CMP 564.50

Target Price 625.00

ISIN: INE030A01027

APRIL 29th

2014

HINDUSTAN UNILEVER LIMITED

Result Update: Q4 FY14

BUY

Index Details

Stock Data

Sector FMCG

BSE Code 500696

Face Value 1.00

52wk. High / Low (Rs.) 725.00/457.90

Volume (2wk. Avg.) 118000

Market Cap (Rs. in mn.) 1220844.15

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY14A FY15E FY16E

Net Sales 280191.30 308210.43 332867.26

EBITDA 50962.90 57067.33 60706.14

Net Profit 38674.90 41208.53 44128.48

EPS 17.88 19.05 20.40

P/E 31.57 29.63 27.67

Shareholding Pattern (%)

1 Year Comparative Graph

HINDUSTAN UNILEVER LTD S&P BSE SENSEX

SYNOPSIS

Hindustan Unilever Limited (HUL) is India's largest FMCG Company with a heritage of over 80 years in India and touches the lives of two out of three Indians.

During Q4 FY14, the company’s net profit jumps to Rs. 8721.3 mn against Rs. 7872.0 mn in Q4 FY13, an increase of 10.79%.

Revenue rose by 9.72% to Rs 70941.0 mn in Q4 FY14 from Rs. 64658.1 mn in Q4 FY13, helped by strong volume growth.

Operating Profit (PBIT) for the quarter at Rs. 10117.8 mn (MQ’13: Rs. 9103.5 mn) grew by 11.1% and PBIT margin improved by 30 bps.

Net Sales grew by 8.9% during the quarter. Domestic Consumer Business (FMCG + Water) grew by 9.0% with a 9.0% growth in HPC and 9.2% growth in Foods businesses.

During the quarter, Soaps and Detergents, Personal Products, Beverages and Packaged Food segments are grew by 9%, 8%, 8% and 13% respectively.

HUL has recommended a final dividend of Rs. 7.50 per share of Re.1 each, for the financial year ended 31st March, 2014.

Net Sales grew by 8.7% during the financial year 2013-14. Domestic Consumer Business (FMCG + Water) grew by 9.0%.

Operating Profit for the year grew by 11.9% and Profit after tax from ordinary activities before Exceptional Items grew by 7.3%.

Net Sales and PAT of the company are expected to grow at a CAGR of 9% and 5% over 2013 to 2016E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Hindustan Unilever Ltd. 564.50 1220844.15 17.88 31.57 37.26 1300.00

ITC Ltd 341.00 2705147.90 10.61 32.06 12.12 525.00

Dabur India Ltd 177.70 309439.60 3.69 48.09 19.39 175.00

Godrej Consumer Ltd 783.05 267622.40 16.10 48.84 9.69 525.00

Recommendation & Analysis - ‘BUY’

FMCG major Hindustan Unilever Ltd (HUL) reported a net sales rose by 9.72% to Rs 70941.0 mn in Q4 FY14 from

Rs. 64658.1 mn in Q4 FY13, helped by strong volume growth. During the quarter, the Domestic Consumer

business grew at 9%, ahead of market, with 3% underlying volume growth. The operating context during the

quarter remained challenging with slowing market growth and high competitive intensity. Brand investments

were sustained at competitive levels with higher advertising spend being offset by lower promotional activities.

Profit before interest and tax (PBIT) grew by 11% and PBIT margin improved by 30 bps. Profit after tax before

exceptional items, PAT (bei), grew by 7% to Rs. 8320 mn while Net Profit at Rs.8721.3 mn was up 11%.

Soaps and Detergents category grew 9%, driven by Dove, Pears, Lifebuoy and Breeze. In Laundry, growth was led

by the premium segment with Surf maintaining its double digit growth momentum and Rin delivering good

growth on the bars portfolio. Personal Products category grew by 8% in a slowing market. Skin Care grew well in

a soft market. The re-launch of Fair & Lovely, with the new ‘Best Ever Formula’ and supported by a focused

activation plan, is yielding positive results. Ponds had a good quarter at the premium end while Lakme and Dove

sustained their robust performance. Hair Care sustained volume led double digit growth with Dove delivering

another strong performance and Clinic Plus doing well. In Oral Care, Close Up grew in the quarter and Pepsodent

was impacted by the high promotional intensity in the market. Colour Cosmetics maintained its strong

innovation led growth momentum across both Lakme and Elle 18. Tea sustained double digit growth on the back

of stepped up volumes. Taj Mahal, Red Label and 3 Roses grew in double digits, driven by a strengthened mix and

focused in-market activities. Packaged Foods segment grew by 13%.

