonix, a lighting and electrical brand that used
gamification to motivate its teams to achieve specific organisational goals. The approach has
helped them to speed up growth and improve retail execution in its markets.

SWOT Analysis

Strengths

• HUL is a part of the Unilever group, hence strong brand equity

• HUL has a distribution reach of 7 million+ outlets and a direct distribution of 3.5mn+
retail outlets
• Products with presence in over 20 consumer categories with over 700 million Indian
consumers using its products
• Book value per share improving for last 2 years.
• Rising net cash flow and cash from operating activity.
• By marking mainstream VIPs for the commercials of their items HUL has made
positive verbal exchange over the ages which helped them in social acknowledgment
of their items brilliantly focused on and implied for various salary gatherings
• Company with no debt, zero promoter pledge and increasing ROE&ROA in past 2
years.
• FII/FPI and other institutions increasing their shareholding

Weakness

• Promoter decreasing their shareholding.

• Hindustan Unilever faced controversies like skin lightening creams, pollution etc
• Sometimes having an expansive brand portfolio can prompt confounded situating.
Value situating in certain classifications takes into account low-value rivalry like
AMUL caught Quality’s piece of the overall industry .
• Decline in Net Profit with falling Profit Margin (QoQ)
Opportunities

• Expansion into upcoming segments. Example – The brand Nature Protect to get a
further foothold in the hygiene segment in the backdrop of Covid-19.
• Surge in E-commerce. HUL saw an increase in their e-commerce from 3% to 6%
from FY18-19 to FY19-20. With the adoption of Adonis Software System, it can
further gain on the upcoming digital trends in India.
• The Government has allowed 100% Foreign Direct Investment (FDI) in food
processing and single-brand retail and 51% in multi-brand retail. This would bolster
employment, supply chain and high visibility for FMCG brands across organised
retail markets thereby bolstering consumer spending and encouraging more product
launches.
 • GST is expected to transform logistics in the FMCG sector into a modern and
efficient model. Thus, HUL can use this opportunity in remodelling their operations
into larger logistics and warehousing.

Threats

• Intense and increasing competition amongst other FMCG companies can affect
business of HUL.
• FDI in retail thereby allowing international brands.
• Competition from unbranded and local products can hurt Hindustan Unilever’s market.
• Consumers may have to shell out more money for their daily use products as FMCG
firms, which are facing inflationary pressure on their key raw material inputs, are
considering marginal hike on their products price to offset it. FMCG players have been
trying to absorb the price increase of raw material inputs such as coconut oil, edible oil
and palm oil, but they are unlikely to hold the prices of their commodities for a long
time as that will impact their gross margins

Future Capex Plans and Their Possible Funding Options

• HUL to form a new subsidiary with an authorised share capital of Rs.2000 crore to avail
the benefits of a recent tax provision that puts a lowered tax burden on entities engaged
in manufacturing.
• HUL completed a merger with GSK in which they purchased Horlicks Brand for Rs.
3045 crores. This merger, gives a massive boost to the Food & Refreshments business
of HUL. The food drinks category in India has only 24% penetration and rural
penetration is only 14%. Horlicks has 50% volume share, and with HUL’s superior
distribution reach, the management is confident of achieving double-digit growth.
• HUL’s acquisition of “Aaditya Milk” to ice cream portfolio to compete with the likes
of Amul.
• HUL in 2018 launched “Project Moo”, an app-based dairy farming solution which aims
to improve milk productivity in cattle.
• In a move to diversify the product line in the personal care segment, HUL plans to
launch BB cream range that will land in March 2021.
• HUL is a debt free company thus the projects it undertakes are a result of its money
raised from its already existing equity and leveraging from its other subsidiaries and
brands. It also has recorded to offer non cash-deal for different M&A’s with the recent
merger with GSK being a top example. (It will issue 4.39 of its own shares for every
share of GSK Consumer.). Right offerings are also a common part of such deals
accompanied by royalty payments.
Way Ahead

