2QFY2017 Result Update | FMCG

November 2, 2016

Hindustan Unilever

NEUTRAL

CMP

`835

Performance Highlights

Target Price

Quarterly Data

Investment Period

(` cr)

2QFY17

2QFY16

% yoy

1QFY17

% qoq

Revenue

7,843

7,731

1.4

8,128

(3.5)

Stock Info

EBITDA

1,403

1,315

6.7

1,591

(11.8)

Sector

FMCG

Market Cap (` cr)

180,771

Margin (%)

17.9

17.0

89bp

19.6

(169bp)

Net Debt (` cr)

(5,520)

Reported PAT

1,096

982

11.5

1,174

(6.7)

Beta

0.6

Source: Company, Angel Research

52 Week High / Low

954 / 765

Hindustan Unilever (HUL)’s performance for 2QFY2017 was below expectations

Avg. Daily Volume

73,419

on the top-line front; however, the bottom-line front performed well. For the

Face Value (`)

quarter, the company’s top-line grew by 1.4% yoy to `7,843cr, while the reported

BSE Sensex

27,877

PAT grew by ~12% yoy to `1,096cr.

Nifty

8,626

Reuters Code

HLL.BO

Key highlights: For 2QFY2017, HUL’s overall top-line rose by 1.4% yoy to

Bloomberg Code

HUVR@IN

`7,843cr on the back of weak volume growth across the segment. The soaps &

detergents division posted a 3.2% yoy growth to `2,777cr, which was driven by

the healthy volume growth in surf. In home care, the growth continued to be

Shareholding Pattern (%)

driven by the premium segment. The vim liquid performed well, driven by

Promoters

67.2

sustained market development. In the personal products segment, HUL grew flat

MF / Banks / Indian Fls

5.0

yoy due to a challenging market environment. The beverages and packaged

FII / NRIs / OCBs

14.0

foods reported a modest growth of ~8% and ~2% yoy, respectively.

Indian Public / Others

13.8

The company posted a weak operating performance for the quarter with the

operating profit reporting a growth of 6.7% yoy. Further, the operating profit margin

Abs. (%)

1yr

3yr

increased by 89bp yoy to 17.9% due to lower material & employee cost. On the

Sensex

(0.3)

4.8

32.8

bottom-line front, the company reported a net profit growth of ~12%.

HUL

(8.8)

4.8

37.4

Outlook and valuation: We expect HUL to post ~7% and ~9% CAGR in its

top-line and bottom-line, respectively, over FY2016-18E. At the current market

3-year price chart

1200

price, the stock is trading at 37.3x its FY2018E earnings. We maintain our

1000

Neutral view on the stock.

800

Key financials (Consolidated)

600

Y/E March (` cr)

FY2015

FY2016

FY2017E

FY2018E

400

Net sales

31,972

33,194

35,252

38,495

200

% chg

9.4

3.8

6.2

9.2

Net profit

3,893

4,109

4,469

4,845

% chg

3.3

5.6

8.8

8.4

EBITDA margin (%)

16.9

17.8

Source: Company, Angel Research

EPS (`)

18.0

19.0

20.6

22.4

P/E (x)

46.4

44.0

40.4

37.3

P/BV (x)

44.9

45.5

38.6

33.2

RoE (%)

108.5

102.8

95.6

88.9

Amarjeet S Maurya

RoCE (%)

125.3

131.4

119.6

112.9

022-39357800 Ext: 6831

EV/Sales (x)

5.5

5.3

5.0

4.5

[email protected]

EV/EBITDA (x)

32.3

29.6

27.9

25.5

Source: Company, Angel Research; Note: CMP as of November 1, 2016

Please refer to important disclosures at the end of this report

Hindustan Unilever | 2QFY2017 Result Update

Exhibit 1: Standalone quarterly performance

Y/E March (` cr)

2QFY17

2QFY16

% yoy

1QFY17

% qoq

1HFY17

1HFY16

% chg

Net Sales

7,843

7,731

1.4

8,128

(3.5)

15,971

15,576

2.5

Consumption of RM

3,962

3,897

1.7

3,955

0.2

7,918

7,794

1.6

(% of Sales)

50.5

50.4

48.7

49.6

50.0

Staff Costs

396

375

5.5

427

(7.2)

823

733

12.2

(% of Sales)

5.0

4.9

5.2

4.7

Advertising

851

921

(7.6)

880

(3.2)

1,731

1,814

(4.6)

(% of Sales)

10.9

11.9

10.8

11.6

Other Expenses

1,230

1,224

0.5

1,275

(3.5)

2,459

2,388

3.0

(% of Sales)