Over FY2013-16E, we expect the company to post a CAGR of 9% and 5% in its top-line and bottom-line

respectively. Looking ahead, we are confident that HUL is on track to deliver sustainable long term growth and

margin improvement. Hence, we recommend ‘BUY’ for ‘Hindustan Unilever Ltd’ with a target price of Rs.

625.00 for medium to long term investment.

QUARTERLY HIGHLIGHTS (STANDALONE)

Results updates- Q4 FY14,

Hindustan Unilever Limited (HUL) is India's largest

Fast Moving Consumer Goods Company with a

heritage of over 80 years in India and touches the

lives of two out of three Indians, reported its

financial results for the quarter ended 31st March,

2014.

Months Mar-14 Marc-13 % Change

Revenue 70941.00 64658.10 9.72

PAT 8721.30 7872.00 10.79

EPS 4.03 3.64 10.78

EBITDA 12281.80 10870.10 12.99

The company’s net profit jumps to Rs. 8721.30 million against Rs. 7872.00 million in the corresponding quarter

ending of previous year, an increase of 10.79%. Revenue for the quarter rose by 9.72% to Rs. 70941.00 million

from Rs. 64658.10 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs. 4.03 a share during the quarter, registering 10.78% increase over previous year period.

Profit before interest, depreciation and tax is Rs. 12281.80 million as against Rs. 10870.10 million in the

corresponding period of the previous year.

Break up of Expenditure

Break up of

Expenditure

(Rs. in millions)

Q4 FY14 Q4 FY13 CHNG

%

Cost of Material

Consumed 29100.40 25290.60 15%

Purchase of Stock in

Trade 9506.60 8283.60 15%

Employee Benefit

Expenses 3782.50 3122.80 21%

Depreciation &

Amortization Expenses 657.70 614.20 7%

Advertising &

Promotions 8403.40 8211.30 2%

Other Expenses 10671.30 9280.70 15%

Segment Revenue

Latest Updates

• Net Sales grew by 8.9% during the quarter. Domestic Consumer Business (FMCG + Water) grew by 9.0% with

a 9.0% growth in HPC and 9.2% growth in Foods businesses.

• Operating Profit (Profit from Operations before Other Income, Finance costs and Exceptional Items) for the

quarter at Rs. 10117.8 mn (MQ’13: Rs. 9103.5 mn) grew by 11.1%.

• Net Sales grew by 8.7% during the financial year 2013-14. Domestic Consumer Business (FMCG + Water)

grew by 9.0%, Operating Profit (Profit from Operations before Other Income, Finance costs and Exceptional

Items) for the year grew by 11.9% and Profit after tax from ordinary activities before Exceptional Items grew

by 7.3%.

• The Company has recommended a final dividend of Rs. 7.50 per share of Re.1 each, for the financial year

ended 31st March, 2014. Together with the interim dividend of Rs. 5.50 per share, the total dividend for the

financial year ended 31st March, 2014 works out to Rs.13 per share of Re. 1/- each.

Financial Year 2013-14:

The Domestic Consumer business grew by 9% with 4% underlying volume growth, ahead of market. Profit

before interest and tax (PBIT) grew by 12% with PBIT margin improving 40 bps. Profit after tax but before

exceptional items, PAT (bei), grew by 7% to Rs. 35550 mn with Net Profit at Rs. 38674.9 mn growing 2%. Net

Profit growth was impacted by the significant property sale in the previous year. Cash generated from operations

at over Rs. 50000 mn for the year, was up Rs 4620 mn over the previous year.

COMPANY PROFILE

Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods Company with a heritage of

over 75 years in India and touches the lives of two out of three Indians. HUL works to create a better future every

day and helps people feel good, look good and get more out of life with brands and services that are good for

them and good for others.

With over 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, the Company is a part of the

everyday life of millions of consumers across India. Its portfolio includes leading household brands such as Lux,

Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent,

Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Wall’s and Pureit.

The Company has over 16,000 employees and has an annual turnover of around Rs. 280191.30 milions (financial

year 2013 - 2014). HUL is a subsidiary of Unilever, one of the world’s leading suppliers of fast moving consumer

goods with strong local roots in more than 100 countries across the globe with annual sales of about € 49.8

billion in 2013. Unilever has about 67.25% shareholding in HUL.

