Hindustan Unilever
BSE SENSEX
40,852
S&P CNX
11,972
12 December 2018
Update | Sector: Consumer
CMP: INR2,006
TP: INR2,378 (+19%)
Demand outlook similar to 2QFY20
Buy
We spoke to the management of Hindustan Unilever (HUVR) for an update on the
overall market condition. Key takeaways highlighted below:
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
2,165
4343.6 / 61.3
2187 / 1650
-4/7/-4
2776
32.8
Demand environment showing no signs of improvement
The demand scenario is similar to last quarter with no major improvement or
deterioration.
Rural demand has seen slight sequential slowdown.
The company doesn’t see sharp demand turnaround for another two quarters.
Rising raw material cost in a weak environment
Financials Snapshot (INR b)
Y/E Mar
2019 2020E 2021E
Net Sales
EBITDA
Net Profit
EPS (INR)
EPS Growth (%)
BV/Share (INR)
P/E (x)
P/BV (x)
RoE (%)
RoCE (%)
382.2 408.9 466.3
86.4 100.6 120.3
62.6
28.9
18.2
35.4
69.3
56.7
85.0
71.9
33.2
14.8
36.8
60.4
54.5
88.4
40.8
22.9
39.2
49.1
51.2
Since Oct’19, palm oil prices have started inflating and the company will view
its implication on a blended basis. However, the company believes that it’s too
early currently to decide on a price increase.
The company took the balance 3% price cut in Oct’19, as guided in its 2QFY20
management commentary.
Premiumization trend continuing
92.0 107.4
HUVR has seen no major downtrading during the quarter.
Premiumization as a trend is continuing.
Further, premium as a proportion of overall sales is holding up decently.
119.1 127.3 146.4
Other pointers
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Sep-19 Jun-19 Sep-18
67.2
6.7
12.4
13.7
67.2
6.9
12.1
13.8
67.2
7.3
12.1
13.4
The company is seeing slight sequential improvement in channel liquidity and is
offering some credit wherever required.
HUVR is seeing nothing extraordinary in ad-spends or competitive intensity.
It will continue its focus on developing the market and the premium segment.
Modern Trade is growing well ahead of General Trade.
FII Includes depository receipts
Stock Performance (1-year)
Hind. Unilever
Sensex - Rebased
2,200
2,050
1,900
1,750
1,600
Valuation and view
Four key trends are particularly relevant to HUVR as they point toward an
elevated earnings growth trajectory compared to the past. These include (a)
rapidly improving adaptability to market requirements, (b) recognition and
strong execution of the Naturals segment, (c) a continuous strong trend toward
premiumization, and (d) extensive plans to employ technology, creating further
entry barriers.
Once we incorporate the GSKCH merger (no clarity on the date yet), there
could be 8-9% addition to EPS in FY21, which means that the stock trades at
~45.1x FY21E v/s 49.1x as it appears now.
Given HUVR’s best earnings growth visibility in the Indian large-cap consumer
space and by far the highest return ratios, we believe that the premium
valuations are justified.
On a target multiple of 50x Dec’21E EPS, we derive a TP of INR2,378/share.
