KEY DATA All round strong show - edelweissresearch.com

Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited

KEY DATA

Rating BUY Sector relative Outperformer Price (INR) 2,408 12 month price target (INR) 2,900 Market cap (INR bn/USD bn) 5,657/76.3 Free float/Foreign ownership (%) 38.1/14.5

What’s Changed Target Price

Rating/Risk Rating ⚊

QUICK TAKE

All round strong show

Hindustan Unilever (HUL) reported Q4FY21 net sales (up 34.6% YoY), EBITDA (up 43.2% YoY) and adjusted PAT (up 35% YoY) marginally ahead of our estimates. On comparable basis, revenue grew 21% YoY. Domestic volumes rose 16% YoY on a base of -7%. All segments clocked a strong double-digit growth with Foods & Refreshment spearheading growth (up 36% excluding GSK). Home Care rebounded

(up 15% YoY) as fabric wash picked up.

Improving portfolio mix combined with HUL’s cost control, price hikes and synergies from GSK takeover should aid EBITDA margin despite inflationary input prices. Retain ‘BUY’ with revised TP of INR2,900 as we roll over to Sept 2022E.

FINANCIALS (INR mn)

Year to March FY20A FY21E FY22E FY23E

Revenue 3,97,830 4,70,280 5,31,121 5,79,710

EBITDA 98,610 1,16,260 1,34,052 1,52,138

Adjusted profit 67,640 80,000 96,965 1,12,723

Diluted EPS (INR) 31.2 34.0 41.3 48.0

EPS growth (%) 11.6 9.0 21.2 16.3

RoAE (%) 86.5 29.5 20.1 22.9

P/E (x) 77.1 70.7 58.3 50.2

EV/EBITDA (x) 56.7 48.0 41.5 36.4

Dividend yield (%) 1.1 1.7 1.5 1.8

PRICE PERFORMANCE

Broad-based growth

What we liked: All three segments posting double-digit growth. YoY as well as QoQ

EBITDA margin expansion despite significant inflation.

What we did not like: BPC segment witnessing QoQ margin compression (down

167bps QoQ) as spike in palm oil prices continues to drag soap’s profitability.

Key highlights: The home care segment grew 15% YoY enabled by a strong recovery

in fabric wash. BPC grew 20% with skin cleansing, hair care and oral care clocking

strong double-digit growth. Foods & Refreshment sustained high growth

momentum--up 36%. The company launched INR2 sachets in Boost and Horlicks to

drive penetration. Gross margin was hit 125bps YoY due to spike in inflation in a few

key raw materials (tea, palm oil); however, cost optimisation and operating leverage

led to EBITDA margin expansion of 151bps YoY.

Q4FY21 conference call: Key takeaways

87% of the portfolio gaining penetration with 82% of the business gaining volume

share. HUL is focusing on rapid digitization and now has 0.5mn Shikhar outlets.

Revenue from Shikhar stores 6x in Q4FY21 versus Q4FY20. Elevated presence in

chemist channel after GSK acquisition is helping.

Explore:

Outlook and valuations: On a firm footing; maintain ‘BUY’

We expect HUL to be key beneficiary of strong rural demand. In terms of covid-19

impact, we believe the demand situation is dynamic; however, HUL is well placed in

terms of its supply chain. We retain ‘BUY/SO’ with a revised TP of INR2,900 (earlier

INR2,805) rolling forward to Sept 2022E. The stock is trading at 50.2x FY23E EPS.

Financials Year to March Q4FY21 Q4FY20 % Change Q3FY21 % Change

Net Revenue 1,21,320 90,110 34.6 1,18,620 2.3

EBITDA 29,570 20,650 43.2 28,540 3.6

Adjusted Profit 21,290 15,770 35.0 19,630 8.5

Diluted EPS (INR) 9.1 7.3 24.3 8.4 8.5

Above In line Below

Profit

Margins

Revenue Growth

Overall

30,000

34,600

39,200

43,800

48,400

53,000

1,925

2,040

2,155

2,270

2,385

2,500

Apr-20 Jul-20 Oct-20 Jan-21 Apr-21

HUVR IN Equity Sensex

India Equity Research Consumer Staples April 29, 2021

HINDUSTAN UNILEVER RESULT UPDATE

Abneesh Roy Tushar Sundrani +91 (22) 6620 3141 +91 (22) 6620 3004 [email protected] [email protected]