In April, 2012, the Customer Insight & Innovation Centre (CiiC) was inaugurated at the Hindustan Unilever

Campus at Andheri, Mumbai.

In 2011 Uniliver spent €1 billion on research & development. Currently the company has over 6000 people

working in R&D in all Unilever regions across the globe. The company typically files between 250 & 350 new

patent applications a year. Worldwide the company has over 20 000 registered patents & patent applications.

Brands:

• Food Brands

• Home Care Brands

• Personal Care Brands

• Water

• Nutrition

• Health, Hygiene & Beauty

Products

� Food Products

� Brooke Bond 3 Roses

� Brooke Bond Red Label

� Brooke Bond Taj Mahal

� Kissan

� Kwality Wall’s

� Modern

� Annapurna

� Brooke Bond Taaza

� Bru

� Knorr

� Lipton

� Brooke Bond Sehatmand

� Home care brands

� Active Wheel

� Cif

� Comfort Fabric Conditioner

� Domex

� Rin

� Sunlight

� Surf Excel

� Vim

� Personal care brands

� Aviance

� Axe

� LEVER Ayush Therapy

� Breeze

� Clear

� Clinic Plus

� Closeup Gel Toothpaste

� Dove

� Fair & Lovely

� Hamam

� Liril 2000

� Lux

� Pears

� Pepsodent

� Sunsilk

� Ponds

� Rexona

� Vaseline

� Water

� Pureit Marvella RO

� Pureit Marvella

� Pureit Classic 14 litres

� Pureit Classic 23 litres

FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31, 2013 -2016E

Hindustan Unilever Ltd FY13A FY14A FY15E FY16E

SOURCES OF FUNDS

Shareholder's Funds

Share Capital 2162.50 2162.70 2162.70 2162.70

Reserves and Surplus 24577.70 30607.80 37945.36 45534.44

1. Sub Total - Net worth 26740.20 32770.50 40108.06 47697.14

Non Current Liabilities

Other Long term Liabilities 4762.50 2788.20 2286.32 2469.23

Long Term Provisions 7063.40 8386.90 9477.20 10330.14

2. Sub Total - Non Current Liabilities 11825.90 11175.10 11763.52 12799.37

Current Liabilities

Trade Payables 51676.90 57938.90 63153.40 66942.61

Other Current Liabilities 6161.50 8529.40 10320.57 11765.45

Short Term Provisions 18720.20 19570.10 20352.90 21370.55

3. Sub Total - Current Liabilities 76558.60 86038.40 93826.88 100078.61

Total Liabilities (1+2+3) 115124.70 129984.00 145698.46 160575.12

APPLICATION OF FUNDS

Non-Current Assets

a) Fixed Assets 25085.40 27418.40 29337.69 31097.95

b) Non-current investments 5480.30 6361.70 7125.10 7837.61

c) Deferred Tax Asset 2047.80 1617.30 1423.22 1295.13

d) Long Term loans and advances 3842.90 6055.10 7508.32 8709.66

e) Other non-current assets 2968.40 6.80 8.50 10.71

1. Sub Total - Non Current Assets 39424.80 41459.30 45402.84 48951.06

Current Assets

Current Investment 17826.30 24579.50 28699.46 32793.35

Inventories 25269.90 27475.30 29398.57 31162.49

Trade receivables 8334.80 8164.30 8654.16 9086.87

Cash and Bank Balances 17078.90 22209.70 26651.64 30915.90

Short-terms loans & advances 6482.60 5376.80 6129.55 6865.10

Other current assets 707.40 719.10 762.25 800.36

2. Sub Total - Current Assets 75699.90 88524.70 100295.62 111624.06

Total Assets (1+2) 115124.70 129984.00 145698.46 160575.12

Annual Profit & Loss Statement for the period of 2013 to 2016E

Value(Rs.in.mn) FY13A FY14A FY15E FY16E

Description 12m 12m 12m 12m

Net Sales 258102.10 280191.30 308210.43 332867.26

Other Income 6069.00 6210.30 6520.82 6781.65

Total Income 264171.10 286401.60 314731.25 339648.91

Expenditure -218064.60 -235438.70 -257663.92 -278942.77

Operating Profit 46106.50 50962.90 57067.33 60706.14

Interest -251.50 -360.30 -306.26 -336.88

Gross profit 45855.00 50602.60 56761.07 60369.26

Depreciation -2360.20 -2605.50 -2787.89 -2955.16

Exceptional Items 6084.00 2286.80 0.00 0.00

Profit Before Tax 49578.80 50283.90 53973.19 57414.11