Krishnan Sambamoorthy – Research analyst
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 6129 1545
Research analyst: Dhairya Dhruv
(Dhairya.Dhruv@motilaloswal.com); +91 22 6129 1547 |
Pooja Doshi
(Pooja.Doshi@MotilalOswal.com); +91 22 5036 2689
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: Sharp spike-up of late…
Palm Oil (Malaysian Ringgit Per Metric Tonne)
Exhibit 2: …similarly PFAD has also increased
Palm Fatty Acid price (INR/MT)
2,386
40,687
Source: RIL, MOFSL
Source: Bloomberg, MOFSL
Exhibit 3: Hindustan Unilever P/E (x)
P/E (x)
Min (x)
53.0
45.0
37.0
29.0
21.0
13.0
39.6
33.8
28.1
22.3
Avg (x)
+1SD
Max (x)
-1SD
45.7
37.2
Exhibit 4: Consumer P/E (x)
P/E (x)
Min (x)
65.0
55.0
45.0
35.0
25.0
15.0
23.5
38.6
28.7
48.5
Avg (x)
+1SD
Max (x)
-1SD
58.0
52.6
Source: Company, MOFSL
Source: Company, MOFSL
12 December 2019
2
 Motilal Oswal Financial Services
Hindustan Unilever
Story in Charts
Exhibit 5: Volumes to grow 7.2%/8.1% in FY20/FY21
Doemstic volume growth (%)
9.3
6.8
4.0
4.8
5.8
6.5
9.8
7.2
8.1
16.7
12.1
8.6
9.9
2.7
319
345
382
409
466
8.3
0.8
0.8
221
258
280
308
311
10.7
7.0
Exhibit 6: Revenue to see ~10.4% CAGR over FY19-21…
Total Revenue (INR b)
Revenue growth (%)
14.0
Source: Company, MOFSL
Source: Company, MOFSL
Exhibit 7: ...with gross margin expansion of 310bp…
Gross margin (%)
53.0 53.0
54.2
56.1
Exhibit 8: …leading to operating margins expanding 320bp
EBITDA Margin (%)
24.6
21.1
16.0
14.9 15.5
16.9
18.5 19.0
22.6
25.8
46.9 47.7
48.8 49.3
50.7 50.8
Source: Company, MOFSL
Source: Company, MOFSL
Exhibit 9: EBITDA to see 18% CAGR over FY19-21
EBITDA (INR b)
22.9 21.6
16.4
11.8
10.4
5.2
33
40
45
52
57
60
73
86
101
120
EBITDA growth (%)
20.3
18.7
19.6
Exhibit 10: Adj. PAT estimated at 18.8% CAGR over FY19-21
Adj. PAT (INR b)
22.6 23.9
11.5
2.7
26
32
36
37
42
14.2
1.9
42
53
63
72
88
Adj. PAT growth (%)
24.7
18.2
14.8
22.9
16.5
Source: Company, MOFSL
Source: Company, MOFSL
12 December 2019
3
 Motilal Oswal Financial Services
Hindustan Unilever
Financials and valuations
Income Statement
Y/E March
Net Sales
Other Oper. Income
Total Revenue
Change (%)
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
FY15
3,01,705
6,351
3,08,056
9.9
1,51,821
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
3,04,990
5,619
3,10,609
0.8
1,57,556
50.7
1,00,070
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
3,12,980
5,920
3,18,900
2.7
1,62,050
50.8
1,01,580
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
FY18
3,39,260
5,990
3,45,250
8.3
1,82,930
53.0
1,10,170
31.9
72,760
20.3
21.1
4,780
200
5,690
73,470
19.4
21.7
21,480
-1,000
27.9
52,990
24.7
15.6
-620
52,370
FY19
3,76,600
5,640
3,82,240
10.7
2,02,640
53.0
1,16,270
30.4
86,370
18.7
22.6
5,240
280
6,640
87,490
19.1
23.2
25,650
-790
28.4
62,630
18.2
16.6
-2,270
60,360
FY20E
4,03,016
5,866
4,08,882
7.0
2,21,703
54.2
1,21,118
29.6
1,00,585
16.5
24.6
8,602
960
7,446
98,469
12.5
24.4
26,587
0
27.0
71,882
14.8
17.8
0
71,882
(INR M)
FY21E
4,60,130
6,159
4,66,289
14.0
2,61,523
56.1
1,41,250
30.3
1,20,273
19.6
25.8
9,086
989
9,230
1,19,428
21.3
26.0
31,051
0
26.0
88,377
22.9
19.2
0
88,377
Balance Sheet
Y/E March
Share Capital
Reserves
Capital Employed
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: MOFSL Estimates
FY15
2,164
35,084
37,248
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
FY16
2,164
60,630
62,794