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HINDUSTAN UNILEVER

Edelweiss Securities Limited

2 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset

Financial Statements

Income Statement (INR mn) Year to March FY20A FY21E FY22E FY23E

Total operating income 3,97,830 4,70,280 5,31,121 5,79,710

Gross profit 2,15,240 2,48,800 2,84,554 3,13,497

Employee costs 18,200 23,580 25,617 26,214

Other expenses 47,130 47,540 59,240 64,078

EBITDA 98,610 1,16,260 1,34,052 1,52,138

Depreciation 10,020 10,740 10,937 11,578

Less: Interest expense 1,180 1,170 1,150 1,150

Add: Other income 6,320 4,100 9,069 11,290

Profit before tax 93,730 1,08,450 1,31,034 1,50,699

Prov for tax 24,090 26,060 34,069 37,976

Less: Other adj 0 0 0 0

Reported profit 69,640 82,390 96,965 1,12,723

Less: Excp.item (net) (2,000) (2,390) 0 0

Adjusted profit 67,640 80,000 96,965 1,12,723

Diluted shares o/s 2,165 2,350 2,350 2,350

Adjusted diluted EPS 31.2 34.0 41.3 48.0

DPS (INR) 26.2 40.5 37.1 43.2

Tax rate (%) 25.7 24.0 26.0 25.2

Important Ratios (%) Year to March FY20A FY21E FY22E FY23E

Other exp (% of rev) 12.9 13.1 12.4 12.3

Con A&P (% of rev) 12.0 10.3 11.3 11.2

Gross margin (%) 54.1 52.9 53.6 54.1

EBITDA margin (%) 24.8 24.7 25.2 26.2

Net profit margin (%) 17.0 17.0 18.3 19.4

Revenue growth (% YoY) 1.4 18.2 13.0 9.2

EBITDA growth (% YoY) 11.0 17.9 15.3 13.5

Adj. profit growth (%) 11.6 18.3 21.2 16.3

Assumptions (%) Year to March FY20A FY21E FY22E FY23E

GDP (YoY %) 4.8 (6.0) 7.0 6.0

Repo rate (%) 4.4 3.5 3.5 4.0

USD/INR (average) 70.7 75.0 73.0 72.0

Volume gr. (overall) 2.0 1.0 7.0 7.0

Pricing gr. (overall) (0.6) 1.0 6.0 2.2

COGS % of sales (con) 45.9 47.1 46.4 45.9

Staff cost (% of rev) 4.7 5.1 4.9 4.6

Yield on cash 9.9 5.7 10.0 10.0

Dep (% of gross block) 14.6 11.8 10.8 10.5

Valuation Metrics Year to March FY20A FY21E FY22E FY23E

Diluted P/E (x) 77.1 70.7 58.3 50.2

Price/BV (x) 63.3 11.9 11.6 11.4

EV/EBITDA (x) 56.7 48.0 41.5 36.4

Dividend yield (%) 1.1 1.7 1.5 1.8

Source: Company and Edelweiss estimates

Balance Sheet (INR mn) Year to March FY20A FY21E FY22E FY23E

Share capital 2,165 2,350 2,350 2,350

Reserves 80,130 4,74,390 4,84,087 4,95,359

Shareholders funds 82,295 4,76,740 4,86,437 4,97,709

Minority interest 170 200 200 200

Borrowings 0 0 0 0

Trade payables 75,350 88,020 94,574 1,07,215

Other liabs & prov 14,980 82,720 82,720 82,720

Total liabilities 1,98,695 6,87,400 7,03,650 7,27,563

Net block 49,600 61,160 60,223 56,644

Intangible assets 5,190 4,53,270 4,53,270 4,53,270

Capital WIP 5,970 7,450 4,500 4,500

Total fixed assets 60,760 5,21,880 5,17,993 5,14,414

Non current inv 20 20 20 20

Cash/cash equivalent 63,665 71,780 90,672 1,12,876

Sundry debtors 11,490 17,580 17,461 19,059

Loans & advances 16,580 14,390 14,390 14,390

Other assets 33,860 40,930 42,294 45,984

Total assets 1,98,695 6,87,400 7,03,650 7,27,563

Free Cash Flow (INR mn) Year to March FY20A FY21E FY22E FY23E