Tax -11612.10 -11609.00 -12764.66 -13285.62

Net Profit 37966.70 38674.90 41208.53 44128.48

Equity capital 2162.50 2162.70 2162.70 2162.70

Reserves 24571.00 30601.10 37945.36 45534.44

Face value 1.00 1.00 1.00 1.00

EPS 17.56 17.88 19.05 20.40

Quarterly Profit & Loss Statement for the period of 30th Sep, 2013 to 30th June, 2014E

Value(Rs.in.mn) 30-Sep-13 31-Dec-13 31-Mar-14 30-Jun-14E

Description 3m 3m 3m 3m

Net sales 68926.40 72233.50 70941.00 73778.64

Other income 1509.90 1426.60 1506.30 1687.06

Total Income 70436.30 73660.10 72447.30 75465.70

Expenditure -58073.30 -59965.50 -60165.50 -61605.16

Operating profit 12363.00 13694.60 12281.80 13860.53

Interest -62.80 -182.00 -53.30 -54.37

Gross profit 12300.20 13512.60 12228.50 13806.17

Depreciation -639.20 -644.20 -657.70 -697.16

Exceptional Items 334.30 229.70 660.30 0.00

Profit Before Tax 11995.30 13098.10 12231.10 13109.00

Tax -2857.30 -2475.00 -3509.80 -3041.29

Net Profit 9138.00 10623.10 8721.30 10067.71

Equity capital 2162.60 2162.60 2162.70 2162.70

Face value 1.00 1.00 1.00 1.00

EPS 4.23 4.91 4.03 4.66

Ratio Analysis

Particulars FY13A FY14A FY15E FY16E

EPS (Rs.) 17.56 17.88 19.05 20.40

EBITDA Margin (%) 17.86% 18.19% 18.52% 18.24%

PBT Margin (%) 19.21% 17.95% 17.51% 17.25%

PAT Margin (%) 14.71% 13.80% 13.37% 13.26%

P/E Ratio (x) 32.15 31.57 29.63 27.67

ROE (%) 142.02% 118.04% 102.74% 92.52%

ROCE (%) 181.30% 163.50% 149.23% 133.47%

EV/EBITDA (x) 26.11 23.52 20.93 19.60

Book Value (Rs.) 12.36 15.15 18.55 22.05

P/BV 45.66 37.26 30.44 25.60

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs.564.50, the stock P/E ratio is at 29.63 x FY15E and 27.67 x FY16E

respectively.

� Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.19.05 and

Rs.20.40 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 9% and 5% over 2013 to 2016E

respectively.

� On the basis of EV/EBITDA, the stock trades at 20.93 x for FY15E and 19.60 x for FY16E.

� Price to Book Value of the stock is expected to be at 30.44 x and 25.60 x respectively for FY15E and FY16E.

� We expect that the company surplus scenario is likely to continue for the next three years, will keep its

growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.625.00 for Medium to Long term investment.

INDUSTRY OVERVIEW

The Indian Fast Moving Consumer Goods (FMCG) sector is the fourth largest in the Indian economy and has a

market size of $13.1 billion. This industry primarily includes the production, distribution and marketing of

consumer packaged goods, that is those categories of products which are consumed at regular intervals.

The FMCG market is set to treble US$ 33.4 billion in 2015. Penetration level as well as per capita consumption in

most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped

market potential.

� The Indian FMCG industry represents nearly 2.5% of the country’s GDP.

� The industry has tripled in size in past 10 years and has grown at ~17%CAGR in the last 5 years driven by

rising income levels, increasing urbanization, strong rural demand and favourable demographic trends.

� The sector accounted for 1.9% of the nation’s total FDI inflows in April 2000- September 2012. Cumulative

FDI inflows into India from April 2000 to April 2013 in the food processing sector stood at Rs. 9,000.3 crore,

accounting for 0.96% of overall FDI inflows while the soaps, cosmetics and toiletries, accounting for 0.32% of

overall FDI at Rs. 3,115.5 crore.

� Food products and personal care together make up two-third of the sector’s revenues.

� Rural India accounts for more than 700 mn consumers or 70% of the Indian population and accounts for

50% of the total FMCG market.

