Hindustan Unilever Limited

An equity research report on
Hindustan unilever limited (hul)
An Independent Equity Research Report By Swaroop Pandao

Mr. Swaroop Pandao
swarooppandao@gmail.com
Hindustan Unilever Limited (HUL) Date: 4th
June, 2015
For Private Circulation only Swaroop Pandao
Outlook & Valuation
The valuation methodology we prefer for FMCG stocks
is Discounted Cash Flow (DCF) analysis as we can see
consumer companies’ show a bit slow but stable
growth of the earnings. Our analysis estimates the
share price of the Company undervalued at current
level INR 822. The intrinsic value of the stock is
expected to INR 950.
Hindustan Unilever Limited (HUL) is India’s largest
Fast Moving Consumer Goods Company. HUL is
dominating most of the Household Care, Personal Care
and Food & Beverage Products. HUL is showing
constant growth over the years. But on the other hand,
volatility in raw material costs, crude oil prices, static
interest rates, roaring inflation creating problems for
the Economy as well as for the Company.
Investors Cash Out of FMCG ahead of Results
Softening rural consumption and the likelihood of weak
corporate earnings in the March quarter saw investors
dump stocks from the FMCG sector. On the BSE
Exchange, the S&P BSE FMCG index slipped 3%, as
compared to around 2% fall in the benchmark S&P BSE
Sensex Index.
HUL’s Q3 3% Volume Growth Disappoints Street
The stock tanked over five per cent to Rs. 892.8 over the
previous closing as net sales grew eight per cent for the
quarter to Rs. 7579 Cr. with an underlying volume
growth of only three per cent – lower than the four-five
per cent range that the company had been reporting for
the past three quarters. Volume growth was also way
below street estimates of five-seven per cent.
Wide Market Coverage
Rural India accounts for more than 700 million consumers
or simply 70% of the rural population. The working rural
population is approximately 400 million. However income
demographics are different for rural India, with 25% of the
rural are below poverty line (BPL). An average citizen inn
rural India has less than half of the purchasing power as
compared to its urban counterpart.
BUY
Closing Price 822
Price Target 950
Rise/(Fall) 128 Rise
Rise/(Fall) % 15.57%
BSE Code 500696
NSE Code HINDUNILVR
Market Walk
Range(52 weeks) 981/550
Outstanding Shares(Cr.) 216
Market Cap.(Cr.) 183786
Beta 0.53
Share Holding Pattern (%)
Promoters 67.23
MFs, FIs, Banks 3.82
FIIs 15.01
Others 13.94
BSE Sensex vs HUL
6m 2Yr 5Yr
Sensex 3% 38% 53%
HUL 18% 48% 277%
BSE Sensex vs HUL
% Change (5Years)
BSE Sensex HUL
2015 8% 53%
2014 25% -2%
2013 18% 37%
2012 -11% 48%
2011 8% 19%
Chart
-20%
0%
20%
40%
60%
80%
BSE Sensex vs HUL
BSE Sensex HUL