Reported profit 97,230 1,16,720 1,31,034 1,50,699

Add: Depreciation 10,020 11,340 10,937 11,578

Interest (net of tax) 1,180 1,170 1,150 1,150

Others (60) (10) 12,087 12,728

Less: Changes in WC 4,110 (1,010) 5,308 7,354

Operating cash flow 76,230 91,630 1,14,360 1,32,805

Less: Capex (8,620) 22,300 7,050 8,000

Free cash flow 84,850 69,330 1,07,310 1,24,805

Key Ratios Year to March FY20A FY21E FY22E FY23E

RoE (%) 86.5 29.5 20.1 22.9

RoCE (%) 116.9 39.2 27.4 30.8

Inventory days 53 52 54 53

Receivable days 14 11 12 11

Payable days 147 135 135 138

Working cap (% sales) 8.3 7.3 9.0 10.9

Gross debt/equity (x) 0 0 0 0

Net debt/equity (x) (0.8) (0.2) (0.2) (0.2)

Interest coverage (x) 75.1 90.2 107.1 122.2

Valuation Drivers Year to March FY20A FY21E FY22E FY23E

EPS growth (%) 11.6 9.0 21.2 16.3

RoE (%) 86.5 29.5 20.1 22.9

EBITDA growth (%) 11.0 17.9 15.3 13.5

Payout ratio (%) 81.4 115.5 90.0 90.0


HINDUSTAN UNILEVER

Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 3

Segment growth and margins

Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21

Overall volume growth (YoY) (7.0) (8.0) 1.0 4.0 16.0

Overall net sales growth (YoY)* (9.4) 4.4 16.1 20.9 34.6

% sales growth (YoY)

Home care (4.3) (2.1) (1.6) (1.4) 14.6

Beauty and personal care (13.5) (12.0) (0.2) 9.7 19.7

Foods & Refreshments* (6.7) 51.7 82.9 79.9 96.4

Others* (46.3) 55.5 130.8 241.3 222.2

EBIT margins (%)

Home care 19.0 18.8 20.4 18.9 21.1

Beauty and personal care 24.9 28.1 29.3 29.2 27.5

Foods & Refreshments 12.6 19.7 16.5 14.1 16.4

Others 5.6 28.7 26.2 19.5 29.7

Source: Company

*Q1FY21, Q2FY21, Q3FY21 and Q4FY21 includes GSK Consumer’s portfolio, which is not in

the base quarter; hence, growth rates are not comparable.

Portfolio snapshot

Source: Company

Domestic consumer growth and USG excludes the impact of merger of GSK CH and acquisition of VWash

HINDUSTAN UNILEVER



Home Care : Innovations & Activations in the quarter

Source: Company

Beauty & Personal Care : Innovations & Activations in the quarter

Source: Company


HINDUSTAN UNILEVER


Foods & Refreshment : Innovations & Activations in the quarter

Source: Company

Overall volume growth

Source: Company

Q4FY21 conference call | Key takeaways

Overall

87% of the portfolio gaining penetration.

Agile & Resilient Supply Chain - 1.3X capacity Vs pre COVID.

Company is focusing on rapid digitization with 0.5 mn Shikhar outlets. Added

350,000 outlets.

Focus on ecommerce, GT & Rural.

150 SKUs launched in FY21.

Big brands saw 5X Growth rates vs FY20.

Market Development & Premiumisation – These categories grew 2x vs core;

WiMI led opportunities.

-10.0

-4.0

2.0

8.0

14.0

20.0

Q3

FY1

7

Q4

FY1

7

Q1

FY1

8

Q2

FY1

8

Q3

FY1

8

Q4

FY1

8

Q1

FY1

9

Q2

FY1

9

Q3

FY1

9

Q4

FY1

9

Q1

FY2

0

Q2

FY2

0

Q3

FY2

0

Q4

FY2

0

Q1

FY2

1

Q2

FY2

1

Q3

FY2

1

Q4

FY2

1

(%)

HINDUSTAN UNILEVER



Domestic consumer growth came in at 21% YoY with 16% YoY uvg.

