4QFY2016 Result Update | FMCG

May 11, 2016

Hindustan Unilever

NEUTRAL

CMP

`862

Performance Highlights

Target Price

Quarterly Data

Investment Period

(` cr)

4QFY16

4QFY15

% yoy

3QFY16

% qoq

Revenue

7,946

7,676

3.5

7,981

(0.4)

EBITDA

1,457

1,318

10.5

1,314

10.9

Stock Info

Margin (%)

18.3

17.2

117bp

16.5

187bp

Sector

FMCG

Reported PAT

1,090

1,018

7.0

971

12.2

Market Cap (` cr)

1,86,629

Source: Company, Angel Research

Net Debt (` cr)

-5,798

Hindustan Unilever (HUL)’s performance for 4QFY2016 was slightly below

Beta

0.6

consensus expectations. For the quarter, the company’s top-line grew by 3.5% yoy

52 Week High / Low

944 / 765

to `7,946cr while the reported PAT grew ~7% yoy to `1,090cr.

Avg. Daily Volume

81,759

Face Value (`)

Key highlights: For 4QFY2016, HUL’s top-line rose by 3.5% yoy to `7,946cr on

BSE Sensex

25,773

the back of 4% volume growth. The soaps and detergents division posted a lower

yoy growth due to weak macros. However, in the soaps segment, we saw healthy

Nifty

7,888

volume growth in Dove, Pears, Hamam and Lifebuoy. In the laundry segment,

Reuters Code

HLL.BO

growth was led by the premium sub-segment, with Surf maintaining its strong

Bloomberg Code

HUVR@IN

double-digit growth. The personal products division posted a soft growth of 2.8%

yoy as it was impacted by phasing out of excise duty incentives, one-time credit for

Shareholding Pattern (%)

excise duty refund in base quarter and residual impact from the re-alignment of

Promoters

67.2

channel spend. In the beverages segment, the company reported a growth of 6%

MF / Banks / Indian Fls

4.8

yoy, primarily led by volumes (tea and coffee products reported strong double-

digit growth). Packaged food reported ~11% growth during the quarter.

FII / NRIs / OCBs

14.2

Indian Public / Others

13.8

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

operating profit reporting a growth of 10.5% yoy. Further, the operating profit

margin increased by 117bp yoy to 18.3% due to lower material costs. On the

Abs. (%)

3m 1yr

3yr

bottom-line front, the company reported a net profit growth of 7%.

Sensex

8.5

(6.3)

28.3

HUL

4.5

(0.7)

47.4

Outlook and valuation: We expect HUL to post a ~8% and ~8% CAGR in its top-

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

3-year price chart

the stock is trading at 38.9x its FY2018E earnings. We maintain our Neutral view

1200

on the stock.

1000

Key financials (Consolidated)

800

Y/E March (` cr)

FY2015

FY2016

FY2017E

FY2018E

600

400

Net sales

31,972

33,194

35,716

39,002

200

% chg

9.4

3.8

7.6

9.2

Net profit

3,893

4,109

4,476

4,800

% chg

3.3

5.6

8.9

7.2

EBITDA margin (%)

16.9

17.8

17.6

17.4

Source: Company, Angel Research

EPS (`)

18.0

19.0

20.7

22.2

P/E (x)

47.9

45.4

41.7

38.9

P/BV (x)

46.4

40.0

34.6

30.3

RoE (%)

108.5

87.4

83.1

78.0

RoCE (%)

125.3

112.8

104.8

99.6

Amarjeet S Maurya

EV/Sales (x)

5.7

5.4

5.0

4.6

022-39357800 Ext: 6831

EV/EBITDA (x)

33.4

30.6

28.6

26.4

[email protected]

Source: Company, Angel Research; Note: CMP as of May 10, 2016

Please refer to important disclosures at the end of this report

Hindustan Unilever | 4QFY2016 Result Update

Exhibit 1: Standalone quarterly performance

Y/E March (` cr)

4QFY16

4QFY15

% yoy

3QFY15

% qoq

FY2016

FY2015

% chg

Net Sales

7,946

7,676

3.5

7,981

(0.4)

31,987

30,806

3.8

Consumption of RM

3,769

3,827

(1.5)