15.7

15.8

15.7

15.4

15.3

Total Expenditure

6,439

6,417

0.4

6,537

(1.5)

12,930

12,730

1.6

Operating Profit

1,403

1,315

6.7

1,591

(11.8)

3,041

2,846

6.8

OPM

17.9

17.0

19.6

19.0

18.3

Interest

9.1

5.95

(17.0)

18.4

Depreciation

24.1

1.3

188

151

24.3

Other Income

272

204

33.6

223

22.3

449

317

41.6

PBT (excl. Ext Items)

1,576

1,438

9.6

1,715

(8.1)

3,291

3,003

9.6

Ext (Income)/Expense

PBT (incl. Ext Items)

1,576

1,438

9.6

1,715

(8.1)

3,291

3,003

9.6

(% of Sales)

20.1

18.6

21.1

20.6

19.3

Provision for Taxation

481

456

541

1,022

952

7.3

(% of PBT)

30.5

31.7

31.6

Reported PAT

1,096

982

11.5

1,174

(6.7)

2,270

2,051

10.6

PATM

14.0

12.7

14.4

14.2

13.2

Equity shares (cr)

216

FDEPS (`)

5.1

4.5

11.5

5.4

(6.7)

10.5

9.5

10.6

Source: Company, Angel Research

November 2, 2016

Hindustan Unilever | 2QFY2017 Result Update

Exhibit 2: Segmental Performance

2QFY2017

2QFY2016

% chg

1QFY2017

% chg 1HFY17

1HFY16

% chg

Income

Soaps & Detergents

2,777

2,691

3.2

2,876

(3.4)

5,653

7,603

(25.6)

Personal Products

4,028

4,041

(0.3)

4,222

(4.6)

8,250

4,302

91.7

Beverages

1,169

1,079

8.4

1,215

(3.8)

2,384

1,736

37.4

Packaged Foods

278

271

2.4

272

2.1

550

995

(44.7)

Others

218

257

(15.2)

204

7.0

422

665

(36.5)

Total Gross Income

8,470

8,339

8,789

17,259

15,300

PBIT segment -wise bifurcation

Soaps & Detergents

280

225

24.7

356

(21.3)

636

1,043

(39.0)

Personal Products

923

891

3.6

1,021

(9.7)

1,944

1,119

73.7

Beverages

173

147

17.5

192

(10.1)

365

292

24.9

Packaged Foods

(16.2)

(19.2)

(61.2)

Others

112.1

(9)

(0)

(4)

(91.5)

Total PBIT

1,398

1,283

1,577

2,975

2,529

Less: Interest Exp

Less: Other Unallocable Exp

183

160

144

327

375

PBT

1,576

1,438

1,715

3,291

2,891

PBIT Margin (%)

Soaps & Detergents

10.1

8.3

12.4

11.2

13.7

Personal Products

22.9

22.0

24.2

23.6

26.0

Beverages

14.8

13.6

15.8

15.3

16.8

Packaged Foods

4.9

6.0

6.2

5.6

7.9

Others

4.2

1.7

(4.6)

(0.1)

(0.6)

Source: Company, Angel Research

Overall top-line growth flattish

For 2QFY2017, HUL’s overall top-line rose by 1.4% yoy to `7,843cr on the back

of weak volume growth across the segment. The soaps & detergents division

posted a 3.2% yoy growth to `2,777cr, which was driven by healthy volume

growth in surf. In home care, the growth continued to be driven by the premium

segment. The vim liquid performed well, driven by sustained market development.

In the personal products segment, HUL grew flat yoy due to a challenging market

environment. The beverages and packaged foods reported a modest growth of

~8% and ~2% yoy, respectively.

November 2, 2016

Hindustan Unilever | 2QFY2017 Result Update

Investment rationale

Largest FMCG player with leadership in several categories

HUL has presence across various product categories and has brands in both mass

and premium segments in most of these categories. The company’s products are

available at multiple price points and it is a leader in many of the categories.

Outlook and valuation

We expect HUL to post ~7% and ~9% CAGR in its top-line and bottom-line,

respectively, over FY2016-18E. At the current market price, the stock is trading at

37.3x its FY2018E earnings. We maintain our Neutral view on the stock.

Company background

HUL, a 52% subsidiary of Unilever, is one of India's largest consumer goods

companies. HUL is present across four main product categories - 1) Soaps and

Detergents (50% of revenue); 2) Personal Products (mainly shampoos, skin care

and toothpaste - 30% of revenue); 3) Beverages (mainly tea and coffee - 12% of

revenue); 4) Packaged Foods and Ice cream (6% of revenue); and 5) Others

(mainly consisting of water purifiers). The company with its iconic brands such as

Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond's, Vaseline, Lakmé, Dove,

Clinic Plus, Sunsilk, Pepsodent, Close Up, Axe, Brooke Bond, Bru, Knorr, Kissan, and

Walls has a vast presence in rural as well as urban Indian markets and has one of

the largest distribution networks spanning over 6.3mn retail outlets.