Mr. Swaroop Pandao
June, 2015
Industry Analysis
FMCG sector is one of the most important sectors for each and every Economy. In their own seasons, products
heads higher and higher in sales but equally it is a 12-month sector welcoming all seasons. It plays a vital
role being a necessity and inelastic product which touches life in number of aspects.
In the Economy, India’s FMCG is fourth largest. FMCG is classified in Household Care, Personal Care and Food
& Beverages. The overall FMCG market is INR 182293 Cr. Current growth rate of FMCG is in double digit.
Digging more dipper, the sector is characterized by a well-established distribution network, low penetration
levels, low operating cost, low per capita consumption and intense completion between the organized and
unorganized segments
FMCG is less capital intensive, comparing to other manufacturing sectors. Focus of expenditure is mainly on
branding and distribution. Unique value creation is done through product differentiation, packaging
innovation, pricing difference, highlighting functional aspects of the product and touching commercial
advertisements.
Company Analysis
Hindustan Unilever Limited (HUL) is India’s largest Fast Moving Consumer Goods Company involving 2 out
of three Indians with more than 35 brands spanning 20 distinct categories in Home & Personal Care Products
and Foods & Beverages. In FY ending 2014, the Company generated net sales of INR 28019Cr.(2014) and
net profit of INR 3868 Cr.(2014)
HUL is one of the country’s largest exporters; it has been recognized as a Golden Super Star Trading House
by the Government of India
The mission that inspires HUL’s over 16000 employees, led by over 1300 managers, is to ‘add vitality to life’.
HUL meets every day need for nutrition, hygiene and personal care with the brand that help people feel good,
look good and more & more out of life.
HUL’s brands like Kwality Wall’s, Kissan, Lifeboy, Lux, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, Sunsilk,
Clinic, Pepsodent, Close-Up, Lakme, Brooke-Bond, Knorr-Annapurna are the household names across the
country and span many categories- soaps, detergents, personal products, tea, coffee, branded staples, ice-
cream and culinary products. Manufacturing is done over 40 factories across India. The operations involve
over 2500 suppliers and associates. HUL’s distribution network comprises of about 5000 redistribution
stockists, covering 6.4 million retail outlets reaching the entire urban population and about 260 million rural
consumers.

Mr. Swaroop Pandao
June, 2015
The primary strength of HUL is powerful brands and wide distribution network. Soaps and detergents
contributes 45 percent of net sales and 43 percent of operating profit whereas together personal product
and soaps & detergents which constitutes the home and personal care division contribute 75 per cent of net
sales and around 88 per cent of operating profit.
HUL is also running a rural health programme which has already touches 90.1 million people in 44220
villages of 8 states. The vision is to make a billion Indians feel safe and secure.
According to the study conducted by AC Nielsen, 62 of the top 100 brands are owned by MNCs, and the
balance by the Indian companies. 15 companies own these 62 brands, and 27 of these are owned by
Hindustan Unilever Ltd.
Highlights of Q4 FY14 Results (December Ending)
Steady Growth Momentum
 Net sales of Q4 showing slow but steady growth of
10.45%.
 The ups and downs in the economy are not allowing the
business to match the earlier growth.
 A bit dry side of the exports has also contributed in the
dull growth.
 Comparing March ending quarter of last year, Net Profit
rose by 14.65%
 Similarly Net Sales rose by 12.49%
 Segment wise we can see good progress in HUL
 Revenue from Soaps & Detergents is continuing its run
with a double digit growth of 13%.
 No lag we can find in the Personal Products as it is also
marching forward with 12% growth in the revenue.
 Food and Beverages are leading in the growth during the
year with an outperformed growth of 18%.
 As we can see, all the segments of Hindustan Unilever
Limited are giving their best performance
 We believe of impact of falling input cost will be visible
soon included raw material inventory bought at the
higher prices
 Losses in other category has gone down marginally, albeit
aggressive roll out of Pure it.
Net Profit
Net Sales
Segment wise Sales Growth
686.6
787.2
600
700
800
2014 2015
5660
6367
5000
5500
6000
6500
2014 2015
13% 12%
18%
0%
5%
10%
15%
20%
Soaps and
detergents
Personal
Products
Beverages

Mr. Swaroop Pandao
June, 2015
Segment Wise Revenue Results and Projections
(Amounts in Rs. Cr) 2011 2012 2013 2014 2015P 2016P 2017P 2018P 2019P 2020P
Soaps and Detergents 8973 10836 12952 13984 14823 15861 16971 18159 19612 21180
Personal Products 5957 7081 7867 8226 9155 9796 10481 11215 12112 13202
Beverages 2347 2617 2976 3312 3577 3863 4211 4590 5003 5503
Packaged Foods 1178 1359 1506 1648 1763 1904 2057 2221 2421 2663
Others 1823 1802 2235 2304 2465 2663 2902 3163 3480 3862
Segmental Revenue (%) Segmental Results (%)
47
29
11
6
8
Segmental Revenue(%)
Soaps and Detergents
Personal Products
Beverages
Packaged Foods
Others
8%
9%
11%
9%
3%
Segmental Results(%)
Personal Products
Beverages
Packaged Foods
Others