COVID surge unprecedented; demand outlook difficult to predict. However

company’s agility and responsiveness across the value chain significantly better

than pre COVID.

Health, Hygiene & nutrition about 80% grew in double digits

82% of company’s business is gaining volume share as per kantar panel.

Increased portfolio by introducing Immunity boosting under Horlicks and high

sciences products.

Nutrition business at 31.8% EBITDA margin expanded 370bps, ahead of

expectations.

Company is positioned well to tackle challenges arising out of covid-19.

Company has rejigged employees into different roles as the pandemic has led to

decrease in demand in some categories necessitating fewer employees.

Retailers were able to place orders through Shikhar app when sales person

couldn’t visit.

Revenue from shikhar stores at 6x in Q4FY21 vs Q4FY20.

Ecommerce contribution has doubled.

Company has setup a specific premium beauty team in its beauty and personal

care segment.

Company has digitised factories and is automating warehouses.

Company has increased grammage in INR5 packets of Horlicks. The company is

committed to increasing penetration in HFD category.

Company’s focus is on Consumer centric innovations, market development and

digital transformation ‘Re-imagining HUL’.

Company’s focus in on winning in high growth channels of E-commerce and

General Trade.

Company is focused on delivering volume led competitive growth

INR 5 is for two cups of Horlicks and INR 2 is for one cup. The company will

continue to drive jars but LUP will increase penetration. High sciences is also a

focus area.

Because of micro containment zones, Impact on supply chain is limited

First fortnight of April, demand momentum was strong, second half of April

demand impacted to some extent, however not as bad as last year.

Elevated presence in chemist after GSK acquisition helps.

Strengthened market leadership in Lifebuoy.

Nature protect for its proposition should do well. Benefits of Neem are well

known.

Backend for fulfilment via Shikhar is completely different.


HINDUSTAN UNILEVER


Company is fulfilling orders the next day after the order is placed.

In terms of GSK portfolio, company is still grappling with what to do with biscuits

portfolio.

HFD penetration is about 25%. Company’s business in HFD is in east and south

India. Company is expanding geographically.

GSK sales integration still happening.

Customers who use premium products remain somewhat insulated from the

vagaries that normal consumer do. So essentially if the supply is available, the

consumption continues.

Domex has a strong proposition of killing germs and viruses and hence products

around disinfection makes sense.

Rural has grown double digits in Q4FY21. Low to mid-single digits growth in

urban.

Ecommerce contribution is 5-6%. Ecommerce is more profitable than MT and MT

is more profitable than GT.

Home Care

Household Care: Continues to perform well. Strong double-digit growth led by

Vim.

Fabric Wash: Strong sequential growth aided by increased mobility;

Performance competitive. Liquids and premium portfolio growing ahead of the

category

Purifiers: Improving sequentially led by acceleration in E-commerce.

Beauty & Personal Care

Skin Cleansing: Robust performance led by high double-digit growth in Lifebuoy.

Premium Skin Cleansing continues to do well, Lux stable. VWash momentum

accelerates. Inflationary pressures remain elevated; calibrated pricing actions to

continue.

Oral Care: Growth momentum sustained, Closeup continues to deliver strong

results.

Hair Care: High double-digit growth & broad-based across brands. Contextual

communications and focussed innovations drive performance.

Skin Care: Strong performance in winter portfolio led by Vaseline. Face Cleansing

& Talc segments continue to do well. GAL sequential momentum picking up

coupled with penetration gains.

Color Cosmetics: Demand continues to improve sequentially; category well

positioned.

Foods & Refreshment

Foods: Soups and Ketchups grow in high double-digits. With increased mobility

we saw softening of ‘In-home consumption’ trend in the quarter.

Beverages: Tea share gain momentum continues. High double-digit growths

across brands. Stable performance in Coffee.

HINDUSTAN UNILEVER



Nutrition: Focus on volume led growth continues to yield strong results; volumes

grow in teens, penetration gains continue. Horlicks and Boost INR 2 sachets

launched to unlock penetration. ERP integration completed in current quarter;

Sales systems go live in Q2FY22. Volume growth - High teens. Underlying sales

growth lower than that but still double digit. There was some disruption in terms

of sub distributors, company will be addressing it in the coming quarter.