HUL is playing on consumption growth in India. The company has proved its ability to effect
price hikes and ability to grow ahead of market, which, combined with improved outlook for
S&D and personal care, and strong growth in processed foods and beverages, boosts our
positive outlook on the company. HUL has strongly entered the natural’s category and termed
it a mega trend. Though commodity prices have been moving upward, HUL shows no sign of
downturn as they are likely to offset any pressure likely to arise at the gross margin level.
Though it has to take certain measures for these risks that may endanger their way ahead:
1. INR depreciation impacts price of imported raw materials.
2. Maintaining market share due to increased competition from local players may cause
expenses in fields such as advertisement, etc. to increase
3. The price war in HUL’s popular segments with new entrants entering the fray could hit
the company hard as they are more inclined to a volume driven growth rather than
focusing more on the pricing strategy.

Comparing Estimated FY 2021 Figures with Actual Results up to 31 st

December, 2020

INCOME STATEMENT (In INR Crores)

ACTUAL
PARTICULARS 2020-21 E RESULTS UPTO Q4 2021 E
31/12/2020
Total Income 41,778.51 34,268.00 7,510.51
Total Expenses 31,009.13 26,359.00 4,650.13
Profit Before Tax 10,769.38 7,668.00 3,101.38
Profit for the
Year 8,055.49 5,811.00 2,244.49

• We have compared our estimates for the year 2020-21 with the Actual Results up to Q3
of the FY 2020-21.
• The Estimates are in line with the Actual Results received so far.
• The difference between both the figures is the Estimation for Q4 of FY 2020-21.
• Hence, for the purpose of our analysis, we have relied on our estimated figures as they
present a fair picture of the actual results.

Valuation
• We have used Free Cash Flow to Equity (FCFE) Valuation method to find the fair value
of HUL.
• HUL, being a Zero Debt Company, undertakes projects through either money raised
from Equity Investors or internally generated Cash Flow.
 • Easing of lockdown restrictions and restoration of production and distribution across
the business should help HUL deliver growth in the second half of FY 2021.
• Management ability to emerge strong in challenging macro conditions (GST,
demonetization), strong and cash rich balance sheet and synergy benefits due to the
merger with GSK will improve the outlook for HUL in the coming years.
• We have arrived at a fair value of ₹2,233.85, which implies P/E multiples of 60x and
57x on FY21E and FY22E EPS, respectively.

Key FCFE Assumptions

• We have discounted the estimated free cash flows from FY21E to FY25E by using a
Two Stage Growth Model.
• The formula used for calculation of FCFE is as follows: CFO – Interest*(1-t) – Capex
(+)/(-) Net Borrowings.
• The discounting rate in the High Growth Period (Ke=7.43%) is calculated using the
CAPM Model, wherein:
Rm= Average of the 5 Year HPR of Nifty FMCG from 2016 to 2020
Rf= 5 Year G Sec Bond Yield
Beta= Slope of the 5 Year HPR of HUL and of Nifty FMCG
• We have assumed a terminal growth rate of 5.77% beyond the forecasted period.

Nifty-
Year Nifty-FMCG HUL FMCG_HPR HUL_HPR
2016 19,764.15 826.30
2017 23,542.30 1,368.10 19.12% 65.57%
2018 26,127.40 1,818.05 10.98% 32.89%
2019 30,321.40 1,923.25 16.05% 5.79%
2020 27,319.20 2,393.55 -9.90% 24.45%

Beta = 0.58
Rm = 9.06%
Rf (5 Year G-Sec Yield) 5.15%

Ke = 7.43%
 • FCFE to grow at a CAGR of 8.66% during FY21E to FY25E

FCFE
12,000.00 20.00%
10,040.00 18.00%
10,000.00 9,473.00
8,935.00 16.00%
8,460.00
14.00%
8,000.00 7,201.00
12.00%
6,000.00 10.00%
8.00%
4,000.00
6.00%
4.00%
2,000.00
2.00%
- 0.00%
FY21 FY22 FY23 FY24 FY25