Mr. Swaroop Pandao
June, 2015
Segmental Performance
The market size of soaps and detergents is estimated INR 13984 Cr. The segment delivered healthy growth
of 8% during the year. Further, growth during the year was profitable as segmental profit is increased by
10.5%, through a mix of cost savings, supply chain efficiencies and judicious pricing. Soap category recorded
a very successful year with a strong volume growth in a market which saw an overall decline in volumes. The
growth was driven by prompt and decisive price actions on Lifeboy, Lux, Breze and Dove, which gained
consumer franchise. The growth was witnessed also in the liquid portfolio.
Detergents category recorded another year of steady growth with a good balance of price and volume
growth. Surf continued to lead the growth double digit. Household Care category delivered double digit
growth during the year on the back of robust volumes.
Personal Products
Personal products categories comprise Skin care, Hair care, Oral care, Colour cosmetics and Deodorants. The
market size of personal products is estimated INR 8226 Cr. In a challenging market environment, where the
growth of discretionary categories has been particularly under pressure, the personal products segment
delivered a healthy turnover growth of 9.2%. Segmental profit was up by 6.1%. Skin care products registered
a good growth in a slowing market. Hair care delivered a strong year of volume led broad based double digit
growth. Dove, Sunsilk and Clinic plus grew in double digit during the year. The TRESemme proposition of
‘Salon like hair, at home every day’ has been well received by the consumers. The brand which was
introduced in the September 2012 has significantly neared the milestone of Rs. 100 Cr. of annual turnover in
its first full year post launch is an example of efficiently leveraging the global Unilever portfolio to win locally
with consumers. In Oral care, significant investments were made to sustain competitive position in the
category, as competitive intensity stepped up dramatically in the course of the year
Beverages
The Beverages segment delivered 11% turnover growth in the year, well ahead of the market, on the back of
a strong double digit performance in Tea. This was accompanied by a significant step up in a segmental
profits which increased by 22.4%. The market size of the Beverages is estimated INR 3312 Cr. The double
digit growth across all brands was driven by a strengthened mix and focused in-market activities.
Packaged Foods
The segment market size is estimated INR 1648 Cr. The segment delivered 10% turnover growth with a
segmental profit growing by 65.5% during the year. Company continued to drive efficiencies and mix, while
continuing to invest in building the business.
Modern Foods, a portfolio of Bakery Foods, continued its momentum delivering strong double digit growth
with improved profitability.

Mr. Swaroop Pandao
June, 2015
Income Statement
Even after having good growth in all the segments, HUL faced a marginal decrease in Net profit. Revenue has
been increased by 8.2%. HUL is expected to register a good growth rate in the near future.
2011 2012 2013 2014 2015P 2016P 2017P 2018P 2019P 2020P
Revenue 20278 23695 27536 29804 33096 37135 41350 46472 52063 58294
Expenditure 17313 19955 22825 24879 26546 29319 32071 35483 39687 44438
EBITDA 2965 3740 4711 4925 6550 7816 9279 10989 12376 13856
Depreciation 229 234 251 296 323 360 406 451 505 565
PAT 2296 2790 3830 3598 4685 5651 7009 8415 9633 10681
Chart Revenue vs Expenditure shows the increasing gap between them showing increasing revenue and
decreasing expenditure. This is the sign of increasing profitability of the Company. This gives increasing
Profit Margin. With the help of historical data, we have projected slightly increasing growth of the company.
In EBITDA vs PAT, we can see both are trending high. As in earlier chart we can see, revenue is increasing. It
will head EBITDA higher and higher. In case of decreasing borrowings, we can expect same projection as
there can be fall in the interest expenses.
0
10000
20000
30000
40000
50000
60000
70000
Revenue vs Expenditure
Revenue Expenditure
0
2000
4000
6000
8000
10000
12000
14000
16000
EBITDA vs PAT
EBITDA PAT

