Hindustan Unilever
BSE SENSEX
49,802
S&P CNX
14,721
17 March 2021
Update | Sector: Consumer
CMP: INR2,229
TP: INR2,690 (+21%)
Buy
Discretionary demand recovers on positive metro sales
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
HUVR IN
2,345
5237.6 / 72.2
2603 / 1749
7/-23/-52
8586
38.1
Financials & Valuations (INR b)
Y/E March
2021E 2022E 2023E
Sales
456
508
576
Sales Gr. (%)
17.5 11.4 13.5
EBITDA
113
135
156
EBITDA mrg. (%) 24.9 26.6 27.0
Adj. PAT
80
98
115
Adj. EPS (INR)
34.1 41.7 48.9
EPS Gr. (%)
9.3 22.1 17.3
BV/Sh.(INR)
208.1 216.0 215.9
Ratios
RoE (%)
28.2 19.7 22.6
RoCE (%)
38.2 26.5 30.5
Payout (%)
102.5 101.9 100.2
Valuations
P/E (x)
65.3 53.5 45.6
P/BV (x)
10.7 10.3 10.3
EV/EBITDA (x)
45.0 37.7 32.5
Div. Yield (%)
1.6
1.9
2.2
Shareholding pattern (%)
As On
Dec-20 Sep-20 Dec-19
Promoter
61.9
61.9
67.2
DII
10.7
10.8
6.7
FII
14.9
14.5
12.3
Others
12.5
12.7
13.8
FII Includes depository receipts
Stock Performance (1-year)
Hind. Unilever
Sensex - Rebased
3,600
2,900
2,200
1,500
We interacted with the management of Hindustan Unilever (HUVR) for an update
on overall market conditions. Here are the key takeaways:
Macro environment
The overall FMCG sector is seeing steady revival.
Urban growth, led by smaller urban centers, has been positive in recent
months.
Since Jan’21, metro and modern trade sales have been positive.
The good winter season demand seen in November and December continued
into January and February.
Broad segmentals and key components
Given 9% decline in overall sales in 4QFY20, all of the categories are likely to
report strong growth, especially with the addition of GSKCH.
On a sequential basis, some demand (amount unspecified) in skin cleansing
and home consumption products has tapered off.
Discretionary products (15% of sales – flat in 3QFY21, after 25% decline in
2QFY21 and 45% decline in 1QFY21) and OOH (5% of sales – 15% decline in
3QFY21, after 25% decline in 2QFY21 and 69% decline in 1QFY21) continued to
post improving sequential growth. Recovery in urban, particularly metros, and
modern trade (indicated earlier) has played a big part on this front.
Importantly, from the margin perspective, the Laundry category has recovered
as people have started stepping out more in the past 3–4 months and the
earlier bulk buying impact has worn off, leading to fresh purchases.
Costs and margins
Ad spends are increasing as consumer confidence rebounds.
EBITDA margins would improve YoY off a low base – both on standalone and
consolidated bases, due to the inclusion of the high-margin GSKCH business –
but maybe flat sequentially due to ongoing material cost increases.
Realization growth in 4Q would be substantially higher than 3Q, primarily on
account of price increases taken in December and January.
Valuation and view
As mentioned in our
Corner Office note
and
detailed note on the Annual
Report,
the structural and near-term investment case for HUVR remains strong.
The company’s earnings growth has gained further momentum in recent years
(17% EPS CAGR in the three years ended FY20 v/s a ~12% CAGR over the last 10
years). This is particularly impressive given the weak mid-single-digit earnings
growth posted by (much smaller) peers in recent years. HUVR’s best-of-breed
analytics and execution capabilities (demonstrated via the successful
implementation of the WIMI strategy, cost-saving plans, herbals, etc.) are key
factors driving the pace of earnings growth.
With the resumption of growth in the high-margin categories of a) Discretionary
products and b) Detergents, the EPS growth trajectory going forward is likely to
return to a CAGR in the high teens from FY22. Significant synergies from GSKCH
are also likely to be observed from FY22.