FCFE (Rs Crore) YoY Growth%

Key Ratios

2015- 2016- 2017- 2018- 2019- 2020- 2021- 2022- 2023- 2024-
Particulars 16 17 18 19 20 21 E 22 E 23 E 24 E 25 E
Per share (Rs)
EPS 19.12 20.75 24.20 27.89 31.13 37.21 39.40 41.71 44.14 46.70
Book Value 29.02 29.99 32.69 35.39 37.10 42.72 45.85 49.31 53.10 54.96
DPS 19.13 20.31 21.49 25.22 28.84 34.96 37.02 39.19 41.48 43.89
Dividend Payout (%) 100% 98% 89% 90% 93% 94% 94% 94% 94% 94%
 Valuation (x)
P/E 45.48 43.94 55.10 61.20 73.84 60.04 56.70 53.56 50.61 47.83
P/BV 29.96 30.40 40.78 48.23 61.95 52.29 48.72 45.30 42.07 40.64

Return Ratios (%)

ROE 70.33% 77.21% 81.93% 85.89% 93.24% 88.97% 87.66% 86.20% 86.44%

Profitability Ratios
(%)
Gross Profit Margin 55.01% 55.14% 54.64% 53.82% 54.97% 56.75% 56.75% 56.75% 56.75% 56.75%
Operating Profit
Margin 15.26% 17.58% 20.53% 22.50% 23.51% 25.78% 25.80% 25.82% 25.84% 25.85%
Net Profit Margin 12.15% 12.82% 14.63% 15.52% 17.05% 19.28% 19.30% 19.32% 19.33% 19.33%

Liquidity Ratios (%)

Current Ratio 1.44 1.31 1.29 1.36 1.31 1.36 1.41 1.46 1.50 1.55
Quick Ratio 1.06 0.98 1.02 1.07 1.02 1.07 1.11 1.16 1.20 1.25

Solvency Ratio (%)

Debt to Equity Ratio 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Turnover Ratios
Total Asset Turnover
Ratio 2.44 2.24 2.22 2.11 2.07 2.05 2.02 2.00 1.99
Receivable Days 10.38 10.58 13.23 12.56 10.37 11.29 11.29 11.29 11.29
Inventory Days 56.82 53.08 48.58 51.88 53.77 52.81 52.81 52.81 52.81
Payable Days 135.09 146.40 142.60 146.64 148.36 143.31 143.67 143.67 143.67

• Turnover Ratios to remain relatively constant throughout the estimated period,

indicating no increase in efficiency of collection or usage of assets to generate greater
sales.
• HUL has a Quick Ratio>1, which conveys that a majority of its Current Assets are not
stuck up in Inventory.
• ROE to expand in the estimated period to 86.44% in FY25 E, driven by the YoY
growth in Net Profit.
 ROE
95.00% 93.24%

88.97%
90.00% 87.66%
85.89% 86.20% 86.44%

85.00%
81.93%

80.00% 77.21%

75.00%
70.33%
70.00%

65.00%
FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY24E FY25E

Net Profit and YoY Growth

12,000.00 25.00%
10,111.34
10,000.00 9,556.60
9,030.07 20.00%
8,530.19
8,055.49
8,000.00
6,738.00 15.00%
6,036.00
6,000.00 5,237.00
4,490.00 10.00%
4,137.00
4,000.00

5.00%
2,000.00

- 0.00%
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY24E FY25E

Net Proft (in Rs Crores) YoY Growth (%)

Technical Analysis
Long Term

• Analysis: The weekly chart for HUL seen from 2019-2021 shows that in the upcoming
weeks it is expected to show a trend reversal as seen from historical trends and follow
a bullish trend crossing the middle Bollinger band (i.e., the exponential moving average
for 20-day close price) and achieve new highs for the stock.

Short term
 • Analysis: After the greatest fall in Sensex after May 2020 on Friday 26/02/2021, HUL’s
share price is expected to recover from the recent shock which is backed by the volume
indicator RSI and Linear Regression is used to predict movements of the share price.