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
40,240
2,030
2,540
35,250
1,600
65,850
23,620
9,280
16,710
16,240
82,606
60,060
13,826
8,720
-16,756
64,904
0
FY18
2,164
68,590
70,754
41,420
4,300
2,540
28,570
2,550
92,110
23,590
11,470
33,730
23,320
1,00,736
70,130
16,376
14,230
-8,626
70,754
0
FY19
2,165
74,430
76,595
43,430
3,730
2,540
26,950
3,390
98,615
24,220
16,730
36,880
20,785
1,02,060
70,700
15,860
15,500
-3,445
76,595
0
FY20E
2,165
77,475
79,639
39,828
3,730
2,540
27,950
3,390
1,20,149
26,868
12,146
58,451
22,685
1,17,947
84,794
16,653
16,500
2,202
79,639
0
(INR M)
FY21E
2,165
82,727
84,892
35,741
3,730
2,540
28,950
3,390
1,38,291
35,395
17,649
60,466
24,782
1,27,751
92,765
17,486
17,500
10,540
84,892
0
12 December 2019
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
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
90
501
FY16
19.3
20.7
29.0
15.5
97
511
FY17
19.6
21.5
30.0
17.0
98
637
FY18
24.5
26.7
32.7
20.0
99
752
FY19
28.9
31.4
35.4
22.0
95
863
FY20E
33.2
37.2
36.8
26.5
96
1061
FY21E
40.8
45.0
39.2
32.0
94
118.9
110.2
14.3
82.7
116.5
0.7
104.1
96.7
14.1
75.0
69.1
0.8
102.2
93.5
13.8
71.5
66.9
0.8
81.9
75.2
12.7
59.2
61.4
1.0
69.3
64.0
11.4
49.8
56.7
1.1
60.4
54.0
10.6
42.6
54.5
1.3
49.1
44.6
9.3
35.6
51.2
1.6
104.3
158.2
4,523.0
9
8.1
83.3
119.8
290.6
13
4.9
66.5
96.7
118.7
11
4.8
78.1
108.6
144.0
12
4.8
85.0
119.1
197.5
16
4.9
92.0
127.3
300.2
11
5.1
107.4
146.4
538.8
14
5.4
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
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
FY15
55,231
-3,559
2,867
-1,890
-17,775
-2,156
32,719
3,506
263
32,982
1,182
4,951
-29,123
-5,403
-34,504
3,166
22,210
25,376
FY16
59,770
-1,910
3,210
-3,160
-17,040
-1,130
39,740
6,004
-6,740
33,000
3,290
2,554
-33,420
-6,660
-40,080
2,214
25,376
27,590
FY17
61,550
-920
3,960
-2,400
-18,040
5,380
49,530
450
-8,520
41,010
-9,700
-17,770
-35,610
-7,030
-42,640
-10,880
27,590
16,710
FY18
72,850
-2,800
4,780
-2,460
-21,880
8,640
59,130
4,880
-8,270
50,860
7,790
4,400
-38,960
-7,550
-46,510
17,020
16,710
33,730
FY19
85,220
-770
5,240
-2,950
-26,850
-2,610
57,280
4,460
-7,240
50,040
3,270
490
-45,460
-9,160
-54,620
3,150
33,730
36,880
FY20E
98,469
-7,446
8,602
960
-26,587
15,924
89,922
6,441
-5,000
84,922
-1,000
441
-68,837
45
-68,792
21,571
36,880
58,451
(INR M)
FY21E
1,19,428
-9,230
9,086
989
-31,051
-6,323
82,898
8,628
-5,000
77,898
-1,000
2,628
-83,124
-522
-83,646
1,879
58,587
60,466
12 December 2019
5
 Motilal Oswal Financial Services
Hindustan Unilever
NOTES
12 December 2019
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.
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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
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2 MOFSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company
3 MOFSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months
4 MOFSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report
5 Research Analyst has not served as director/officer/employee in the subject company
6 MOFSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
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
12 December 2019
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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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12 December 2019
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