Ice Cream, Food Solutions & Vending: Strong recovery in Ice cream. Innovation

intensity dialled up with launch of Cornetto Chokissimo, Trixy Cup and premium

Kulfis.

Costs and margins

Company has ambitious Savings Agenda (>8%).

Company has taken 2% Sequential step-up in consumer prices.

Elevated inflationary pressure in select large categories. Company has taken

Judicious pricing actions coupled with cost agility and savings programmes to

counteract this.

In terms of skin cleansing, palm oil is up 40-50% YoY and also up QoQ. 10-13%

price hike required to just cover this cost. By the end of April company has taken

7-8% price hike. Will take more if demand holds up. Company is not shy of leading

pricing action

In Tea, company has taken pricing action in small lots to manage inflation.

In home care, company has reversed some pricing cut as crude continues to be

inflationary.

Other expenditure tends to be 13% of revenue.

Considering the inflation, the focus is to maintain margin in a healthy range.

INR300 mn benefit in tax.

ETR guidance - 25.9-26%

Outlook and valuation: On a firm footing; maintain ‘BUY’

We remain positive on HUL's ability to outgrow the market, as well as its pricing

power underpinned by distribution expansion, deepening direct reach and product

innovation initiatives. Demand shift from the unorganised segment should result in

additional gains for the company. The merger of GSK portfolio with HUL has begun

to yield revenue delta; we believe the larger story will be innovation and NPDs in

HFD and allied categories.

Cost savings and mix improvement are bound to spur margin structurally. Although

in the near term, inflationary raw materials may continue to impact gross margin,

going forward, we expect cost-saving initiatives such as zero-based budgeting,

efficiency in ad spends, changes in route-to-market, etc to help. The acquisition of

GSK’s portfolio will also aid overall margin expansion.

We expect premiumisation to sustain, and hence, expect better earnings growth.

We retain ‘BUY/SO’ with revised TP of INR2,900 as we roll forward to Sept 2022E.

The stock is trading at 50.2x FY23E EPS.


HINDUSTAN UNILEVER


One year forward P/E

Source: Edelweiss Research

A&P spends

Source: Company

Sales by category (revenue split Q4FY21)

Source: Company

Sales by category (revenue split Q4FY20)

Source: Company

500

1,000

1,500

2,000

2,500

3,000

Ap

r-1

7

Oct

-17

Ap

r-1

8

Oct

-18

Ap

r-1

9

Oct

-19

Ap

r-2

0

Oct

-20

Ap

r-2

1

(IN

R)

65x

55x60x

40x45x

50x

35x

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Q3

FY1

7

Q4

FY1

7

Q1

FY1

8

Q2

FY1

8

Q3

FY1

8

Q4

FY1

8

Q1

FY1

9

Q2

FY1

9

Q3

FY1

9

Q4

FY1

9

Q1

FY2

0

Q2

FY2

0

Q3

FY2

0

Q4

FY2

0

Q1

FY2

1

Q2

FY2

1

Q3

FY2

1

Q4

FY2

1

(%)

Home care32%

Personal care37%

Foods & refreshmen

ts29%

Others2%

Q4FY21 revenue split

Home care37%

Personal care42%

Foods & refreshmen

ts20%

Others1%

Q4FY20 revenue split

HINDUSTAN UNILEVER



EBIT by category (Q4FY21)

Source: Company

EBIT by category (Q3FY20)

Source: Company

Segmental performance - Consolidated

Year to March - Revenues (INR mn) Q4FY21 Q4FY20 YoY growth Q3FY21 QoQ growth

Home care 38,380 33,500 14.6 34,090 12.6

Beauty and personal care 45,770 38,340 19.4 48,680 (6.0)

Foods & Refreshments* 35,110 17,880 96.4 33,560 4.6

Others (includes exports, infant and feminine care etc)* 5,070 2,390 112.1 5,480 (7.5)

Segment results (Profit/(Loss) before tax and interest)

Home care 8,120 6,360 27.7 6,460 25.7


Foods & Refreshments* 5,750 2,250 155.6 4,730 21.6

Others (includes exports, infant and feminine care etc)* 1,310 140 835.7 1,350 (3.0)

Segment margins

Margin (%)

