Hindustan Unilever
BSE SENSEX
31,922
S&P CNX
9,964
22 September 2017
Update | Sector: Consumer
CMP: INR1,240
TP: INR1,400 (+13%)
Expect gradual improvement
CSD segment yet to recover to normalcy
Buy
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val ( INRm)/Vol m
Free float (%)
HUVR IN
2,164.3
1286 / 783
1/29/25
2683.2
41.4
1283
32.8
We spoke with Hindustan Unilever’s (HUL) management to understand the latest trends
in its business. Key takeaways:
Financials Snapshot (INR b)
Y/E Mar
2017 2018E 2019E
Net Sales
EBITDA(INR b)
Net Profit
EPS
EPS Gr. (%)
BV/Sh. (INR)
P/E (x)
P/BV (x)
RoE (%)
RoCE (%)
313.0
60.5
42.5
19.6
1.9
30.0
62.9
41.2
66.5
88.5
346.2
70.5
49.7
22.9
16.9
30.3
53.9
40.8
76.2
101.0
392.7
83.5
59.2
27.4
19.2
32.5
45.2
38.1
87.2
115.9
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Jun-17 Mar-17 Jun-16
67.2
5.6
13.5
13.8
67.2
5.7
13.3
13.9
67.2
5.0
14.0
13.8
FII Includes depository receipts
Stock Performance (1-year)
Hind. Unilever
Sensex - Rebased
1,300
1,150
1,000
850
700
GST impact – recovering, but still not completely out of woods
Wholesale in the south and west regions has returned to normative levels.
Other parts are still lagging, though.
Cash and Carry is picking up some slack from the slowdown in wholesale.
For July sales, offline reconciliation on GST has been done with all leading
distributors. It will take until October for complete reconciliation.
Canteen Stores Department (CSD) is going through a transformation on
checks and balances. Thus, up-stocking has not yet happened. Sales are not
completely normal even now from this channel.
Rural demand is expected to improve gradually. Early to call out now.
There have been clear signs of pressure on small players; expect market
share improvement for organized and larger players with direct reach.
GST accounting – detailed impact to be explained with 2QFY18 results
Turnover will reset downward because of passing on of GST benefits.
Multiple cost lines items of P&L will benefit from input credits. These have
also been passed on.
Absolute EBIT and EBITDA will not change on GST accounting, but margins
will be higher.
Management will explain GST accounting-related impact in detail post
2QFY18 results.
Other points worth noting
No significant price changes in the quarter.
Input costs for items like palm oil and crude-led raw materials have been
moving up, but not worryingly so.
Competitive intensity on advertising is not low. HUL did not call out their
advertising levels.
Lever Ayush outside south India has progressed well in terms of
distribution in the first couple of months of launch. Too early to call out
response on demand.
Last year, it had dividend income from subsidiaries in the September
quarter, which is likely this year as well.
Valuation and view:
We expect HUVR to report 18% PAT CAGR over FY17-19,
as against 6.1% in the last three years, 10.6% in the last five years and 10.7% in
the last 10 years. While valuations are not cheap at 45.2x FY19E EPS (given
potentially strong earnings growth), we believe premium valuations are
justified, particularly as return ratios and dividend yield remain best-of-breed.
We maintain our
Buy
rating on the stock with a target price of INR1,400 (46x
Sep’ 2019E EPS; 10% premium to three-year average valuations).
Krishnan Sambamoorthy – Research Analyst
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 3982 5428
Vishal Punmiya – Research Analyst
(Vishal.Punmiya@MotilalOswal.com); +91 22 3980 4261
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Hindustan Unilever
Exhibit 1: Hindustan Unilever P/E (x)
P/E (x)
55.0
45.0
35.0
25.0
15.0
32.6
24.0
18.7
41.1
Avg (x)
Max (x)
49.5
49.5
Exhibit 2: Consumer P/E (x)
P/E (x)
45.0
37.0
29.0
21.0
13.0
36.7
29.9
23.2
17.1
Avg (x)
Max (x)
41.2
39.7
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3: Valuation matrix
Reco
Company
(INR)
Consumer
Asian Paints
Britannia Inds.
