Motilal Oswal Financial Services

Hindustan Unilever

BSE SENSEX

33,957

S&P CNX

10,047

9 June 2020

Annual report Update | Sector: Consumer

CMP: INR2,106

TP: INR2,400 (+14%)

Strengthening building blocks

Buy

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Hindustan Unilever’s (HUVR) FY20 Annual Report highlights the company’s

continuous efforts to strengthen its building blocks, thus enabling the sustenance of

robust growth. Key insights highlighted from the report 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 (%)

Financials Snapshot (INR b)

Y/E Mar

2020

Sales

387.9

Sales Gr. (%)

1.5

EBITDA

96.0

Margins (%)

24.8

Adj. PAT

67.4

Adj. EPS (INR)

31.2

EPS Gr. (%)

11.1

BV/Sh.(INR)

37.2

Ratios

RoE (%)

86.0

RoCE (%)

119.8

Payout (%)

96.2

Valuations

P/E (x)

67.5

P/BV (x)

56.6

EV/EBITDA (x)

46.8

Div. Yield (%)

1.2

Shareholding pattern (%)

As On

Promoter

DII

FII

Others

Mar-20

67.2

6.7

12.1

14.1

HUVR IN

2,345

4945.2 / 65.5

2614 / 1660

-6/21/29

6725

38.1

Setting up/adapting to key trends keeping HUVR ahead in the game:

The

Personal Care category witnessed significant effects of the slowdown in

2HFY20, which culminated with the sharp COVID-19 led decline toward the

year-end. Despite this, HUVR reported another year of double-digit earnings

growth, taking its earnings CAGR over the past 3 years to 16.6%, even as peers

(many of whom are much smaller) witnessed revenue deceleration over the

same period. If not for the COVID-19 disruption impact, sales growth would

have been healthy for the third consecutive year as well.

A few factors from the FY20 Annual Report and our observations on the

same, which highlights HUVR’s strengths.



Sustained strong growth in Detergents, transformation potential in Skin

Cleansing:

The MGT-9 section in the annual report showcases the

importance of the role played by Detergents (22.5% of total sales) in

driving overall growth. After contributing as much as ~38%/~47%/~44% to

incremental sales in FY19/FY18/FY17, Detergents contributed over 100% of

incremental sales growth in FY20, making up for the decline in Soaps and

Cosmetics and Toiletries (the other two large product categories). Strong

premiumization and considerable success in growing volumes as part of

the company’s ‘Winning in Many Indias’ (WIMI) strategy has led to another

year of (near) double-digit sales growth even as the rest of its portfolio has

slowed down.



While performance of Soaps (~27% of FY20 sales) has been tepid over the

past 5 years now, we believe that the ‘COVID’ and ‘post-COVID’ scenarios

offer an opportunity for transformative growth – not only in terms of sales

but also in terms of premiumization in the category – both benefits that

HUVR is already enjoying in the Detergents business. Thus, the potential

resumption of growth in Soaps should provide strong momentum to half of

HUVR’s sales.



Relentless pursuit of cost savings:

HUVR’s annual report indicates that the

company was able to generate gross cost savings of 7% of sales in FY20,

another remarkable achievement, which also underlines the potential for

margin improvement over the longer term, especially with strong synergies

from the GSKCH business. While margin expansion may take a backseat in

FY21 owing to the COVID-19 fallout, the company’s ability to extract more

savings compared to peers should drive continued superior earnings

growth.

2021E

442.4

14.1

109.5

24.8

79.2

33.8

8.3

55.9

75.0

103.0

103.6

62.3

37.7

44.0

1.7

2022E

515.9

16.6

135.7

26.3

101.7

43.4

28.4

57.3

76.7

103.3

101.4

48.5

36.8

35.4

2.1

Dec-19

67.2

6.7

12.3

13.8

Mar-19

67.2

7.0

11.8

14.0

FII Includes depository receipts

Krishnan Sambamoorthy – Research analyst

(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 6129 1545

Research analyst: Pooja Doshi

(Pooja.Doshi@MotilalOswal.com); +91 22 6129 1573 |

Dhairya Dhruv

(Dhairya.Dhruv@motilaloswal.com); +91 22 6129 1547

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

Stock Performance (1-year)



Increasing confidence on inorganic growth:

HUVR’s annual report also

enumerates its success and/or ambitious plans on the acquisition of Indulekha,

Adityaa Ice-cream, GSK CH and potentially V-Wash. This leads us to believe that

inorganic growth would remain a highly important part of HUVR’s incremental

growth. While HUVR has the skillset, we believe it now seems to be exhibiting

increasing confidence on inorganic growth due to (a) access to impressive cash

flows, (b) ability to leverage its wide distribution reach, (c) superior

understanding v/s peers on usage of lower unit packs (LUP), and (d) new-found

nimbleness in all aspects of decision making.

WIMI and superior analytics to continue being significant game changers:

While pace of sales growth is likely to slow down temporarily in FY21 due to the

COVID-19 impact, HUVR’s annual report again highlights the quantum of their

lead v/s peers on the WIMI strategy/analytics. Both these factors enable HUVR

to leverage its overall superiority on total distribution reach as well as direct

distribution reach.

Sustainability:

HUVR’s efforts on a host of critical factors like renewable energy

(now 71% contribution), reduction in environmental footprint, 85% reduction in

carbon dioxide emissions over 2008 levels, waste water reduction, and more

recently sustainable sourcing strengthens its long-term investment case.

Valuation and view:

Despite being the largest consumer company in India, its

10-year sales/EBITDA/PAT growth has been healthy at 8.1%/13.3%/12.4% CAGR.

Earnings growth has consistently gained momentum in recent years, which is

particularly impressive given the weak mid-single earnings growth posted by

(much smaller) peers in recent years. HUVR has delivered EBITDA/PAT CAGR of

13%/13.1% in the last five years, while both EBITDA/PAT have reported ~17%

CAGR in the last three years ending FY20.

HUVR’s best of breed analytics and execution ability (exhibited by successful

implementation of the WIMI strategy, cost savings plans, herbals, etc.) are key

factors driving this pace of earnings growth. Additionally, our conviction over

the medium-term is further strengthened by its (a) strong balance sheet, (b)

robust cash flow generation and increasing willingness in recent years to use

cash flow for inorganic growth, (c) excellent management quality/ corporate

governance, and (d) proven track record of consistent delivery even in a weak

consumption environment.

Further, as highlighted in our detailed report in

Feb’20,

we remain positive on

HUVR from a medium-term perspective due to (a) robust earnings growth

potential beyond the near term owing to its portfolio and execution strengths,

(b) significant synergies in FY22E as a result of GSK CH, and (c) its RoCE levels

being well ahead of peers. All these factors mean that premium multiples are

likely to sustain. Moving our forecasts to merged numbers (which add over 9%

to FY22E EPS due to the nature of the GSK merger and synergies), we value the

company at 55x merged EPS, to arrive at a TP of INR2,400 and maintain

Buy.