Home care 21.2 19.0 217 18.9 221

Personal care 27.5 24.9 262 29.2 (172)

Foods & Refreshments 16.4 12.6 379 14.1 228

Others (includes exports, infant and feminine care etc) 25.8 5.9 1,998 24.6 120

Source: Company

Home care30%

Personal care46%

Foods & refreshmen

ts21%

Others3%

Q4FY21 - EBIT contribution

Home care35%

Personal care52%

Foods & refreshmen

ts13%

Others0%

Q4FY20 - EBIT contribution


HINDUSTAN UNILEVER


Segmental performance - standalone

Year to March - Revenues (INR mn) Q4FY21 Q4FY20 YoY growth Q3FY21 QoQ growth

Home care 38,400 33,500 14.6 34,090 12.6


Foods & Refreshments 35,110 17,880 96.4 33,560 4.6

Others (includes exports, infant and feminine care etc) 2,320 720 222.2 2,560 (9.4)

Segment results (Profit/(Loss) before tax and interest)

Home care 8,120 6,360 27.7 6,460 25.7


Foods & Refreshments 5,750 2,250 155.6 4,730 21.6

Others (includes exports, infant and feminine care etc) 690 40 1,625.0 500 38.0

Segment margins

Margin (%)

Home care 21.1 19.0 216 18.9 220

Personal care 27.5 24.9 266 29.2 (167)

Foods & Refreshments 16.4 12.6 379 14.1 228

Others (includes exports, infant and feminine care etc) 29.7 5.6 NM 19.5 1,021

Source: Company

HINDUSTAN UNILEVER



Financial Snapshot (INR mn)