November 2, 2016

Hindustan Unilever | 2QFY2017 Result Update

Consolidated Profit & Loss Statement

Y/E March (` cr)

FY2013

FY2014

FY2015

FY2016

FY2017E

FY2018E

Total operating income

27,004

29,234

31,972

33,194

35,252

38,495

% chg

15.2

8.3

9.4

3.8

6.2

9.2

Total Expenditure

22,799

24,488

26,558

27,283

28,977

31,643

Raw Materials

14087

14870

16176

15866

17168

18593

Selling & Administrative Exp

3290

3675

3944

4595

4477

4966

Personnel Expenses

1,413

1,573

1,724

1,742

2,045

2,310

Others Expenses

4,009

4,371

4,715

5,079

5,288

5,774

EBITDA

4,205

4,746

5,414

5,911

6,275

6,852

% chg

20.7

12.8

14.1

9.2

6.2

9.2

(% of Net Sales)

15.6

16.2

16.9

17.8

Depreciation& Amortisation

251

296

322

357

377

407

EBIT

3,954

4,450

5,091

5,554

5,898

6,445

% chg

21.7

12.5

14.4

9.1

6.2

9.3

(% of Net Sales)

14.6

15.2

15.9

16.7

Interest & other Charges

Other Income

1,138

806

1,246

397

600

(% of PBT)

22.5

15.4

19.7

6.7

9.2

8.5

Share in profit of Associates

PBT (reported)

5,066

5,215

6,320

5,947

6,494

7,041

Tax

1,227

1,259

1,944

1,852

2,013

2,183

(% of PBT)

24.2

24.1

30.8

31.2

31.0

PAT (reported)

3,839

3,956

4,376

4,094

4,481

4,858

Less: Minority interest (MI)

PAT after MI (reported)

3,829

3,946

4,363

4,082

4,469

4,845

Prior Period & Extra. Exp./(Inc.)

459

179

470

(27)

ADJ. PAT

3,370

3,767

3,893

4,109

4,469

4,845

% chg

24.7

11.8

3.3

5.6

8.8

8.4

(% of Net Sales)

12.5

12.9

12.2

12.4

12.7

12.6

Basic & diluted EPS (`)

15.6

17.4

18.0

19.0

20.6

22.4

Adjusted EPS EPS (`)

15.6

17.4

18.0

19.0

20.6

22.4

% chg

24.7

11.8

3.3

5.6

8.8

8.4

November 2, 2016

Hindustan Unilever | 2QFY2017 Result Update

Consolidated Balance Sheet

Y/E March (` cr)

FY2013

FY2014

FY2015

FY2016

FY2017E FY2018E

SOURCES OF FUNDS

Equity Share Capital

216

Reserves& Surplus

2,649

3,321

3,805

3,755

4,460

5,235

Shareholders Funds

2,865

3,537

4,022

3,972

4,676

5,451

Minority Interest

Total Loans

255

Deferred Tax Liability

218

241

278

285

Total Liabilities

3,128

3,846

4,367

4,536

5,241

6,016

APPLICATION OF FUNDS

Gross Block

4,418

5,079

5,412

6,128

6,062

6,462

Less: Acc. Depreciation

1,986

2,333

2,591

2,827

3,204

3,611

Net Block

2,431

2,746

2,821

3,301

2,858

2,851

Capital Work-in-Progress

222

373

516

427

Investments

2,252

2,838

3,025

2,747

Current Assets

6,977

7,617

7,869

8,456

9,455

10,801

Inventories

2,706

2,940

2,849

2,752

2,897

3,164

Sundry Debtors

997

1,017

1,011

1,269

1,352

1,477

Cash

1,901

2,516

2,689

3,028

3,267

3,658

Loans & Advances

655

598

731

771

1,234

1,540

Other Assets

718

547

588

636

705

962

Current liabilities

9,181

10,149

10,341

10,913

10,765

11,329

Net Current Assets

(2,204)

(2,531)

(2,472)

(2,457)

(1,310)

(528)

Deferred Tax Asset

426

421

477

518

Mis. Exp. not written off

Total Assets

3,128

3,846

4,367

4,536

5,241

6,016

November 2, 2016

Hindustan Unilever | 2QFY2017 Result Update

Consolidated Cashflow Statement

Y/E March (` cr)