9 June 2020

Hindustan Unilever

Highlights from FY20 Annual Report

Market growth decelerates markedly on challenging macros



Even before the COVID-19 outbreak, the macro-economic environment was

challenging with low GDP growth rates, liquidity crunch and peaking

unemployment rate. FMCG markets witnessed deceleration from the highs of

2018 with rural markets seeing sharper rate of consumption slowdown than

urban markets. FY20 also witnessed some weather disruptions in the form of

late onset of monsoons in certain parts of the country, post-monsoon heavy

showers and a delayed winter.

Overall, the market also witnessed disparate trends across divisions with

discretionary categories like Beauty and Personal Care facing adverse impact of

the slowdown, while Home Care, and Foods and Refreshment categories were

relatively more insulated due to their essential nature.

Exhibit 1: Market context – Challenging

Source: Company, MOFSL

COVID-19 impact and HUVR’s responses



In early-CY20, COVID-19 pandemic started to spread globally. Governments

announced lockdowns, declared geographies as hotspots and asked people to

stay indoors. In these unprecedented times, HUVR relied on the fundamentals

to drive agility and responsiveness across the value chain and structured its

responses around five key imperatives – People, Supply, Demand, Community,

and Cost and Cash.



People:

HUVR was proactive and swift in ensuring safe working conditions,

strict standards of social distancing, necessary infrastructure and equipment

across operations.



Supply:

It continued to work closely with the Government, prioritized key

SKUs, made planning cycles more agile and created flexible alternatives,

which helped it reboot the supply lines to a large extent.



Demand:

Many of HUVR’s categories and brands moved quickly to re-plan

innovations, adjusted to consumer-buying in different channels, and re-

worked brand communication to remain consumer relevant.

9 June 2020

Hindustan Unilever



Community:

HUVR amplified its efforts, right from donating

Lifebuoy

soaps,

to strengthening healthcare infrastructure and spreading awareness

through a nationwide campaign in partnership with UNICEF.

Cash and Cost:

It focused on the long-term health of the business, keeping

its ambition of savings unchanged.

Exhibit 2: COVID-19 – Adverse nationwide impact in second half of Mar’20

Source: Company, MOFSL

Exhibit 3: Clear imperatives and consistent strategy

Source: Company, MOFSL

Focus on core strategy supported business performance in FY20



HUVR remained focused on (a) strengthening the core, (b) accelerating

premiumization, and (c) driving market development with its large portfolio of

products that straddled the price-benefit pyramid.

Transformation programs such as WIMI, Re-imagining HUL and Connected 4

Growth (C4G) helped the company in faster decision-making, localization and

swifter innovation delivery, and increased speed-to-market, which drove its

business performance.

During FY20, HUVR’s on-shelf availability was at an all-time high with the

Customer Case Fill on Time (CCFOT) at over 95%. At the same time, it improved

9 June 2020

Hindustan Unilever

on-shelf quality by 30% over the previous year. Moreover, its cost savings

programs helped it deliver 7% of turnover as gross savings last year.

Mergers and Acquisitions – a key growth area



Unlike the past, the inorganic route should be an important component of

HUVR’s top-line/bottom-line growth, in our view. This can be attributed to its (a)

access to impressive cash flows, (b) ability to leverage its strong distribution

reach, (c) superior understanding v/s peers on usage of lower unit packs (LUP),

and (d) new-found nimbleness in all aspects of decision making.

‘GSK CH’ – One of the largest FMCG deals in recent times:

HUVR completed the

merger of GSK CH on 1

Apr’20. In order to ensure seamless integration, HUVR

put in place a dedicated team resourced with senior leadership. There was a

detailed plan on the key aspects of integration with clear and measurable

milestones, which was continuously reviewed by management for overall

business integration.



The merger was in line with the company’s strategy to build a sustainable

and profitable Foods and Refreshment (F&R) business in India by leveraging

the megatrend of health and wellness. GSK CH is the undisputed leader in

the Health Food Drinks (HFD) category, with iconic brands such as

Horlicks

and

Boost,

and a product portfolio supported by strong nutritional claims.

Thus, this merger should bolster HUVR’s focus to build a profitable and

sustainable Nutrition business in India. GSK CH’s other brands like

Maltova

and

Viva

would also come to HUVR’s brand portfolio due to the merger.



As mentioned in the annual report, “In

accordance with the merger scheme,

HUVR issued and allotted 184.6m equity shares of INR1 to eligible

shareholders of the now amalgamated GSK CH, who were holding shares of

GSK CH as on the record date i.e. 17

Apr’20 in the ratio of 4.39 shares of the

Company for every one share held in GSK CH.”

Consequent to the scheme,

the authorized share capital of the HUVR increased to 2,850m equity shares

of INR1/- each.



Following the merger of GSK CH, HUVR now has ~21,000 employees working

across 31 company-owned factories and 15 offices, more than 1,150

suppliers (and products stocked in warehouses) and over 4,500 distributors

across the country.



Exhibit 4: Leverage on mega trend of health and wellness

Source: Company, MOFSL

9 June 2020

Hindustan Unilever

Exhibit 5: Transaction highlights

Source: Company, MOFSL



VWash:

During the year, HUVR entered into an agreement with Glenmark

Pharmaceuticals to acquire its intimate hygiene brand

VWash.

The deal involved

acquisition of intellectual property rights including trademarks, design and

know-how related to the

VWash

brand.



The proposed acquisition is in line with HUVR’s strategic intent to enter the

fast-growing segments of the future in the premium Beauty and Personal

Care category.

Exhibit 6: Intimate hygiene – Huge potential for market

development

Exhibit 7:

VWash

– Strong and established brand

Source: Company, MOFSL

Key highlights from Form No MGT-9



In this segment of the annual report, the company shares data on sales of key

categories (beyond the usual broad segmental details). Key observations on the

top three categories i.e. Soaps, Detergents and Cosmetics and Toiletries are

mentioned below:



Soaps:

Over the past 5 years, contribution of soaps to HUVR’s total revenue

has declined steadily from 32% in FY15 to 27% in FY20, due to tepid sales

growth over the same period. High penetration and less premiumization

compared to Detergents has been a major problem. In fact, sales actually

posted 3.4% decline in FY20. However, we believe that the ‘COVID’ and

‘post-COVID’ scenarios offer an opportunity for transformative growth – not

9 June 2020

Hindustan Unilever

only in terms of sales but also in terms of premiumization in the category –

both benefits that HUVR is already enjoying in its Detergents business.

Exhibit 8: Over the past 4 years, share of soaps to HUVR’s total revenues has been steadily declining

Y/E

Soaps sales (INR m)

Contribution of soaps to total HUL sales (%)

Soaps sales growth (%)

Incremental soaps sales (INR m)

Contribution of soaps to HUL's incremental sales (%)

FY16

95,553

30.4

(1.0)

(963)

(7.5)

FY17

1,03,278

30.5

8.1

7,725

31.6

FY18

1,03,857

30.0

0.6

579

8.0

FY19

FY20

1,06,954

1,03,337

28.4

27.0

3.0

-3.4

3,097

(3,617)

10.2

(59.0)

Source: Company, MOFSL



Detergents:

While Soaps’ performance has been disappointing, Detergents

– despite the huge category size and equally high penetration level – has

been a stellar performer. Despite the heavy base of 17.1% in FY19,

Detergent category sales were robust at 9.9% in FY20 (a period when overall

revenues grew ~2%). Moreover, after contributing 44.1%/47.4%/37.6% of

incremental sales during the preceding three years, detergents contributed

over 100% of incremental sales in FY20. This was led by massive

premiumization as well as healthy volume growth in the category. Given

that the category is an important part of incremental sales, we need to keep

a close eye on the competition, especially from P&G Home Products.