Year to March Q4FY21 Q4FY20 % change Q3FY21 % change FY21 FY22E FY23E

Net sales 1,19,470 88,850 34.5 1,16,820 2.3 4,62,690 5,22,999 5,71,183

Other income-operational 1,850 1,260 46.8 1,800 2.8 7,590 8,121 8,527

Net revenues 1,21,320 90,110 34.6 1,18,620 2.3 4,70,280 5,31,121 5,79,710

Cost of goods sold 57,560 41,700 38.0 54,590 5.4 2,21,480 2,46,567 2,66,213

Gross profit 63,760 48,410 31.7 64,030 (0.4) 2,48,800 2,84,554 3,13,497

Staff cost 5,220 3,550 47.0 5,560 (6.1) 23,580 25,617 26,214

Advertising & promotions 14,130 11,640 21.4 13,880 1.8 47,540 59,240 64,078

Other expenditure 14,840 12,570 18.1 16,050 (7.5) 61,420 65,644 71,068

Total expenditure 34,190 27,760 23.2 35,490 (3.7) 1,32,540 1,50,502 1,61,359

EBITDA 29,570 20,650 43.2 28,540 3.6 1,16,260 1,34,052 1,52,138

Depreciation/Amortisation 2,490 2,550 (2.4) 2,720 (8.5) 10,740 10,937 11,578

EBIT 27,080 18,100 49.6 25,820 4.9 1,05,520 1,23,115 1,40,559

Interest Expense 90 260 (65.4) 410 (78.0) 1,170 1,150 1,150

Other income 1,090 2,660 (59.0) 970 12.4 4,100 9,069 11,290

Profit Before Tax 28,080 20,500 37.0 26,380 6.4 1,08,450 1,31,034 1,50,699

Provision for tax 6,790 4,730 43.6 6,750 0.6 26,060 34,069 37,976

Exceptional Item Net of Tax 140 -580 (124.1) -420 (133.3) -2,390 0 0

Reported profit 21,430 15,190 41.1 19,210 11.6 80,000 96,965 1,12,723

Prior period (Net of tax) 0 0 NM 0 NM 0 0 0

Exceptionals (Net of tax) 140 -580 (124) (420) -133 -2,390 0 0

Adjusted profit 21,290 15,770 35.0 19,630 8.5 82,390 96,965 1,12,723

No. of Diluted shares outstanding

(mn) 2,350 2,164 8.6 2,350 0.0 2,350 2,350 2,350

Adjusted Diluted EPS 9.1 7.3 24.3 8.4 8.5 35.1 41.3 48.0

as % of net sales

Other income-operational 1.5 1.4 13 1.5 1 1.6 1.6 1.5

COGS 48.2 46.9 125 46.7 145 47.9 47.1 46.6

Staff costs 4.4 4.0 37 4.8 (39) 5.1 4.9 4.6

Advertising & promotions 11.8 13.1 (127) 11.9 (5) 10.3 11.3 11.2

Other expenditure 12.4 14.1 (173) 13.7 (132) 13.3 12.6 12.4

EBITDA 24.8 23.2 151 24.4 32 25.1 25.6 26.6

EBIT 22.7 20.4 230 22.1 56 22.8 23.5 24.6

PBT 23.5 23.1 43 22.6 92 23.4 25.1 26.4

Net profit 17.8 17.7 7 16.8 102 17.8 18.5 19.7

Tax rate 24.2 23.1 111 25.6 (141) 24.0 26.0 25.2

Source: Company, Edelweiss Research


HINDUSTAN UNILEVER


Company Description

HUL, the largest FMCG player in India, was formed by merging three subsidiaries of

Unilever in 1956. HUL’s portfolio of products covers a wide spectrum including

soaps, detergents, skin creams, shampoos, toothpastes, tea, coffee, packaged foods

and branded atta.

Powerful brands and an envious distribution network are its primary strengths. The

company operates through segments—home care, personal care, foods &

refreshments, and other operations.

Investment Theme

HUL is a play 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 naturals category and termed it a mega trend. HUL's acquisition of GSK

Consumer's HFD portfolio will also aid in overall revenue momentum. We appreciate

its revenue growth from a medium to long term perspective. Though commodity

prices have started to inch up, we are not worried since HUL has sufficient pricing

power to offset any pressure likely to arise at the gross margin level. We expect

higher investment in A&P to support brand equity and counter pick up in

competitive intensity (especially from regional players). With overall demand

looking buoyant, we expect HUL to be key beneficiary.

Key Risks

INR depreciation impacts price of imported raw materials.

Ad spends likely to spike due to increased competition from regional players.

Maintaining market share will also be a challenge for HUL.

The price war in HUL’s popular segments with new entrants entering the fray

could hit the company had.

HINDUSTAN UNILEVER



Additional Data

Management

MD and Chairman Mr. Sanjiv Mehta

CFO Mr. Ritesh Tiwari

Exec Director Mr. Dev Bajpai

Exec Director Mr. Willem Uijen

Auditor BSR & Co. LLP

Holdings – Top 10* % Holding % Holding

Nordea Bank 0.28 Icici Prudentia 0.55

Vanguard Group 1.29 Standard Life A 0.42

Blackrock 1.25 Norges Bank 0.41

Sbi Funds Manag 0.90 Uti Asset Manag 0.39

Jp Morgan Chase 0.62 Kotak Mahindra 0.30

*Latest public data

Recent Company Research Date Title Price Reco

22-Mar-21 Concerns overdone; outlook affirmative; Company Update

2,252 Buy

03-Mar-21 Clearing the air: Decent recovery all ov; Company Update

2,163 Buy

27-Jan-21 Decent recovery across portfolio; Result Update

2,400 Buy

Recent Sector Research Date Name of Co./Sector Title

27-Apr-21 Britannia Industries Volumes strong; high costs dent margin ; Result Update

20-Apr-21 Bajaj Consumer Care Dividend normalising; costs inflationary; Result Update

20-Apr-21 Nestle India Scrumptious show; Result Update

Rating Interpretation

Source: Bloomberg, Edelweiss research

Daily Volume

Source: Bloomberg

Rating Distribution: Edelweiss Research Coverage

Buy Hold Reduce Total

Rating Distribution* 166 59 17 242

>50bn >10bn and <50bn <10bn Total

Market Cap (INR) 198 51 4 253

* stocks under review

Rating Rationale

Rating Expected absolute returns over 12 months

Buy: >15%

Hold: >15% and <-5%

Reduce: <-5%

TP1,767

TP2,020

TP2,288

TP2,620

1375

1625

1875

2125

2375

2625

Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20

(IN

R)

HUVR IN Equity Buy Hold Reduce0

40

80

120

160

200

Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20

(Mn

)


HINDUSTAN UNILEVER


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HINDUSTAN UNILEVER



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