Colgate-Palm.
Dabur India
Emami
Godrej Cons.
Neutral
Buy
Buy
Neutral
Buy
Neutral
1,230
4,332
1,118
310
1,125
936
5,047
1,240
269
400
323
7,144
8,364
243
839
802
2,565
1,393
619
CMP
Target
Price
(INR)
1,200
4,660
1,285
315
1,310
995
4,500
1,400
280
395
355
6,160
8,800
245
810
980
2,525
850
565
Mkt Cap
Upside
(INR B) (USD B)
(%)
-2
8
15
1
16
6
-11
13
4
-1
10
-14
5
2
1
-4
22
-2
-39
-9
1,180
520
304
547
255
638
212
2,715
3,273
72
417
689
271
214
20
430
212
373
92
549
18.2
8.0
4.7
8.4
3.9
9.8
3.3
41.9
50.5
1.1
6.4
10.6
4.2
3.3
0.3
6.6
3.3
5.8
1.4
8.5
EPS Growth YoY (%)
FY17
8.7
7.3
-5.7
1.9
4.5
12.4
0.9
1.9
9.4
175.7
12.1
-1.6
2.3
15.0
-46.4
6.7
-23.0
87.1
-32.1
18.5
FY18E
5.6
15.8
15.2
6.7
1.4
14.0
1.3
16.8
10.4
-12.6
8.5
-2.5
14.0
23.4
152.6
7.9
13.9
29.1
48.0
17.6
FY19E FY17
19.5
22.6
21.7
18.3
23.1
14.6
15.2
19.2
11.4
13.2
20.9
16.2
16.1
35.2
37.0
14.0
41.5
49.3
40.0
18.2
58.5
58.8
52.6
42.8
42.4
49.5
32.3
62.9
32.1
35.6
51.5
60.5
62.9
80.3
67.5
50.2
92.4
96.0
139.2
68.5
P/E (x)
FY18E
55.4
50.8
45.7
40.1
41.8
43.5
31.9
53.9
29.1
40.7
47.4
62.1
55.2
65.0
26.7
46.5
81.1
74.4
94.1
58.3
FY19E
46.4
41.4
37.5
33.9
34.0
37.9
27.7
45.2
26.1
36.0
39.2
53.5
47.5
48.1
19.5
40.8
57.3
49.8
67.2
49.3
RoE
(%)
FY17
28.5
36.9
50.4
28.4
35.8
24.6
22.2
66.5
23.5
21.1
36.7
39.0
39.3
40.0
6.0
28.2
10.2
21.3
8.2
20.6
Div.
(%)
FY17
0.8
0.0
0.9
0.8
0.8
0.6
1.1
1.3
2.1
1.5
0.9
0.9
3.9
0.5
0.0
0.6
0.1
0.0
0.2
0.4
GlaxoSmith C H L Sell
Hind. Unilever
Buy
ITC
Jyothy Lab.
Marico
Nestle India
P & G Hygiene
Page Industries
Parag Milk
Pidilite Inds.
United Brew.
United Spirits
Retail
Jubilant Food.