Exhibit 9: Detergents – Stellar performance despite the huge size

Y/E

Detergent sales (INR m)

Contribution of detergent to total HUL sales (%)

Detergent sales growth (%)

Incremental detergent sales (INR m)

Contribution of detergent to HUL's incremental sales (%)

FY16

52,683

16.8

5.6

2,811

21.9

FY17

63,451

18.7

20.4

10,768

44.1

FY18

66,884

19.3

5.4

3,432

47.4

FY19

FY20

78,333

86,114

20.8

22.5

17.1

9.9

11,449

7,781

37.6

126.9

Source: Company, MOFSL



Cosmetics and Toiletries:

After some revival in FY19, sales growth again

dipped to 2.2%. However, category contribution to HUVR’s incremental

sales stood resilient at 23% in FY20.

Exhibit 10: After some revival in sales growth last year, Cosmetics and Toiletries reported mere ~2% growth in FY20

Y/E

Cosmetics & Toiletries sales (INR m)

Contribution of Cosmetics & Toiletries to total HUL sales (%)

Cosmetics & Toiletries sales growth (%)

Incremental Cosmetics & Toiletries sales (INR m)

Contribution of Cosmetics & Toiletries to HUL's incremental sales (%)

FY16

53,595

17.0

8.1

3,995

31.2

FY17

55,588

16.4

3.7

1,992

8.2

FY18

56,117

16.2

1.0

530

7.3

FY19

63,269

16.8

12.7

7,151

23.5

FY20

64,681

16.9

2.2

1,413

23.0

Source: Company, MOFSL

9 June 2020

Hindustan Unilever

Key broader segmental highlights

A) The Beauty and Personal Care (BPC) division

being discretionary in nature was

more affected due to the challenging macro-economic environment. Within the

category, Personal Products delivered good growth in FY20. However, the company

is working on its Skin Cleansing portfolio to strengthen its competitiveness by taking

decisive interventions in areas such as product, proposition, pricing and

communication. Despite the challenges, the company has continued to strengthen

its core business by driving penetration of

Fair & Lovely, Pond’s, Sunsilk, Dove

and

Close Up

to name a few. Moreover, it remains focus on (a) strengthening its core

brands, (b) accelerating premiumization of its portfolio, (c) driving market

development at scale, and (d) strengthening its ‘Naturals’ play.

Exhibit 11: Beauty and Personal care performance

Particulars (INR b)

Beauty & Personal Care revenue

YoY growth (%)

Contribution to total turnover (%)

Beauty & Personal Care EBIT

YoY growth (%)

Margins (%)

Beauty & Personal Care contribution to total EBIT (%)

FY17

163

1.8

47.3

1.2

23.6

64.9

FY18

165

1.0

46.8

8.1

25.3

60.9

FY19

FY20

177

173

7.2

(1.8)

46.2

44.7

12.6

3.9

26.5

28.1

58.0

56.2

Source: Company, MOFSL

In the Beauty and Personal Care (BPC) division,

HUVR has huge portfolio of more

than 900 SKUs spread across one or more categories with many products tailored

for 14 consumer clusters identified in India.

Within Skin Care,

Fair & Lovely

continued to deliver healthy growth. In 2019,

Fair & Lovely

combined the new facial glow trends along with enhanced

technology to arrive at a ‘High Definition (HD) Glow’ product line to meet its

consumer needs. HUVR also launched

Fair & Lovely

soap in FY20, which received

good initial response. Moreover, advanced moisturizing and skin refreshing

ranges were launched by HUVR’s

Lakmé

to meet evolving consumer needs.

In Skin Cleansing,

Dove, Pears

and the liquid portfolio led HUVR’s

premiumisation journey. The company launched a new transparent

Pears

bar,

with the range inspired by natural ingredients through use of proprietary ‘ultra-

low TFM (total fatty matter)’ technology.

Within Hair care,

HUVR launched new variants in

Dove

and

Sunsilk

in line with

its continued focus on ‘Naturals’ trend in this category. It also launched

TRESemmé

sachet to drive more users to the category and accelerate

premiumization.

Within Deodorants,

Rexona,

a leading anti-perspirant brand continued to drive

market development.

5) ‘Naturals’ portfolio in BPC was strengthened with its three-pronged approach:



The master brand LEVER Ayush continued its momentum in the focused

market

of South India. It further strengthened the portfolio by launching

LEVER

Ayush Bhringaraj

hair oil.



HUVR has continued to build specialist brands

Indulekha

and

Hamam.

Indulekha

delivered robust performance and a new variant – Neemraj oil –

was launched in FY20.

9 June 2020

Hindustan Unilever

The third leg of its ‘Naturals’ strategy involved various natural variants

within its existing portfolio of products

Lifebuoy

neem and turmeric,

Dove

and

Sunsilk

‘Naturals’ in Hair Care, and the aloe vera range in Vaseline.

Other launches:

(a) Matte revolution – a premium makeup range – drove

growth in the category along with a 3D makeup range, (b) A purpose-driven

brand from the Unilever stable –

‘Love, Beauty and Planet’

– made from

sustainably sourced ingredients and packaged in recycled plastic.



B) The Home Care business

continued its strong volume-driven profitable growth

during FY20 in both Fabric Solutions and Home and Hygiene.

Exhibit 12: Home Care performance

Particulars (INR b)

Home care revenue

YoY growth (%)

Contribution to total turnover (%)

Home care EBIT

YoY growth (%)

Margins (%)

Home care contribution to total EBIT (%)

FY17

113

4.9

32.9

19.6

11.1

21.2

FY18

116

2.5

33.0

34.7

14.6

24.8

FY19

129

10.7

33.7

27.6

16.8

26.8

FY20

136

5.9

35.2

18.3

18.8

26.6

Source: Company, MOFSL

Fabric Wash delivered healthy performance on the back of



Continuous premiumization in

Surf Excel

and

Rin

whilst regaining growth in

the mass segment led by

Wheel.



Flexible lower unit packs (LUPs) were introduced in detergent liquids and

fabric conditioners to make them more affordable to consumers and further

drive consumption and penetration. As a result, HUVR reported strong

growth trajectory in

Surf Excel Matic

liquid and

Comfort

fabric conditioner.



The year also saw the strategic re-launch of

Rin Matic

powders to create

affordable solutions for the mid-tier washing-machine consumer segment.



The company’s focus was to build a portfolio of liquid detergents spread

across the price-benefit map.