Mr. Swaroop Pandao
June, 2015
Balance Sheet
Net worth of the company is increased during the year and onwards we can expect to gain some momentum.
As the years are rolling over, total assets are breaking the shackles.
2011 2012 2013 2014 2015P 2016P 2017P 2018P 2019P 2020P
Equity Capital 216 216 216 216 216 216 216 216 216 216
Reserves 2519 3465 2649 3321 3809 4266 4778 5352 5994 6713
Net Worth 2735 3681 2865 3537 4025 4482 4994 5568 6210 6929
Current Liabilities 6706 6702 8005 9069 9914 11030 12317 13821 15536 17495
Total Liabilities 10349 11407 12091 13769 14881 16497 18343 20469 22879 25613
Current Assets 7177 8256 8115 9559 10291 11414 12691 14211 15931 17879
Total Assets 10349 11407 12091 13769 14881 16497 18344 20470 22879 25613
Valuation Metric
The Company has reported an increase in Return on Capital Employed and Return on Equity in the past and
expected to keep the rate going in the future. The Company is able to sustain its EBITDA and Net Profit Margin.
The Current ratio is just above the desired level.
2011 2012 2013 2014 2015E 2016P 2017P 2018P 2019P 2020P
EBITDA Margin 13% 14% 16% 15% 18% 20% 21% 22% 23% 23%
Net Profit Margin 12% 12% 14% 12% 15% 16% 18% 19% 19% 19%
ROE 119% 132% 75% 98% 112% 118% 125% 128% 134% 137%
ROCE 92% 89% 147% 122% 146% 158% 169% 180% 182% 183%
DE Ratio 3.78 3.10 4.22 3.89 3.70 3.68 3.67 3.68 3.68 3.70
Current Ratio 1.07 1.23 1.01 1.05 1.04 1.03 1.03 1.03 1.03 1.02

Mr. Swaroop Pandao
June, 2015
BCG Metrix
Soap & Detergent and Tea are the Cash Cow for the company. It has high relative market share and low
growth rate. Personal products and Coffee are the stars for the Company. As it has high relative market share
as well as high growth.
Only segment of concern for the Company is Food. HUL is having low relative market share. Under high
growth rate, HUL is taking several steps to overcome the Food segment problem and to capture more market
shares, so as to make the segment part of stars.
STAR
High
QUESTION MARK
CASH COW
Low
High
DOG
Low
X-Axis :- Relative Market Share
Y-Axis :- Market Growth Rate
Personal
Products
Coffee
Soap &
Detergents
TEA
Food

Mr. Swaroop Pandao
June, 2015
Investment Theme
Hindustan Unilever Limited (HUL) has outperformed during rises in the input cost and able to manage the
margins. HUL is a market leader for Soaps & Detergents, Personal Products and Food & Beverages and
making presence in other segments also. It has registered a double digit growth in the last quarter and has
the widest market coverage in the Industry.
The Company is not limiting itself to Soaps & Detergents, Personal Products and Food & Beverages, but also
entering and making good presence into Beauty and Wellness Division, Water Purifier and Network Business.
Our preferred valuation methodology for Indian FMCG stocks is Discounted Cash Flow (DCF). As consumer
companies shows relatively stable earnings growth. According to our estimates, the share price of the
company is undervalued at current level of INR 822. We expect the intrinsic value of Hindustan Unilever
Limited share to be INR 950.
The current PE of HUL is 29X and the forward EPS is more than INR 22.
We recommend “BUY” on Hindustan Unilever Limited (HUL).
Disclaimer
The document is prepared on the basis of publicly available information and other sources believed to be
reliable. Whilst we are not soliciting any action based on this information, all care has been taken to ensure
that the facts are accurate and opinions are given fair and reasonable. This information is not intended as an
offer or solicitation for the purchase or sell of any financial instrument.

Hindustan Unilever Limited

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