Conclusion
According to our forecasts and the future capex decisions the company is growing at a healthy
rate.
HUL is the market leader in laundry, haircare, Tea, skin care, skin cleansing and make up.
Whereas in other product offerings they are either 2nd or 3rd. The fundamentals of the
company look very strong which reflects its best in industry ROE and its share prices over the
course of last ten years. From 265 to almost 2400 as on 31st march, 2020. Being in the sector
of FMCG which has demand throughout the year, along with diversified portfolio, the company
will be in this sector for many more years.
Considering the factors said above it is a BUY call with an investment horizon of Medium
term.

Source: Motilal Oswal HUL Report, 2018

Looking at the rate of returns given by Motilal Oswal in 2018, it is still prevalent today. From
the below image the rate of returns HUL stock has given over the years is still over 15% in
majority of the years. Thus, confirming our Buy call.
The following table shows the returns on the stock, the average returns and risk during a period,
and the returns per unit of risk taken. The long term gives more consistent returns per unit of
risk with lower risk taken. Medium term gives higher returns with that much higher risk than
long term. Short- term provides lower returns but has the least risk involved.
Long term investment horizon is more than 10 years. Medium term investment horizon is 3 to
10 years. Short term horizon is 0 to 3 years.
A risk-averse investor will be more attracted towards this stock because of its nature of giving
moderate returns with low risk when compared to peers who have higher risk and return. Even
it has a long-term rating of CRISIL AAA/ Stable which attracts risk-averse investors. HUL is
a dividend paying stock which gives a constant income to investors which is beneficial to them
in uncertain markets. Lower assets mean lower liabilities, which translates into lower risks
during periods of economic downturn, making it a favourite of risk-averse investors.
Target Price and Margin
HUL has been on a rise till its introduction in the Indian stock market. It started in 1991 at Rs.
165 and peaked in 1999 at Rs. 2295. In 2000 it did a stock split of 10:1 which made the stock
price Rs. 184 by the end of the year. Currently the price has again jumped to 2100 levels. This
increasing trend is happened to be seen in future too assuming there are no stock split or bonus
shares declared. Over the course of 20 years, it has given average growth of 12.81% or CAGR
of 12.98%. For our medium investment horizon, it has given a CAGR of 18.88%. Using
forecast linear for predicting the stock price for next 3 years and then applying the CAGR in
the medium-term investment horizon. The returns in estimated years are calculated using
Current Market Price of 2150.25 at BSE as on 1st March. 2021.
Margin is taken based on BSE’s given upper and lower band to HUL of +/- 10%.
Sources

• https://www.livemint.com/companies/news/hul-announces-plan-to-set-up-new-arm-
to-invest-rs-2-000-crore-11582546420557.html)
• https://www.livemint.com/Companies/nzi5eZSvHyIxVSL5YuyJ0J/HUL-to-acquire-
Adityaa-Milk-ice-cream-brand.html)
• https://www.hul.co.in/news/news-and-features/2018/project-mooo.html)
• https://economictimes.indiatimes.com/news/company/corporate-trends/huls-new-
marketing-campaign-and-upcoming-products-in-the-
pipeline/articleshow/78584568.cms?from=mdr)
• https://www.livemint.com/Money/6p1SqrFjkLc308lf7EABWM/Unilever-uses-
pricey-HUL-shares-to-pay-top-dollar-for-GSK-Co.html)
• Initiating Coverage – HUL by HDFC Securities
• Motilal Oswal HUL Report,2018
• https://www.hul.co.in/about/
• https://www.hdfcsec.com/hsl.research.pdf/Initiating%20Coverage%20-
%20Hindustan%20Unilever%20Ltd.pdf
• https://www.edelresearch.com/common/ShowCategoryLoggedOut.aspx?id=918#
• https://www.crisil.com/mnt/winshare/Ratings/RatingList/RatingDocs/Hindustan_Unil
ever_Limited_November_04_2020_RR.html
• https://economictimes.indiatimes.com/volatile-markets-and-the-risk-averse-
investor/articleshow/4599123.cms?from=mdr