3,742

0.7

15,313

15,624

(2.0)

(% of Sales)

47.4

49.9

46.9

47.9

50.7

Staff Costs

446

388

14.8

402

11.1

1,592

1,579

0.8

(% of Sales)

5.6

5.1

5.0

5.1

Advertising

1,090

1,025

6.3

1,138

(4.2)

4,526

3,872

16.9

(% of Sales)

13.7

13.4

14.3

14.1

12.6

Other Expenses

1,183

1,117

5.9

1,385

(14.6)

4,865

4,536

7.2

(% of Sales)

14.9

14.5

17.4

15.2

14.7

Total Expenditure

6,488

6,357

2.1

6,667

(2.7)

26,296

25,611

2.7

Operating Profit

1,457

1,318

10.5

1,314

10.9

5,691

5,194

9.6

OPM

18.3

17.2

16.5

17.8

16.9

Interest

0.03

(40.0)

(98.9)

Depreciation

24.1

6.5

321

287

11.9

Other Income

135

278

(51.5)

177

(23.6)

501

1,297

(61.4)

PBT (excl. Ext Items)

1,504

1,525

(1.4)

1,409

6.8

5,871

6,187

(5.1)

Ext (Income)/Expense

PBT (incl. Ext Items)

1,504

1,525

(1.4)

1,409

6.8

5,871

6,187

(5.1)

(% of Sales)

18.9

19.9

17.6

18.4

20.1

Provision for Taxation

415

507

437

1,788

1,872

(4.5)

(% of PBT)

27.6

33.3

31.0

Reported PAT

1,090

1,018

7.0

971

12.2

4,082

4,315

(5.4)

PATM

13.7

13.3

12.2

12.8

14.0

Equity shares (cr)

216

FDEPS (`)

5.0

4.7

7.0

4.5

12.2

18.9

19.9

(5.4)

Source: Company, Angel Research

May 11, 2016

Hindustan Unilever | 4QFY2016 Result Update

Exhibit 2: Segmental Performance

4QFY2016

4QFY2015

% chg

3QFY2016

% chg 9MFY16 9MFY15

% chg

Income

Soaps & Detergents

3,753

3,674

2.1

3,630

3.4

15,053

14,877

1.2

Personal Products

2,312

2,250

2.8

2,593

(10.8)

9,656

9,006

7.2

Beverages

1,036

976

6.1

984

5.3

3,888

3,631

7.1

Packaged Foods

533

477

11.7

470

13.4

2,117

1,892

11.9

Others

303

295

2.9

295

2.9

1,235

1,313

(6.0)

Total Gross Income

7,937

7,671

7,971

31,949

30,719

PBIT segment -wise bifurcation

Soaps & Detergents

545

488

11.6

509

7.1

2,142

2,034

5.3

Personal Products

682

625

9.2

748

(8.8)

2,755

2,424

13.7

Beverages

199

182

9.5

173

15.0

653

615

6.2

Packaged Foods

19.8

103.7

127

52.3

Others

(8)

(0.5)

(35)

(77.9)

(37)

(15)

140.5

Total PBIT

1,449

1,312

1,410

5,640

5,140

Less: Interest Exp

(0)

(17)

Less: Other Unallocable Exp

214

(1)

231

1,064

PBT

1,504

1,525

1,409

5,870

6,187

PBIT Margin (%)

Soaps & Detergents

14.5

13.3

14.0

14.2

13.7

Personal Products

29.5

27.8

28.9

28.5

26.9

Beverages

19.2

18.6

17.6

16.8

16.9

Packaged Foods

5.7

5.3

3.2

6.0

4.4

Others

-2.6

(2.7)

(12.0)

(3.0)

(1.2)

Source: Company, Angel Research

Overall top-line growth flattish

For 4QFY2016, HUL’s top-line rose by 3.5% yoy to `7,946cr on the back of 4%

volume growth. The soaps and detergents division posted a lower yoy growth due

to weak macros. However, in the soaps segment, we saw healthy volume growth in

Dove, Pears, Hamam and Lifebuoy. In the laundry segment, growth was led by the

premium sub-segment, with Surf maintaining its strong double-digit growth. The

personal products division posted a soft growth of 2.8% yoy as it was impacted by

phasing out of excise duty incentives, one-time credit for excise duty refund in base

quarter and residual impact from the re-alignment of channel spend. In the

beverages segment, the company reported a growth of 6% yoy, primarily led by

volumes (tea and coffee products reported strong double-digit growth). Packaged

food reported ~11% growth during the quarter.