Titan Company
Neutral
Neutral
Neutral
Neutral
Neutral
Buy
Neutral
Neutral
Buy
Neutral
Sell
Neutral
19,164 19,600
Source: Company, MOSL
22 September 2017
2

Hindustan Unilever
Financials and valuations
Income Statement
Y/E March
Net Sales
Other Oper. Income
Total Revenue
Change (%)
COGS
Gross Profit
Gros Margin (%)
Operating Exp
% of sales
EBIDTA
Change (%)
Margin (%)
Depreciation
Int. and Fin. Charges
Other Income - Recurring
Profit before Taxes
Change (%)
Margin (%)
Tax
Deferred Tax
Tax Rate (%)
Profit after Taxes
Change (%)
Margin (%)
Non-rec. (Exp)/Income
Reported PAT
FY15
301,705
6,351
308,056
9.9
156,236
151,821
49.3
99,738
32.4
52,082
16.4
16.9
2,867
168
6,184
55,231
15.1
18.3
19,060
-338
33.9
36,510
2.7
12.1
6,643
43,153
FY16
304,990
5,619
310,609
0.8
153,053
157,556
50.7
100,070
32.2
57,486
10.4
18.5
3,208
150
5,640
59,769
8.2
19.6
18,160
-70
30.3
41,679
14.2
13.7
-310
41,369
FY17
312,980
5,920
318,900
2.7
156,850
162,050
50.8
101,580
31.9
60,470
5.2
19.0
3,960
220
5,260
61,550
3.0
19.7
18,650
410
31.0
42,490
1.9
13.6
2,410
44,900
FY18E
346,197
6,512
352,709
10.6
170,775
181,934
51.6
111,447
31.6
70,488
16.6
20.0
4,611
242
5,806
71,440
16.1
20.6
21,289
500
30.5
49,651
16.9
14.3
0
49,651
FY19E
392,655
7,163
399,818
13.4
190,791
209,028
52.3
125,514
31.4
83,513
18.5
20.9
4,818
242
6,706
85,159
19.2
21.7
25,378
596
30.5
59,186
19.2
15.1
0
59,186
(INR Million)
FY20E
445,579
7,880
453,458
13.4
214,336
239,123
52.7
141,928
31.3
97,194
16.4
21.4
4,958
242
7,314
99,308
16.6
22.3
29,594
695
30.5
69,019
16.6
15.5
0
69,019
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Capital Employed
Gross Block
Less: Accum. Depn.
Net Fixed Assets
Capital WIP
Investment in Subsidiaries
Current Investments
Deferred Charges
Curr. Assets, L&A
Inventory
Account Receivables
Cash and Bank Balance
Others
Curr. Liab. and Prov.
Account Payables
Other Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
FY15
2,164
35,084
37,248
37,248
44,306
-19,731
24,575
4,790
6,541
26,238
1,960
72,236
26,027
7,829
25,376
13,005
99,093
48,515
29,828
20,749
-26,857
37,248
0
(INR Million)
FY16
2,164
60,630
62,794
62,794
50,774
-21,627
29,147
3,860
3,130
24,670
1,680
76,509
25,284
10,645
27,590
12,990
76,202
54,980
12,382
8,840
307
62,794
0
FY17
2,164
62,740
64,904
64,904
65,827
-25,587
40,240
2,030
2,540
35,250
1,600
65,130
23,620
9,280
16,710
15,520
81,886
60,060
13,106
8,720
-16,756
64,904
0
FY18E
2,164
63,332
65,496
65,496
67,827
-30,198
37,629
2,030
2,540
35,750
1,600
70,279
29,589
12,257
12,413
16,020
84,333
60,851
13,761
9,720
-14,053
65,496
0
FY19E
2,164
68,085
70,248
70,248
69,827
-35,016
34,811
2,030
2,540
37,750
1,600
91,916
30,979
13,902
27,377
19,658
100,398
75,229
14,449
10,720
-8,483
70,249
0
FY20E
2,164
77,608
79,771
79,771
71,827
-39,974
31,853
2,030
2,540
39,750
1,600
108,271
35,154
15,776
37,020
20,321
106,274
79,382
15,172
11,720
1,998
79,771
0
22 September 2017
3

Hindustan Unilever
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout %
Valuation (x)
P/E
Cash P/E
EV/Sales
EV/EBITDA
P/BV
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Debtor (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
439
FY15
16.9
18.2
17.2
15.0
88.9
73.2
67.9
8.8
50.7
71.8
1.2
104.3
140.6
4,018.2
9
8.1
0.0
501
FY16
19.3
20.7
29.0
15.5
80.5
64.2
59.6
8.7
46.0
42.6
1.3
83.3
108.5
263.3
13
4.9
0.0
511
FY17
19.6
21.5
30.0
16.5
84.0
62.9
57.6
8.5
43.9
41.2
1.3
66.5
88.5
108.6
11
4.8
0.0
597
FY18E
22.9
25.1
30.3
19.5
85.0
53.9
49.3
7.7
37.7
40.8
1.6
76.2
101.0
99.4
13
5.3
0.0
711
FY19E
27.4
29.6
32.5
21.5
78.6
45.2
41.8
6.7
31.7
38.1
1.7
87.2
115.9
126.0
13
5.6
0.0
829
FY20E
31.9
34.2
36.9
23.5
73.7
38.8
36.2
5.9
27.1
33.5
1.9
92.0
123.0
167.6
13
5.6
0.0
Cash Flow Statement
Y/E March
OP/(loss) before Tax
Int./Div. Received
Depreciation
Interest Paid
Direct Taxes Paid
(Incr)/Decr in WC
CF from Operations
Extraordinary Items
(Incr)/Decr in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from Invest.