Surf Excel

started this journey with the first

detergent liquid launch of ‘Matic’ designed for washing machines; in 2019,

HUVR launched

Surf Excel Easy Wash

liquid in the hand-washing segment. In

FY20, HUVR also launched

Sunlight

liquid detergent in select geographies

and a premium expert-care solution range under the new detergent brand –

Love & Care.



The company launched

Comfort

perfume-deluxe range in select geographies

offering longer-lasting benefits of fragrances and introduced a unique

ancillary product –

Magic

rinse-powder sachet – to ease the rinsing process,

thereby reducing foam and water requirement.



Rin

bar was also re-launched in South India with visual cues.

In the Life Essentials segment,

HUVR sharpened its focus on the premium

portfolio and launched

Pureit Copper+.

In Household Care,

Vim

led the market development for dish-wash by driving

category adoption of

Vim

bar in rural India and upgrading existing consumers

from bars to the liquid format in urban India.



Vim

liquid and

Domex

powder continued to perform well.

Domex

toilet

cleaner was re-launched with long-lasting freshness proposition. The low-

cost

Domex

powder, designed for squat toilets, was extended to selected

geographies in India.

9 June 2020

Hindustan Unilever



Vim

also entered the dish-wash applicator space through the launch of

Vim

scrubber.

C) Foods and Refreshment business

delivered yet another year of healthy growth,

however, the pace of growth slowed down in FY20.

Exhibit 13: Food and Refreshments’ performance

Particulars (INR b)

Foods & Refreshment revenue

YoY growth (%)

Contribution to total turnover (%)

Foods & Refreshment EBIT

YoY growth (%)

Margins (%)

Foods & Refreshment contribution to total EBIT (%)

FY17

7.1

17.3

6.3

14.1

14.2

FY18

8.6

18.4

17.4

15.2

14.4

FY19

10.0

18.7

25.4

17.3

15.3

FY20

4.4

19.2

(0.3)

16.5

14.2

Source: Company, MOFSL

In Foods,

the core portfolio of Jams and Ketchup delivered good growth.

Kissan

range of international sauces launched last year was made nationally available.

In Spreads,

HUVR launched

Hellmann’s

mayonnaise in Kolkata.

Refreshments:

With on-trend, superior product offering, Tea continued to

deliver robust, volume-led growth.



BRU

Green Label Nice was launched in South Karnataka, which was

specifically tailored to the needs of conventional coffee consumers in the

region.



Within Coffee, the company introduced an improved instant coffee product.



HUVR launched

Lipton

Matcha Green Tea on Ecommerce to capture the

growing health and wellness trend amongst millennials and urban

population that are over-indexed on such Ecommerce platforms.

In the Ice Cream and Frozen Desserts business,

HUVR rolled out a number of

innovations at the top end as well as at the bottom of the pyramid, which

catered to both global and local palates, such as



Cornetto

Brownie Silk,

Magnum

Hazelnut,

Sundae

Cup, Aamras and Dry fruit

Rabri Kulfi,



A new range of tubs in Choco Fudge, Tender Coconut flavours,



Watermelon stick,



Kwality Wall’s

formed a tie-up with food delivery platform ‘RailYatri’.

Overall financial performance



In 9MFY20, domestic consumer sales growth stood at 6%, reflective of HUVR’s

strong performance delivery. In the Mar’20 quarter, HUVR’s performance at an

aggregate level remained competitive with steady growth before the COVID-19

outbreak in India. The second half of Mar’20 saw an exacerbated slowdown due

to the virus outbreak, resultant containment measures by various states and

finally, a nation-wide lockdown. This had an adverse impact on operations with

breakage in supply lines, shortage of manpower and disruptions in

procurement/transport, offsetting the resilient growth levels achieved hitherto.

Given these disruptions, FY20 domestic consumer growth stood at only 2% with

underlying volume growth of also 2%.

9 June 2020

Hindustan Unilever

Exhibit 14: 9MFY20 domestic consumer sales growth stood at 6% even on a high base…

Domestic FMCG sales growth (%)

Source: Company, MOFSL

Exhibit 15: …underlying volume stood at 5% YoY in 9MFY20

Underlying volume gr. (%)

Source: Company, MOFSL

Exhibit 16: Volumes growth stood at 2% in FY20

Doemstic volume growth (%)

9.3

6.8

4.0

4.8

5.8

6.5

2.0

9.8

Exhibit 17: Tepid revenue growth due to COVID-19 impact

Total Revenue (INR b)

16.7

12.1

8.6

9.9

0.8

2.7

8.3

10.7

1.5

Revenue growth (%)

14.1

16.6

0.8

221 258 280 308 311 319 345 382 388 442 516

Source: Company, MOFSL

9 June 2020

Hindustan Unilever

Exhibit 18: HUVR’s reach is significantly superior to peers with total reach of 8m outlets

43%

41%

35%

Direct reach as a % of total reach

33%

31%

22%

18%

16%

HUL

BRIT

TGBL

CLGT

NEST

Jyothy

GCPL

MRCO

HMN

DABUR

Source: Company, MOFSL



The company’s EBITDA margin stood at record high of 24.8%. The margin

expansion was a result of strong savings agenda, scale efficiencies achieved on

the back of healthy volume growth, mix impact given strong portfolio of

premium brands and market development cells. PAT (bei) grew 10.9% to

INR67.4b. We believe that the encouraging gross cost savings of up to 7% of

sales in FY20 as well as GSKCH’s synergies provide significant encouragement for

continuous improvement of longer-term margins. However, this is albeit some

let up in FY21 as during the first few months of the year (a) pace of sales growth

is likely to be affected, and (b) demand for discretionary products (usually higher

margins) is likely to be weak.

Exhibit 20: Highest-ever operating margins in FY20

EBITDA Margin (%)

54.1 54.3

55.7

22.6

24.8 24.8

26.3

Exhibit 19: Robust gross margins

Gross margin (%)

53.0 53.0

46.9 47.7

48.8 49.3

50.7 50.8

16.0 16.9

14.9 15.5

18.5 19.0

21.1

Source: Company, MOFSL

Exhibit 21: Margin expansion trajectory likely to continue in medium term

Y/E March (INR b)

Gross Profit

Gross Margin (%)

Gross margin change – YoY (bps)

EBIDTA

EBITDA Margin (%)

EBITDA margin change – YoY (bps)

FY15

152

49.3

16.9

FY16

158

50.7

140

18.5

160

FY17

162

50.8

19.0

FY18

183

53.0

220

21.1

210

FY19

203

53.0

22.6

150

FY20

210

54.1

110

24.8

220

FY21E

FY22E

240

287

54.3

55.7

140

110

136

24.8

26.3

150

Source: Company, MOFSL

9 June 2020

Hindustan Unilever

Exhibit 22: Other expenses (incl. A&P) to sales trend over the past 4 years

Companies

HUL

Britannia

Colgate

Dabur

Emami

GCPL

ITC*

Marico

Nestle

P&G Hygiene and Healthcare*

FY16

27.2

21.8

30.8

21.9

27.6

23.5

17.1

25.0

25.8

29.3

FY17

26.8

20.3

32.0

20.5

28.3

24.3

15.6

25.5

25.0

27.0

FY18

FY19

FY20

26.9

25.8

25.0

19.2

21.0

20.2

30.6

30.7

31.3

19.3

18.2

18.4

29.5

28.4

28.0

24.9

24.7

25.1

14.7

15.0

15.7

22.0

21.1

22.2

24.0

24.8

23.9

31.1

32.9

37.0

Source: Company, MOFSL, *Estimates

Exhibit 23: HUVR has derived maximum benefit through savings in other expenses (incl.