� With changing lifestyle and increasing consumer demand, the Indian FMCG market is expected to cross $80

bn by 2026 in towns with population of up to 10 lakh.

� India's labor cost is amongst the lowest in the world, after China & Indonesia, giving it a competitive

advantage over other countries.

Household care

The fabric wash market size is estimated to be ~USD 1 billion, household cleaners to be USD 239 million, with

the production of synthetic detergents at 2.6 million tonnes. The demand for detergents has been growing at an

annual growth rate of 10 to 11% during the past five years

Personal Care (HPC)

The personal care products (PCP) market in India is estimated to be worth ~USD 4 bn p.a. Personal hygiene

products (including bath and shower products, deodorants etc.), hair care, skin care, colour cosmetics and

fragrances are the key segments of the personal care market.

Food & Beverages

Food processing industry is one of the largest industries in India, ranking fifth in terms of production, growth,

consumption, and export. The total value of Indian food processing industry is expected to touch USD 194 billion

by 2015 from a value of USD 121 billion in 2012, according to Indian Council of Agricultural Research (ICAR).

Expenditure on advertisements by FMCG Companies in 2013

Fast-moving consumer goods (FMCG) companies, a safe haven through most of the slowdown, have felt

consumption blues of late. While the annual revenues of these companies have increased 15-20 per cent, their

advertisement and sales promotions spends have raised 25-30 a year.

ITC, one of the biggest companies in the Indian FMCG space, spent Rs 806.65 crore on advertising in 2012-13,

against Rs 682.69 crore in 2011-12. At Rs 502.37 crore, Dabur India’s ad spends jumped 27 per cent in 2012-13.

In 2012-13, Hindustan Unilever spent Rs 3,231.88 crore on advertising and promotional activities, compared

with Rs 2,634.79 crore the previous financial year, a rise of 22.66 per cent. During the same period, Emami’s

spends rose 21.18 per cent to Rs 253.11 crore.

Government Policies and Regulatory Framework

Goods and Service Tax (GST): GST, which will replace the multiple indirect taxes levied on FMCG sector with a

uniform, simplified and single-pint taxation system, is likely to be implemented soon (the benefits are likely to

come in by the end of FY’14). The rate of GST on services is likely to be 16% and on goods is proposed to be 20%.

A swift move to the proposed GST may reduce prices, bolstering consumption for FMCG products.

Food Security Bill: The food security Bill has been passed recently by the Union Cabinet. As per the Bill, 5Kg of

food grains per person per month will be provided at subsidized prices from State Governments under the

targeted public distribution system.

FDI in retail: The decision to allow 51% FDI in multi brand retail and 100% FDI in single brand retail augers

well for the outlook for the FMCG sector. FMCG sector accounted for 1.9% of the nation’s total FDI inflows in

April 2000- September 2012. Cumulative FDI inflows into India from April 2000 to April 2013 in the food

processing sector stood at Rs. 9,000.33 crore, accounting for 0.96% of overall FDI inflows while that in the soaps,

cosmetics and toiletries was Rs. 3,115.54 crore in, accounting for 0.32%. The food processing sector attracted

FDI inflows of Rs. 6,198 crore during April 2009 to December 2012.

Relaxation of license rules: Industrial licenses are not required for almost all food and agro-processing

industries, barring certain items such as beer, potable alcohol and wines, cane sugar, and hydrogenated animal

fats and oils as well as items reserved for exclusive manufacturing in the small-scale sector.

Conclusion

While the rural market certainly offers a big attraction to marketers, it would be naïve to think that any company

can enter the market without facing any problems and walk away with a sizable share. Distribution is the most

important variable in the marketing plans of most consumer goods manufacturers, because managing such a

massive sales and distribution network is in itself a huge task.

This sector will continue to see growth as it depends on an ever-increasing internal market for consumption, and

demand for these goods remains more or less constant, irrespective of recession or inflation. Hence this sector

will grow, though it may not be a smooth growth path, due to the present world-wide economic slowdown, rising

inflation and fall of the rupee. This sector will see good growth in the long run and hiring will continue to remain

robust.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

C.V.S.L.Kameswari Pharma

U. Janaki Rao Capital Goods

B. Anil Kumar Auto, IT & FMCG

Suhani Adilabadkar Pharma & Banking

M. Vinayak Rao Diversified

C. Bhagya Lakshmi Diversified

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