Change in Networth
Change in equity
Change in reserves
Dividend Paid
Others
CF from Fin. Activity
Incr/Decr of Cash
Add: Opening Balance
Closing Balance
E: MOSL Estimates
FY15
55,231
-6,184
2,867
168
-19,060
2,816
35,839
6,643
-4,269
31,569
-1,838
536
137
1
136
-38,812
5,467
-33,208
3,166
22,210
25,376
FY16
59,769
-5,640
3,208
150
-18,160
-24,949
14,378
-310
-5,537
8,840
4,979
-868
24,262
0
24,262
-40,085
4,528
-11,295
2,215
25,376
27,590
FY17
61,550
-5,260
3,960
220
-18,650
6,183
48,003
2,410
-13,223
34,780
-9,990
-20,803
-150
0
-150
-42,640
4,711
-38,079
-10,880
27,590
16,711
FY18E
71,440
-5,806
4,611
242
-21,289
-7,000
42,199
0
-2,000
40,199
-500
-2,500
310
0
310
-49,369
5,064
-43,995
-4,297
16,710
12,413
FY19E
85,159
-6,706
4,818
242
-25,378
9,393
67,529
0
-2,000
65,529
-2,000
-4,000
0
0
0
-54,433
5,868
-48,565
14,964
12,413
27,377
(INR Million)
FY20E
99,308
-7,314
4,958
242
-29,594
-837
66,764
0
-2,000
64,764
-2,000
-4,000
0
0
0
-59,496
6,376
-53,120
9,643
27,377
37,020
22 September 2017
4

Hindustan Unilever
NOTES
22 September 2017
5

Disclosures:
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
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broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOSL is a subsidiary company of Motilal Oswal Financial Service Ltd. (MOFSL). MOFSL is a listed
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the subject company at the end of the month immediately preceding the date of publication of the Research Report.
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from time to time, have a long or short position in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and
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a)
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Hindustan Unilever
Disclosure of Interest Statement
Analyst ownership of the stock
Hindustan Unilever
No
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regulation or which would subject MOSL & its group companies to registration or licensing requirements within such jurisdictions.
For Hong Kong:
This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC)
pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with
Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Hong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any
investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities,
products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research
Analysis in Hong Kong.
For U.S.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is
not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States.
Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S.
persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional
investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and
interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S.
registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and
therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
For Singapore
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a
subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in
the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with the research you could contact the following
representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person
or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of
offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or
appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document should make such investigations
as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to
determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative
products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of
the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the
views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time
without any prior approval. MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities
mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities
functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already
available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This document is
being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not
directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would
be contrary to law, regulation or which would subject MOSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to
certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or
representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.
The
person accessing this information specifically agrees to exempt MOSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or
employees responsible for any such misuse and further agrees to hold MOSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this
information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring
Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id:
na@motilaloswal.com,
Contact No.:022-30801085.
Registration details of group entities.: MOSL: NSE (Cash): INB231041238; NSE (F&O): INF231041238; NSE (CD): INE231041238; BSE (Cash): INB011041257; BSE(F&O): INF011041257; BSE(CD); MSE(Cash): INB261041231;
MSE(F&O): INF261041231; MSE(CD): INE261041231; CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset
Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth
management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities
Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products
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