A&P expense) as percentage of sales post GST (FY18-20)

Savings in other expenses (incl. A&P) as % of sales (FY18-20)

1.8

1.5*

0.9

0.1

-1.0*

-0.2

-0.7

-1.0

-5.9*

Source: Company, MOFSL, *Estimates

Exhibit 24: EBITDA CAGR of 18.9% over FY20-22E

EBITDA (INR b)

22.9 21.6

16.4

11.8

10.4

5.2

110 136

EBITDA growth (%)

20.3

23.9

18.7

11.1

14.1

Exhibit 25: Adj. PAT CAGR of 22.8% over the same period

Adj. PAT (INR b)

22.6 23.9

11.5

14.2

2.7

1.9

102

Adj. PAT growth (%)

24.7

14.7

17.5

10.9

28.4

Source: Company, MOFSL



Source: Company, MOFSL

Working capital improved by 7 days YoY (on year-end basis) and stood at

negative 35 days. RoE expanded by 340bp YoY to 86% in FY20. Growth in OCF at

28% YoY was ahead of PAT growth. With slight decline in capex, FCF rose 32% to

INR66b.

9 June 2020

Hindustan Unilever

Exhibit 26: Consistent OCF and FCF generation

OCF (INR b)

FCF (INR b)

137.2

75.3

102.1 98.0 95.9

90.3

79.2

96.5 96.0

82.3

97.9

Exhibit 27: Robust FCF to PAT conversion

FCF to PAT (%)

Source: Company, MOFSL

Exhibit 28: Cumulative yield of 68% on CMP of INR240 (in 2010)

Cumulative dividend

DPS (INR)

164

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

*Only considered final dividend of INR3.5 in FY10 (Total dividend in FY10 is INR6.5)

Source: Company, MOFSL

Piggybacking on data and technology to service customers



With HUVR’s agenda of ‘Reimagining HUL’, it has embedded technology across

end-to-end value chain to build a business that is ‘future-fit’.

The company is picking up consumer signals real-time through the

People Data

Centre,

which analyzes consumer sentiment and conversations about brands

and categories as well as driving precision marketing to identify consumer needs

and direct target content.

Moreover, its

Connected Stores Program

is coming of age, where it is creating a

complete ecosystem across shoppers and retailers covering demand generation,

demand capture and demand fulfillment. To drive this program, HUVR has a

cross-functional digital council consisting people that are committed to bringing

a digital and technological revolution.

Channels:

In the traditional channel, HUVR is focusing on modernizing trade

through data and technology, and in turn, improving the profitability of retailer

with better assortment and optimized capital.



Through its B2B ordering app, it receives direct feedback from the smaller

local stores. It is also engaged with modern trade and Ecommerce partners

to discuss the appropriate portfolio for each channel, servicing of orders and

providing value to consumers. It has also introduced smartphone apps so

that retailers can place product orders directly, and at the same time, is

designing products appropriate for each channel.

9 June 2020

Hindustan Unilever

Exhibit 29: Digital initiatives through use of data and technology

*5)

Source: Company, MOFSL

Sustainability



The company is well placed to deliver long-term value through its strategy and

the Unilever Sustainable Living Plan (USLP).

Exhibit 30: Improving health and well-being

By 2020, Unilever will help more than a billion people take action to improve their health and well-being.

Health and hygiene

Nutrition

Target



By 2020, Unilever will help more than a billion people



By 2020, Unilever will double the proportion of its

globally to improve their health and hygiene. This will

portfolio across the globe that meets the highest

help reduce the incidence of life-threatening diseases

nutritional standards, based on globally recognized

like diarrhea.

dietary guidelines. This will help hundreds of millions of

people achieve a healthier diet.

Performance



In India, over 152 million people have been reached



50% of HUL’s Foods and Refreshment portfolio met the

through our WASH (Water, Sanitation and Hygiene)

highest nutritional standards in 2019, based on globally

initiatives.

recognized dietary guidelines.

Source: Company, MOFSL

Exhibit 31: Enhancing livelihoods

By 2020, Unilever will enhance the livelihoods of millions of people as it grows its business.

Target

Fairness in the workplace

Opportunities for women

Inclusive business



By 2020, Unilever will advance



By 2020, Unilever will empower five



By 2020, Unilever will enhance the

human rights across global

million women.

livelihoods of millions of people.

operations and extended supply

chain.



HUL continued to embed human



~120,000 Shakti Entrepreneurs



4.5m+ people positively impacted

rights with a focus on eight salient

empowered through the Shakti

through Project Prabhat across

human rights issues identified by

program by Mar’20.

manufacturing locations. The

Unilever globally.

initiatives focus on enhancing

livelihoods, water conservation,

nutrition and health and hygiene.

Source: Company, MOFSL

Performance

9 June 2020

Hindustan Unilever

Exhibit 32: Reducing environmental impact

By 2030, Unilever’s goal is to halve the environmental footprint of the making and use of its products as it grows its business.

Target



Greenhouse gases

Halve the greenhouse gas



impact of Unilever’s

products across the

lifecycle by 2030.

Water

By 2020, water



abstraction by Unilever’s

global factory network

will be at or below 2008

baseline despite

significantly higher

volumes.

Water consumption (in



m3 / t of production) in

HUL’s manufacturing

operations reduced by

58% compared to 2008

baseline.

Waste

By 2020, total waste sent



for disposal globally, will

be at or below 2008

baseline despite

significantly higher

volumes.

Total waste generated (kg



/ t of production) from

HUL’s factories reduced

by 63% over 2008

baseline.

Sustainable sourcing

By 2020, Unilever will

source 100% of its

agricultural raw materials

sustainably.

Performance



CO₂ emissions (kg/t of



production) in HUL’s

manufacturing operations

reduced by 85%

compared to 2008

baseline.

In India, a total of 78% of

tea sourced for Unilever’s

brands is from sustainable

sources. 76% of tomatoes

used in

Kissan

ketchup

were sourced sustainably.

Source: Company, MOFSL



During the year, the company took significant steps to further reduce waste,

water consumption, energy usage and CO2 emissions in its factories and offices.

Renewable Energy:

In FY20, HUVR increased the renewable energy share in

their manufacturing to 71%. This was achieved by converting agricultural

process waste from their operations into fuel, besides increasing the utilization

of bio-fuels like agri-waste.

Carbon Dioxide reduction:

The increase in renewable energy usage and

reduction in specific energy consumption has also contributed to CO

reduction

in HUVR’s operations per ton by 85% (59% in 2018) as compared to the 2008

baseline.