HUVR is trading at 45.6x FY23E EPS, a substantial discount to its historical five-
/three-year forward P/E of 51.4x/57.5x.
Valuing the company at 55x FY23 EPS,
we arrive at TP of INR2,690. Buy.
Krishnan Sambamoorthy – Research Analyst
(Krishnan.Sambamoorthy@MotilalOswal.com)
Research Analyst: Dhairya Dhruv
(Dhairya.Dhruv@MotilalOswal.com)/Kaiwan
Jal Olia
(kaiwan.o@motilaloswal.com)
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.
 Motilal Oswal Financial Services
Hindustan Unilever
Exhibit 1: Malaysian Palm Oil price (up to Feb’21) up 44.2%
YoY / 14.2% QoQ
Palm Oil (MYR per tonne)
Exhibit 2: PFAD prices (up to Feb’21) up 39.6% YoY / 14.8%
QoQ
Palm Fatty Acid price (INR/MT)
3,934
38,858
68,849
2,350
Source: RIL, MOFSL
Source: Bloomberg, MOFSL
Exhibit 3: Hindustan Unilever P/E (x)
P/E (x)
Min (x)
75.0
55.0
35.0
Avg (x)
+1SD
Max (x)
-1SD
Exhibit 4: Consumer P/E (x)
P/E (x)
Min (x)
51.0
Avg (x)
+1SD
Max (x)
-1SD
67.3
54.8
43.4
32.1
23.5
47.7
42.4
37.0
25.3
41.0
52.6
31.0
31.6
40.4
15.0
21.0
Source: Company, MOFSL
Source: Company, MOFSL
17 March 2021
2
 Motilal Oswal Financial Services
Hindustan Unilever
Story in charts
Exhibit 5: Volumes to grow 8.1% each in FY21/FY22/FY23E
Domestic volume growth (%)
9.8
8.1
4.0
4.8
5.8
6.5
8.1
8.1
8.6
2.0
280
308
9.9
0.8
311
2.7
319
345
382
8.3
10.7
1.5
388
456
508
576
Exhibit 6: Revenue to grow at 14.1% CAGR over FY20–23E…
Total Revenue (INR b)
Revenue growth (%)
17.5
11.4
13.5
0.8
Source: Company, MOFSL
Source: Company, MOFSL
Exhibit 7: ...with gross margin expansion of 50bp
Gross margin (%)
53.0 53.0
50.7 50.8
48.8 49.3
54.1
52.1
54.3 54.6
Exhibit 8: …leading to operating margin expansion of 220bp
26.6 27.0
EBITDA Margin (%)
24.8 24.9
21.1
16.9
18.5 19.0
22.6
16.0
Source: Company, MOFSL
Source: Company, MOFSL
Exhibit 9: EBITDA to grow at 17.5% CAGR over FY20–23E
EBITDA (INR b)
20.3
16.4
11.8
10.4
5.2
45
52
57
60
73
86
96
113
135
156
18.7
11.1
EBITDA growth (%)
18.2 18.8
Exhibit 10: Adj. PAT to grow at 19.3% CAGR over FY20–23E
Adj. PAT (INR b)
24.7
Adj. PAT growth (%)
18.7
10.9
22.1
17.3
15.6
11.5
2.7
36
37
14.2
1.9
42
42
53
14.7
61
67
80
98
115
Source: Company, MOFSL
Source: Company, MOFSL
17 March 2021
3
 Motilal Oswal Financial Services
Hindustan Unilever
Financials and valuations
Income Statement
Y/E March
Net Sales
Other Oper. Income
Total Revenue
Change (%)
COGS
Gross Profit
Gross 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
FY16
305
6
311
0.8
153
158
50.7
100
32.2
57
10.4
18.5
3
0
6
60
8.2
19.6
18
0
30.3
42
14.2
13.7
0
41
FY17
313
6
319
2.7
157
162
50.8
102
31.9
60
5.2
19.0
4
0
5
62
3.0
19.7
19
0
31.0
42
1.9
13.6
2
45
FY18
339
6
345
8.3
162
183
53.0
110
31.9
73
20.3
21.1
5
0
6
73
19.4
21.7
21
-1
27.9
53
24.7
15.6
-1
52
FY19
377
6
382
10.7
180
203
53.0
116
30.4
86
18.7
22.6
5
0
7
87