FY2013

FY2014

FY2015

FY2016

FY2017E FY2018E

Profit before tax

4,460

4,980

5,640

5,985

6,494

7,041

Depreciation

251

296

322

357

377

407

Change in Working Capital

429

405

(342)

(108)

(1,094)

Interest / Dividend (Net)

(140)

(290)

(258)

(225)

(278)

Direct taxes paid

(1,074)

(1,384)

(2,030)

(1,766)

(2,013)

(2,183)

Others

(323)

(212)

(957)

116

(710)

727

Cash Flow from Operations

3,605

3,818

3,124

4,125

3,761

4,902

(Inc.)/ Dec. in Fixed Assets

(7)

111

493

(546)

(350)

(400)

(Inc.)/ Dec. in Investments

(586)

(187)

278

Cash Flow from Investing

(475)

306

(268)

(350)

(400)

Issue of Equity

Inc./(Dec.) in loans

(15)

(3)

212

Dividend Paid (Incl. Tax)

(4,000)

(2,811)

(3,245)

(3,452)

(3,754)

(4,070)

Interest / Dividend (Net)

212

(9)

(279)

582

(41)

Cash Flow from Financing

(3,764)

(2,728)

(3,256)

(3,519)

(3,172)

(4,111)

Inc./(Dec.) in Cash

(96)

615

173

338

239

392

Opening Cash balances

1,996

1,901

2,516

2,689

3,028

3,267

Closing Cash balances

1,901

2,516

2,689

3,028

3,267

3,658

November 2, 2016

Hindustan Unilever | 2QFY2017 Result Update

Key Ratios

Y/E March

FY2013

FY2014

FY2015

FY2016

FY2017E FY2018E

Valuation Ratio (x)

P/E (on FDEPS)

53.6

48.0

46.4

44.0

40.4

37.3

P/CEPS

44.2

42.5

38.5

40.6

37.2

34.3

P/BV

63.1

51.1

44.9

45.5

38.6

33.2

Dividend yield (%)

2.2

1.6

1.8

1.9

2.1

2.3

EV/Sales

6.5

6.0

5.5

5.3

5.0

4.5

EV/EBITDA

42.0

37.0

32.3

29.6

27.9

25.5

EV / Total Assets

14.3

12.5

11.9

11.3

10.9

10.1

Per Share Data (`)

EPS (Basic)

15.6

17.4

18.0

19.0

20.6

22.4

EPS (fully diluted)

15.6

17.4

18.0

19.0

20.6

22.4

Cash EPS

18.9

19.6

21.7

20.6

22.4

24.3

DPS

18.5

13.0

15.0

15.9

17.3

18.8

Book Value

13.2

16.3

18.6

18.4

21.6

25.2

Returns (%)

ROCE

136.8

124.2

125.3

131.4

119.6

112.9

ROE

133.7

111.5

108.5

102.8

95.6

88.9

Turnover ratios (x)

Asset Turnover (Gross Block)

6.1

5.8

5.9

5.4

5.8

6.0

Inventory / Sales (days)

Receivables (days)

Payables (days)

WC cycle (ex-cash) (days)

(8)

(12)

(14)

(15)

(13)

(12)

November 2, 2016

Hindustan Unilever | 2QFY2017 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

DISCLAIMER

Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,

Bombay Stock Exchange Limited and Metropolitan Stock Exchange Limited. It is also registered as a Depository Participant with CDSL

and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is a

registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number

INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing

/dealing in securities Market. Angel or its associates/analyst has not received any compensation / managed or co-managed public

offering of securities of the company covered by Analyst during the past twelve months.

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment

decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should

make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the

companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine

the merits and risks of such an investment.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals. Investors are advised to refer the Fundamental and Technical Research Reports available on our website to evaluate the

contrary view, if any

The information in this document has been printed on the basis of publicly available information, internal data and other reliable

sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this

document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way

responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.

Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot

testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.

While Angel Broking Pvt. Limited endeavors to update on a reasonable basis the information discussed in this material, there may be

regulatory, compliance, or other reasons that prevent us from doing so.

This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,

redistributed or passed on, directly or indirectly.

Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from

or in connection with the use of this information.

Disclosure of Interest Statement

HUL

1. Financial interest of research analyst or Angel or his Associate or his relative

2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives

3. Served as an officer, director or employee of the company covered under Research

4. Broking relationship with company covered under Research

Ratings (Based on expected returns

Buy (> 15%)

Accumulate (5% to 15%)

Neutral (-5 to 5%)

over 12 months investment period):

Reduce (-5% to -15%)

Sell (< -15)

November 2, 2016