Plastic Waste:

During the year, HUVR, along with its partner, has been able to

process approximately 12,000t of plastic waste and convert it into electricity. In

addition to this, approximately 59,000t of post-consumer use plastic waste was

collected with the help of NGOs and disposed safely.

Non-hazardous waste to landfills:

All factories and warehouses continue to

maintain ‘zero non-hazardous waste to landfill sites’ status.

Reuse of waste generated:

HUVR continues to maximize reuse of waste

generated in the manufacturing units, reduction at source, waste segregation

and pre-processing facilities provided at all locations for improving recyclability,

which has resulted in total waste reduction by 58% v/s the 2008 baseline.

Plastic waste management:

HUVR has made clear commitments to make 100%

of its plastic packaging reusable, recyclable or compostable by 2025. Further,

25% of the entire plastic used by HUVR is expected to come from recycled

sources by 2025.

Water conservation:

To address the challenges of depleting water resources,

Hindustan Unilever Foundation, along with its partners, has created a

cumulative water conservation potential of over 1,200b liters. Till FY20, HUF’s

water conservation capacity stood at 1,200b liters cumulatively. To put things in

perspective on the importance of the water potential created by HUF – 1b liters

can meet the drinking water needs of over 8lac adults for an entire year.

Reduction in water usage:

Captive rainwater harvesting and its utilization in

processes, reuse of treated effluent water, reduction of water losses in utilities

and operations, process water requirement optimization, improving efficiencies

9 June 2020

Hindustan Unilever



and maximizing the use of RO plants have contributed to reduction of water

usage (cubic meter/t of production) in manufacturing by 58% v/s 2008 baseline.

Sustainable sourcing:

HUVR has a clear roadmap to achieve the bold

commitment to source 100% agricultural raw materials sustainably by 2020. In

2020, 76% of tomatoes used in

Kissan

ketchup continued to be sourced

sustainably. In 2020, over 78% of tea in India procured for Unilever brands was

sourced from sustainable sources.

Exhibit 33: HUVR’s delivery on its sustainability plan

Particulars

Reduction in CO2 emissions (kg/t of production) in manufacturing operations compared to 2008 baseline

Reduction in water consumption (m3/t of production) in manufacturing ops. compared to 2008 baseline

Reduction in total waste (kg/t of production) generated from factories compared to 2008 baseline

Better livelihoods - Shakti entrepreneurs empowered (in m)*

Sustainable sourcing - Tea sourced from sustainable sources for Unilever brands

Health and well-being - People reached through our Water, Sanitation and Hygiene (wash) initiatives

2018

59%

55%

58%

0.11

65%

>150m

2020

85%

58%

63%

0.12

78%

>152m

Source: Company, MOFSL

Remarkable capability building programs



HUL has retained its title of the ‘No. 1 Employer of Choice’ in the industry for the

past 11 years.

Apart from physical and mental health, HUVR focuses on continuous learning

and building organizational capabilities of its people:

Sparkle:

It is a technology tool designed for capability management of shop-

floor blue-collar employees.

Unilever Future Leaders Program (UFLP):

Enables to identify talent early

and invests to build capability through this flagship program.

70:20:10 Capability Building:

HUVR follows the 70:20:10 capability building

approach with 70% capability built on the job through live assignments, 20%

through coaching, short-term projects and exposures and 10% through

classroom, virtual and e-learning.

People Planning Processes:

Leaders at each level review and assess talent

on both, the ‘What’ and the ‘How’ of performance through an objective

process. Capability building and career plans for talent form an integral part

of this process.

Growth through Diversity of Experience:

Job rotation and diversity of

experiences are integrated at all stages of the individual’s career.

Gender Balance:

HUVR continues to place significant importance on

diversity and inclusion (D&I) in the workplace. Active steps have been taken

over the years to improve gender balance, with a focus on managerial and

senior leadership levels. The company has achieved 41.4% gender balance

at the managerial level (WL2+) in FY20 v/s 39.9% in FY19. The Gender

Balance for senior leadership positions (WL4+) improved from 19.1% in FY19

to 33.3% in FY20.

Fair Labor Practices:

HUVR drives fairness in the workplace by advancing

human rights across its operations and extended supply chain. Since 2015, it

has maintained a record of near-zero loss of man-days due to industrial

unrest. HUVR currently has 7,159 employees (excluding workmen) and over

5,000 employees are employed on contractual / temporary basis as at FY20.

9 June 2020

Hindustan Unilever

Project Shakti update



Project Shakti is HUVR’s initiative, which aims to financially empower and

provide livelihood opportunities to women in rural India. The Shakti

Entrepreneurs are given training for familiarization with HUVR’s products and

basic tenets of distribution management.

HUVR has a team of Rural Sales Promoters (RSPs) who coach and help Shakti

Entrepreneurs in managing their business. Across 18 States, Project Shakti has

120,000 Shakti Entrepreneurs who are called ‘Shakti Ammas.’

This program has helped Shakti Entrepreneurs gain selling skills, become self-

confident, improve their self-esteem, learn negotiating and communication

skills. Most importantly, HUVR’s interventions have helped in building and

fostering entrepreneurial mindset amongst Shakti Entrepreneurs.

9 June 2020

Hindustan Unilever

Key tables and charts

Exhibit 34: Gross salary of Mr. Sanjiv Mehta (Chairman and MD) stood at INR194m

Particulars of Remuneration (INR m)

(a) Salary as per provisions contained in section 17(1) of the Income-tax Act, 1961

(b) Value of perquisites u/s 17(2) Income-tax Act, 1961

Stock Option

Sweat Equity

Commission

Others (Contribution to PF, Superannuation and Consultancy fees)

Total

Remuneration as % of staff cost

Remuneration as % of EBITDA

Remuneration as % of PAT

FY17

142

0.9

0.2

0.3

Sanjiv Mehta (Chairman and MD)

FY18

FY19

194

189

1.1

0.3

0.2

0.4

0.3

FY20

125

194

1.1

0.2

0.3

Source: Company, MOFSL

Exhibit 35: Total remuneration of Mr. Srinivas Phatak (CFO) stood at INR51m

Particulars of Remuneration (INR m)

Gross salary

(a) Salary as per provisions contained in section 17(1) of the IT Act, 1961

(b) Value of perquisites u/s 17(2) Income-tax Act, 1961

Stock Option

Sweat Equity

Commission

Others (Contribution to PF, Superannuation and Consultancy fees)

Total

Remuneration as % of staff cost

Remuneration as % of EBITDA

Remuneration as % of PAT

*incl. remuneration paid to Mr. P. B. Balaji

# remuneration paid to Mr. P. B. Balaji

Srinivas Phatak/ P. B. Balaji (ED, Finance and IT & CFO)

FY17#

FY18*

FY19

FY20

0.5

0.1

0.2

0.1

0.3

0.1

0.3

0.1

Source: Company,

MOFSL

Exhibit 36: Total remuneration of Mr. Wilhelmus Uijen – ED supply chain stood at INR75m (incl. INR56.9m paid to Mr.