19.1
23.2
27
-1
30.5
61
14.7
16.1
0
60
FY20
383
5
388
1.5
178
210
54.1
114
29.4
96
11.1
24.8
9
1
7.33
93
6.2
24.3
24
2
27.4
67
10.9
17.6
0
67
FY21E
451
5
456
17.5
218
237
52.1
124
27.2
113
18.2
24.9
10
1
5.36
107
15.2
23.7
27
0
25.2
80
18.7
17.8
-2
78
FY22E
502
5
508
11.4
232
276
54.3
141
27.8
135
18.8
26.6
11
1
8.07
131
22.1
26.0
33
0
25.2
98
22.1
19.5
0
98
(INR b)
FY23E
570
6
576
13.5
262
314
54.6
158
27.5
156
15.6
27.0
11
1
9.98
153
17.3
26.9
39
0
25.2
115
17.3
20.1
0
115
Balance Sheet
Y/E March
Share Capital
Reserves
Capital Employed
Net Fixed Assets incl Goodwill
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: MOFSL Estimates
FY16
2
61
63
29
4
3
25
2
77
25
11
28
13
76
55
12
9
0
63
FY17
2
63
65
40
2
3
35
2
66
24
9
17
16
83
60
14
9
-17
65
FY18
2
69
71
41
4
3
29
3
92
24
11
34
23
101
70
16
14
-9
71
FY19
2
74
77
43
4
3
27
3
99
24
17
37
21
102
71
16
16
-3
77
FY20
2
78
80
51
5
3
13
3
123
26
10
50
36
116
74
26
16
7
80
FY21E
2
486
488
397
5
3
14
4
219
36
19
119
45
153
96
32
24
66
488
FY22E
2
504
506
391
5
3
15
4
254
40
21
147
46
165
105
34
26
90
506
(INR b)
FY23E
2
504
506
384
5
3
16
4
276
44
22
156
54
181
118
36
27
95
506
0
17 March 2021
4
 Motilal Oswal Financial Services
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 incl. Goodwill
RoCE incl. Goodwill
Working Capital Ratios
Debtor (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
FY16
19.3
20.7
29.0
15.5
97
FY17
19.6
21.5
30.0
17.0
98
FY18
24.5
26.7
32.7
20.0
99
FY19
28.1
30.5
35.4
22.0
95
FY20
31.2
35.6
37.2
25.0
96
FY21E
34.1
38.6
208.1
35.0
103
FY22E
41.7
46.4
216.0
42.5
102
1271
FY23E
48.9
53.7
215.9
49.0
100
115.7
107.5
15.7
83.4
76.8
0.7
113.5
103.8
15.4
79.5
74.3
0.8
91.0
83.5
14.1
65.8
68.2
0.9
79.4
73.1
12.7
55.4
63.0
1.0
71.4
62.7
12.4
49.6
60.0
1.1
70.0
62.0
11.3
48.3
11.5
1.6
57.3
51.5
10.1
40.5
11.1
1.9
48.9
44.5
8.9
35.0
11.1
2.2
83.3
119.8
13
4.9
66.5
96.7
11
4.8
78.1
108.6
12
4.8
82.5
119.1
16
4.9
86.0
119.8
10
4.8
28.2
38.2
16
0.9
19.7
26.5
16
1.0
22.6
30.5
14
1.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Cash Flow Statement
Y/E March
OP/(loss) before Tax
Financial other income
Depreciation
Net Interest Paid
Direct Taxes Paid
(Incr)/Decr in WC
CF from Operations
FY16
60
-2
3
-3
-17
-1
40
6
-7
33
3
3
-33
-7
-40
2
25
28
FY17
62
-1
4
-2
-18
5
50
0
-9
41
-10
-18
-36
-7
-43
-11
28
17
FY18
73
-3
5
-2
-22
9
59
5
-8
51
8
4
-39
-8
-47
17
17
34
FY19
85
-1
5
-3
-27
-3
57
4
-7
50
3
0
-45
-9
-55
3
34
37
FY20
91
-2
9
-4
-25
3
73
23
-7
66
22
38
-62
-4
-67
44
6
50
FY21E
107
-5
10
1
-27
10
96
60
-1
95
-1
58
-82
-4
-85
69
50
119
FY22E
131
-8
11
1
-33
4
106
31
-5
101
-1
25
-100
-4
-103
28
119
147
(INR b)
FY23E
153
-10
11
1
-39
5
122
12
-5
117
-1
6
-115
-4
-118
10
147
156
Other Items
(Incr)/Decr in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from Invest.