May 11, 2016

Hindustan Unilever | 4QFY2016 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 in

which it has presence.

Outlook and valuation

We expect HUL to post a ~8% and ~8% CAGR in its top-line and bottom-line

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

38.9x 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, with one of the

largest distribution networks spanning over 6.3mn retail outlets.

May 11, 2016

Hindustan Unilever | 4QFY2016 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

35,716

39,002

% chg

15.2

8.3

9.4

3.8

7.6

9.2

Total Expenditure

22,799

24,488

26,558

27,283

29,430

32,216

Raw Materials

14,087

14,870

16,176

15,866

17,394

18,838

Selling & Administrative Exp

3,290

3,675

3,944

4,595

4,536

5,031

Personnel Expenses

1,413

1,573

1,724

1,742

2,072

2,340

Others Expenses

4,009

4,371

4,715

5,079

5,429

6,006

EBITDA

4,205

4,746

5,414

5,911

6,286

6,786

% chg

20.7

12.8

14.1

9.2

6.3

8.0

(% of Net Sales)

15.6

16.2

16.9

17.8

17.6

17.4

Depreciation& Amortisation

251

296

322

357

377

407

EBIT

3,954

4,450

5,091

5,554

5,909

6,379

% chg

21.7

12.5

14.4

9.1

6.4

8.0

(% of Net Sales)

14.6

15.2

15.9

16.7

16.5

16.4

Interest & other Charges

Other Income

1,138

806

1,246

397

600

(% of PBT)

22.5

15.4

19.7

6.7

9.2

8.6

Share in profit of Associates

PBT (reported)

5,066

5,215

6,320

5,947

6,505

6,975

Tax

1,227

1,259

1,944

1,852

2,016

2,162

(% of PBT)

24.2

24.1

30.8

31.2

31.0

PAT (reported)

3,839

3,956

4,376

4,094

4,488

4,813

Less: Minority interest (MI)

PAT after MI (reported)

3,829

3,946

4,363

4,082

4,476

4,800

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

459

179

470

(27)

ADJ. PAT

3,370

3,767

3,893

4,109

4,476

4,800

% chg

24.7

11.8

3.3

5.6

8.9

7.2

(% of Net Sales)

12.5

12.9

12.2

12.4

12.5

12.3

Basic & diluted EPS (`)

15.6

17.4

18.0

19.0

20.7

22.2

Adjusted EPS EPS (`)

15.6

17.4

18.0

19.0

20.7

22.2

% chg

24.7

11.8

3.3

5.6

8.9

7.2

May 11, 2016

Hindustan Unilever | 4QFY2016 Result Update

Consolidated Balance Sheet

Y/E March (` cr)

FY2013

FY2014

FY2015

FY2016E FY2017E FY2018E

SOURCES OF FUNDS

Equity Share Capital

216

Reserves& Surplus

2,649

3,321

3,805

4,452

5,169

5,936

Shareholders Funds

2,865

3,537

4,022

4,669

5,385

6,153

Minority Interest

Total Loans

255

Deferred Tax Liability

218

241

278

Total Liabilities

3,128

3,846

4,367

5,226

5,942

6,710

APPLICATION OF FUNDS

Gross Block

4,418

5,079

5,412

5,712

6,062

6,462

Less: Acc. Depreciation

1,986

2,333

2,591

2,948

3,325

3,732

Net Block

2,431

2,746

2,821

2,764

2,737

2,730

Capital Work-in-Progress

222

373

516

Investments

2,252

2,838

3,025

Current Assets

6,977

7,617

7,869

8,689

10,019

11,620

Inventories

2,706

2,940

2,849

2,910

3,131

3,419

Sundry Debtors

997

1,017

1,011

1,091

1,174

1,282

Cash

1,901

2,516

2,689

3,028

3,749

4,383

Loans & Advances

655

598

731

996

1,250

1,560

Other Assets

718

547

588

664

714

975

Current liabilities

9,181

10,149

10,341

10,245

10,832

11,658

Net Current Assets

(2,204)