Pradeep Banerjee who ceased to be a WTD of the Company w.e.f. 31

Dec’19)

Particulars of Remuneration (INR m)

Gross salary

(a) Salary as per provisions contained in section 17(1) of the Income-tax Act, 1961

(b) Value of perquisites u/s 17(2) Income-tax Act, 1961

Stock Option

Sweat Equity

Commission

Others (Contribution to PF, Superannuation and Consultancy fees)

Total

Remuneration as % of Staff Cost

Remuneration as % of EBITDA

Remuneration as % of PAT

*incl. remuneration paid to Mr. Banerjee

Wilhelmus Uijen / Pradeep Banerjee (ED,Supply Chain)

FY17

FY18

FY19

FY20*

0.3

0.1

0.3

0.1

0.3

0.4

0.1

Source: Company, MOFSL

9 June 2020

Hindustan Unilever

Exhibit 37: Total remuneration of Mr. Dev Bajpai (ED, Legal and Corporate Affairs & CS) declined by 18% in FY20

Particulars of Remuneration (INR m)

Gross salary

(a) Salary as per provisions contained in section 17(1) of the Income-tax Act, 1961

(b) Value of perquisites u/s 17(2) Income-tax Act, 1961

Stock Option

Sweat Equity

Commission

Others (Contribution to PF, Superannuation and Consultancy fees)

Total

Remuneration as % of staff cost

Remuneration as % of EBITDA

Remuneration as % of PAT

Dev Bajpai (ED, Legal and Corporate Affairs & CS)

FY18

FY19

FY20

0.3

0.1

0.4

0.1

0.3

0.1

Source: Company, MOFSL

Exhibit 38: Economic value added remains healthy

Particulars (INR m)

A. Cost of Capital Employed (COCE)

Average Debt

Average Equity

Average Capital Employed

Cost of Debt. Post tax %

Cost of Equity %

WACC %

COCE

B. Economic Value Added (EVA)

PAT (bei)

Add: Interest after taxes

Net Operating Profits After Taxes (NOPAT)

COCE, as per above

EVA

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

31,180 34,620 40,180 37,150 43,380 56,640 58,310 61,810 66,670 72,260

31,200 34,620 40,180 37,150 43,380 56,640 58,310 61,810 66,670 7,2260

5.4

6.2

6.0

6.4

5.6

5.4

4.9

5.2

5.8

5.3

12.9

10.1

11.6

10.9

12.0

12.9

14.2

11.8

9.1

12.9

10.1

11.6

10.9

12.0

12.9

14.2

11.8

9.1

4,031 3,497 4,046 4,317 4,740 6,785 7,493 8,771 7,894 6,580

21,530 25,990 33,140 35,550 38,430 41,160 42,470 51,350 60,800 67,430

170

240

110

21,530 26,000 33,310 35,790 38,540 41,160 42,470 51,350 60,800 67,430

4,031 3,497 4,046 4,317 4,740 6,785 7,493 8,771 7,894 6,580

17,499 22,503 29,264 31,473 33,800 34,375 34,977 42,579 52,906 60,850

Source: Company, MOFSL

Exhibit 39: CSR spend targets for the year were met

Details of CSR spend

Average Net Profit of the Company for last 3 financial years:

Prescribed CSR Expenditure

Details of CSR spends during the financial year 2018-19:

Total amount to be spent for the financial year (2% of Average Net Profit for the last 3 financial years)

Total amount spent during the financial year

Amount unspent, if any

INR m

71,099

1,422

1,437

Source: Company, MOFSL

Exhibit 40: Other operating income remains a healthy component of sales albeit slight decline in trend in recent years

Particulars (INR m)

Sale of products (including excise duty)

as % of net revenue

Other operating revenue

Income from services rendered

Others (including government grant, scrap sales, etc.)

Other operating revenue as % of net revenue

FY17

3,38,950

98.3

5,920

5,130

790

1.7

FY18

3,46,190

98.3

5,990

3,600

2,390

1.7

FY19

3,76,600

98.5

5,640

3,000

2,640

1.5

FY20

3,82,730

98.7

5,120

2,550

2,570

1.3

Source: Company, MOFSL

9 June 2020

Hindustan Unilever

Exhibit 41: Company shared the below data on trade discounts in FY20 Annual Report

Particulars (INR m)

Contracted price

Less: Trade discounts, volume rebates, etc.

Sale of Products

Trade discounts as % of contracted price

Trade discounts as % of sale of products

FY19

4,29,030

52,430

3,76,600

12.2

13.9

FY20

4,41,970

59,240

3,82,730

13.4

15.5

Source: Company, MOFSL

Exhibit 42: Other Non-Operating Income

Particulars (INR m)

Interest income on

Bank deposits

Current investments

Others (including interest on Income tax refunds)

Dividend income from

Subsidiaries

Current investments

Non-current investments

Fair value gain/ (loss)

Investments measured at fair value through profit or loss*

Investments measured at fair value through other comprehensive income

Net gain on sale of investments

Total

FY17

1,730

740

150

1,670

110

860

5,260

FY18

1,300

1,220

140

1,880

1,130

5,690

FY19

2,320

700

950

1,020

FY20

2,810

390

1,800

950

1,640

1,370

6,640

7,330

Source: Company, MOFSL

Exhibit 43: Breakdown of Current Investments

Particulars (INR m)

Current investments

Other instruments

Fair value through other comprehensive income

Quoted

Investments in treasury bills

Fair value through profit and loss

Quoted

Investments in mutual funds

Total

FY17

FY18

FY19

FY20

14,590

20,600

35,190

10,250

18,300

28,550

8,800

18,130

26,930

12,480

Source: Company, MOFSL

Exhibit 44: Cash Conversion Cycle

Cash conversion cycle

Days (on avg basis)

Inventory days

Debtor days

Creditor days

Cash conversion cycle

Days (on year end basis)

Inventory days

Debtor days

Creditor days

Cash conversion cycle

FY12

-22

-24

FY13

-23

-26

FY14

-26

-29

FY15

-24

-23

FY16

-24

-26

FY17

-28

-31

FY18

-33

-37

FY19

-31

-28

FY20

-31

FY21E

-31

FY22E

-29

-35

-32

-30

Source: Company, MOFSL

9 June 2020

Hindustan Unilever

Exhibit 45: Inventory days component-wise breakdown

Particulars (Days)

On average basis

Raw material

Packing material

Work-in-progress

Finished goods

Stores and spares

Inventory

On year end basis

Raw material

Packing material

Work-in-progress

Finished goods

Stores and spares

Inventory

FY17

FY18

FY19

FY20

Source: Company, MOFSL

Valuation & View



Despite being the largest consumer company in India, its 10-year

sales/EBITDA/PAT growth has been healthy at 8.1%/13.3%/12.4% CAGR.

Earnings growth has consistently gained momentum in recent years, which is

particularly impressive given the weak mid-single earnings growth posted by

(much smaller) peers in recent years. HUVR has delivered EBITDA/PAT CAGR of

13%/13.1% in the last five years, while both EBITDA/PAT have reported ~17%

CAGR in the last three years ending FY20.