Dividend Paid
Others
CF from Fin. Activity
Incr/Decr of Cash
Add: Opening Balance
Closing Balance
E: MOFSL Estimates
17 March 2021
5
 Motilal Oswal Financial Services
Hindustan Unilever
NOTES
17 March 2021
6
 Motilal Oswal Financial Services
Hindustan Unilever
Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
< - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within following 30
days take appropriate measures to make the recommendation consistent with the investment rating legend.
Disclosures
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
Motilal Oswal Financial Services Ltd. (MOFSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOFSL, the Research Entity (RE) as defined in the Regulations,
is engaged in the business of providing Stock broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOFSL is a subsidiary
company of Passionate Investment Management Pvt. Ltd.. (PIMPL). MOFSL is a listed public company, the details in respect of which are available on www.motilaloswal.com. MOFSL
(erstwhile Motilal Oswal Securities Limited - MOFSL) is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock Exchange of
India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Multi Commodity Exchange of India Limited (MCX) and National Commodity & Derivatives Exchange Limited (NCDEX) for its
stock broking activities & is Depository participant with Central Depository Services Limited (CDSL) National Securities Depository Limited (NSDL),NERL, COMRIS and CCRL and is member
of Association of Mutual Funds of India (AMFI) for distribution of financial products and Insurance Regulatory & Development Authority of India (IRDA) as Corporate Agent for insurance
products.
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of
associate
entities
of
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Oswal
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Services
Limited
are
available
on
the
website
at
http://onlinereports.motilaloswal.com/Dormant/documents/List%20of%20Associate%20companies.pdf
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7 MOFSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months
8 MOFSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months
9 MOFSL has not received any compensation or other benefits from third party in connection with the research report
10 MOFSL has not engaged in market making activity for the subject company
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The associates of MOFSL may have:
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financial interest in the subject company
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actual/beneficial ownership of 1% or more securities in the subject company
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received compensation/other benefits from the subject company in the past 12 months
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 Motilal Oswal Financial Services
Hindustan Unilever
other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific
recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even though there
might exist an inherent conflict of interest in some of the stocks mentioned in the research report.
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acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
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be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies)
discussed herein or act as an advisor or lender/borrower to such company(ies)
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received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services.
The associates of MOFSL has not received any compensation or other benefits from third party in connection with the research report
Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not consider
demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from clients which are not
considered in above disclosures.
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research
analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.
Terms & Conditions:
This report has been prepared by MOFSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential 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 of MOFSL. The report is
based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from
publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made
as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not
constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers
simultaneously, not all customers may receive this report at the same time. MOFSL will not treat recipients as customers by virtue of their receiving this report.
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. MOFSL, 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 MOFSL. 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 MOFSL 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 MOFSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not
to hold MOFSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOFSL 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 71934200/ 022-71934263; Website
www.motilaloswal.com.CIN no.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad(West), Mumbai-
400 064. Tel No: 022 7188 1000.
Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412. AMFI:
ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579;PMS:INP000006712. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration
No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.:
INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond,
NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. which is a group company of MOFSL. Private Equity is offered
through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL. Research & Advisory services is backed by proper research. Please read the Risk
Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no assurance or guarantee of the returns. Investment in securities market is subject to market risk,
read all the related documents carefully before investing. Details of Compliance Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.
* MOFSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company
Law Tribunal, Mumbai Bench.
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