(2,531)

(2,472)

(1,556)

(813)

(38)

Deferred Tax Asset

426

421

477

Mis. Exp. not written off

Total Assets

3,128

3,846

4,367

5,226

5,942

6,710

May 11, 2016

Hindustan Unilever | 4QFY2016 Result Update

Consolidated Cashflow Statement

Y/E March (` cr)

FY2013

FY2014

FY2015

FY2016E FY2017E FY2018E

Profit before tax

4,460

4,980

5,640

5,947

6,505

6,975

Depreciation

251

296

322

357

377

407

Change in Working Capital

429

405

(342)

(603)

(57)

Interest / Dividend (Net)

(140)

(290)

(258)

(225)

Direct taxes paid

(1,074)

(1,384)

(2,030)

(1,852)

(2,016)

(2,162)

Others

(323)

(212)

(957)

(22)

538

(96)

Cash Flow from Operations

3,605

3,818

3,124

3,863

4,805

5,071

(Inc.)/ Dec. in Fixed Assets

(7)

111

493

(300)

(350)

(400)

(Inc.)/ Dec. in Investments

(586)

(187)

Cash Flow from Investing

(475)

306

(300)

(350)

(400)

Issue of Equity

Inc./(Dec.) in loans

(15)

(3)

212

Dividend Paid (Incl. Tax)

(4,000)

(2,811)

(3,245)

(3,452)

(3,760)

(4,032)

Interest / Dividend (Net)

212

(9)

(5)

Cash Flow from Financing

(3,764)

(2,728)

(3,256)

(3,224)

(3,734)

(4,037)

Inc./(Dec.) in Cash

(96)

615

173

338

721

634

Opening Cash balances

1,996

1,901

2,516

2,689

3,028

3,749

Closing Cash balances

1,901

2,516

2,689

3,028

3,749

4,383

May 11, 2016

Hindustan Unilever | 4QFY2016 Result Update

Key Ratios

Y/E March

FY2013

FY2014

FY2015 FY2016E FY2017E FY2018E

Valuation Ratio (x)

P/E (on FDEPS)

55.4

49.5

47.9

45.4

41.7

38.9

P/CEPS

45.6

43.9

39.7

41.9

38.3

35.7

P/BV

65.1

52.7

46.4

40.0

34.6

30.3

Dividend yield (%)

2.1

1.5

1.7

1.9

2.0

2.2

EV/Sales

6.8

6.2

5.7

5.4

5.0

4.6

EV/EBITDA

43.4

38.2

33.4

30.6

28.6

26.4

EV / Total Assets

14.8

12.9

12.3

11.7

10.7

9.8

Per Share Data (`)

EPS (Basic)

15.6

17.4

18.0

19.0

20.7

22.2

EPS (fully diluted)

15.6

17.4

18.0

19.0

20.7

22.2

Cash EPS

18.9

19.6

21.7

20.6

22.5

24.1

DPS

18.5

13.0

15.0

16.0

17.4

18.6

Book Value

13.2

16.3

18.6

21.6

24.9

28.4

Returns (%)

ROCE

136.8

124.2

125.3

112.8

104.8

99.6

ROE

133.7

111.5

108.5

87.4

83.1

78.0

Turnover ratios (x)

Asset Turnover (Gross Block)

6.1

5.8

5.9

5.8

5.9

6.0

Inventory / Sales (days)

Receivables (days)

Payables (days)

WC cycle (ex-cash) (days)

(8)

(12)

(14)

(13)

May 11, 2016

Hindustan Unilever | 4QFY2016 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

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compensation / managed or co-managed public offering of securities of the company covered by Analyst during the past twelve

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Disclosure of Interest Statement

Hindustan Unilever

1. Analyst ownership of the stock

2. Angel and its Group companies ownership of the stock

3. Angel and its Group companies' Directors ownership of the stock

4. Broking relationship with company covered

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

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%)

May 11, 2016