HUVR’s best of breed analytics and execution ability (exhibited by successful

implementation of the WIMI strategy, cost savings plans, herbals, etc.) are key

factors driving this pace of earnings growth. Additionally, our conviction over

the medium-term is further strengthened by its (a) strong balance sheet, (b)

robust cash flow generation and increasing willingness in recent years to use

cash flow for inorganic growth, (c) excellent management quality/ corporate

governance, and (d) proven track record of consistent delivery even in a weak

consumption environment.

Further, as highlighted in our detailed report in Feb’20, we remain positive on

HUVR from a medium-term perspective due to (a) robust earnings growth

potential beyond the near term owing to its portfolio and execution strengths,

(b) significant synergies in FY22E as a result of GSK CH, and (c) its RoCE levels

being well ahead of peers. All these factors mean that premium multiples are

likely to sustain. Moving our forecasts to merged numbers (which add over 9%

to FY22E EPS due to the nature of the GSK merger and synergies),

we value the

company at 55x merged EPS, to arrive at a TP of INR2,400 and maintain Buy.

9 June 2020

Hindustan Unilever

Exhibit 46: HUVR P/E (x)

75.0

55.0

35.0

23.5

15.0

21.0

P/E (x)

Min (x)

Avg (x)

+1SD

53.4

41.4

29.4

70.3

Max (x)

-1SD

Exhibit 47: Consumer sector P/E (x)

51.0

41.0

31.0

P/E (x)

Min (x)

Avg (x)

+1SD

40.5

40.3

34.9

24.5

29.3

Max (x)

-1SD

46.1

60.6

Source: Bloomberg, Company, MOFSL

9 June 2020

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

FY15

3,01,705

6,351

3,08,056

9.9

1,56,236

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

1,53,053

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

1,56,850

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

1,62,320

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

1,79,600

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

27,480

-790

30.5

60,800

14.7

16.1

-440

60,360

FY20

3,82,730

5,120

3,87,850

1.5

1,77,930

2,09,920

54.1

1,13,920

29.4

96,000

11.1

24.8

9,380

1,060

7,330

92,890

6.2

24.3

23,940

1,520

27.4

67,430

10.9

17.6

-50

67,380

FY21E

4,37,187

5,222

4,42,409

14.1

2,02,348

2,40,061

54.3

1,30,521

29.5

1,09,540

14.1

24.8

10,846

1,047

10,060

1,07,707

16.0

24.6

28,464

26.4

79,243

17.5

18.1

79,243

(INR Million)

FY22E

5,10,410

5,484

5,15,893

16.6

2,28,767

2,87,127

55.7

1,51,428

29.4

1,35,698

23.9

26.3

11,593

1,068

12,915

1,35,952

26.2

26.6

34,219

25.2

1,01,733

28.4

19.9

1,01,733

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

(INR Million)

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

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

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

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

FY20

2,160

78,150

80,310

50,560

5,130

2,500

12,500

2,610

1,22,720

26,360

10,460

50,170

35,730

1,15,710

73,990

25,560

16,160

7,010

80,310

FY21E

2,345

1,28,607

1,30,952

40,714

5,256

2,500

13,500

3,749

2,13,629

34,670

18,697

1,15,448

44,814

1,48,396

92,056

32,452

23,888

65,233

1,30,952

FY22E

2,345

1,31,963

1,34,307

34,121

5,256

2,500

14,500

3,749

2,39,381

40,412

21,787

1,30,765

46,417

1,65,199

1,05,267

34,075

25,858

74,182

1,34,308

9 June 2020

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

Working Capital Ratios

Debtor (Days)

Asset Turnover (x)

Leverage Ratio

Debt/Equity (x)

439

FY15

16.9

18.2

17.2

15.0

124.8

115.7

15.0

86.9

122.3

0.7

104.3

158.2

8.1

0.0

501

FY16

19.3

20.7

29.0

15.5

109.3

101.5

14.8

78.7

72.6

0.7

83.3

119.8

4.9

0.0

511

FY17

19.6

21.5

30.0

17.0

107.3

98.1

14.5

75.0

70.2

0.8

66.5

96.7

4.8

0.0

637

FY18

24.5

26.7

32.7

20.0

86.0

78.9

13.3

62.1

64.4

0.9

78.1

108.6

4.8

0.0

730

FY19

28.1

30.5

35.4

22.0

75.0

69.0

12.0

52.3

59.5

1.0

82.5

119.1

4.9

0.0

812

FY20

31.2

35.6

37.2

25.0

67.5

59.2

11.7

46.8

56.6

1.2

86.0

119.8

4.8

0.0

879

FY21E

33.8

38.4

55.9

35.0

104

62.3

54.8

11.0

44.0

37.7

1.7

75.0

103.0

3.3

0.0

1128

FY22E

43.4

48.3

57.3

44.0

101

48.5

43.6

9.4

35.4

36.8

2.1

76.7

103.3

3.8

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

FY20

90,920

-1,630

9,380

-3,940

-24,650

2,970

73,050

22,660

-7,020

66,030

22,490

38,130

-62,440

-4,320

-66,760

44,420

5,750

50,170

FY21E

1,07,707

-10,060

10,846

1,047

-28,464

7,055

88,131

64,670

-1,126

87,005

-1,000

62,544

-82,062

-3,520

-85,397

65,278

50,170

1,15,448

(INR Million)

FY22E

1,35,952

-12,915

11,593

1,068

-34,219

6,368

1,07,847

20,153

-5,000

1,02,847

-1,000

14,153

-1,03,163

-3,520

-1,06,683

15,317

1,15,448

1,30,765

9 June 2020

Hindustan Unilever

NOTES

9 June 2020

Hindustan Unilever

Explanation of Investment Rating

Investment Rating

Expected return (over 12-month)

BUY

>=15%

SELL

< - 10%

NEUTRAL

< - 10 % to 15%

UNDER REVIEW

Rating may undergo a change

NOT RATED

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

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Details of associate entities of Motilal Oswal Financial Services Limited are available on the

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MOFSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a) 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 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) or may have

any 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

MOFSL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of this report should

be aware that MOFSL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific merchant

banking, investment banking or brokerage service transactions. Details of pending Enquiry Proceedings of Motilal Oswal Financial Services Limited are available on the website at

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A graph of daily closing prices of securities is available at

www.nseindia.com, www.bseindia.com.

Research Analyst views on Subject Company may vary based on Fundamental

research and Technical Research. Proprietary trading desk of MOFSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated from

MOFSL research activity and therefore it can have an independent view with regards to Subject Company for which Research Team have expressed their views.

Regional Disclosures (outside India)

This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or

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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.

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Motilal Oswal Financial Services Limited (MOFSL) 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 MOFSL 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 MOFSL , 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

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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.

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In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets

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Specific Disclosures

1 MOFSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.

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

********************************************************************************************************************************

9 June 2020

Hindustan Unilever

The associates of MOFSL may have:

- financial interest in the subject company

- actual/beneficial ownership of 1% or more securities in the subject company

- received compensation/other benefits from the subject company in the past 12 months

- 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.

- acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

- 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)

- 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

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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,

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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,

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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.

9 June 2020