Hindustan Unilever

Initiating Coverage

Rating Matrix

Target Period

Potential Upside

YoY Growth (%)

(YoY Growth)

Net Sales

EBITDA

Net Profit

EPS (Rs)

FY11

10.7

(1.8)

4.7

5.8

Current & target multiple

P/E

Target P/E

EV / EBITDA

P/BV

RoNW

RoCE

Stock Data

FY11

53.5

48.9

44.7

46.8

87.6

94.1

Bloomberg/Reuters Code

Sensex

Average volumes

Market Cap (Rs crore)

: 12 months

: -9 %

FY12

12.0

21.9

16.7

16.6

FY12

45.8

41.9

36.2

35.1

76.6

87.5

52 week H/L

Equity Capital (Rs crore)

Promoter's Stake (%)

FII Holding (%)

DII Holding (%)

Comparative return matrix (%)

Return %

Hindustan Unilever L

ITC

GCPL

Colgate

Price movement

1M

5.2

6.3

3.9

1.7

3M

28.1

11.3

21.3

8.5

FY13E

10.2

12.7

31.1

31.2

FY13E

34.9

31.9

32.0

30.6

87.7

86.5

6M

40.6

25.0

38.7

12.1

FY14E

12.5

13.4

(3.3)

(3.3)

FY14E

36.1

33.0

28.2

27.9

77.3

89.5

HUVR.BO / HLL.NS

18,805.0

11,14,000

123,307.5

571 / 324

216.0

52.5

21.1

9.0

12M

72.7

40.6

75.3

26.8

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

Oct-11 Jan-12

Price (R.H.S)

Apr-12 Jul-12

Nifty (L.H.S)

0

Oct-12

200

100

600

500

400

300

Analyst’s name

Sanjay Manyal sanjay.manyal@icicisecurities.com

Parineeta Poddar parineeta.poddar@icicisecurities.com

October 11, 2012

Hindustan Unilever Limited (HINLEV)

| 571

Brands’ strength driving growth; valuation expensive

Hindustan Unilever (HUL) is the brands behemoth of the Indian FMCG industry. Over the years, HUL has built a leadership position in the soaps, detergents, personal products and coffee segment along with a vast basket of ~35 brands spanning across 20 different categories. Being the country’s largest FMCG player, HUL’s revenue growth has been supported by the changing demographic profile of Indian consumers, increasing per capita income & rising affluence of consumers. HUL’s sales growth ratio to that of India’s GDP growth has risen from ~1.0x (FY04-10) to 1.5x (FY11-12). We expect the ratio to trail at these levels with revenues and earnings growing at a CAGR of 11.4% and 12.6%, respectively, in

FY12-14E. We are initiating coverage on HUL with a HOLD rating.

Leadership and strong brands across segments

HUL derives ~49% of its revenues (FY12) from soaps & detergents, ~32% from personal products, 12% from beverage (tea & coffee) and ~6% from packaged foods. The company has strong brand equity and a leadership position in soaps (~46% of market share by value in FY11), detergents

(~36% share by value in FY11), hair care (shampoos) and skin care

(fairness cream, body lotion) segments. It has capitalised on its brand strength in existing categories to expand its footprint into faster growing premium products and higher growth categories within each segment; encompassing the complete value pyramid in each segment. Going forward, we believe the extension of existing brands and innovation within brands would aid to maintain its leadership across categories.

Personal products the cynosure

HUL’s personal products (PP) contribute ~1/3 rd to gross revenues but more than half to the company’s PBIT. The segment has witnessed an impressive volume CAGR of 15.7% and value CAGR of 14.4% in CY04-

FY12. The company has the highest return on capital employed (~69x in

FY12) from this segment. Going ahead, with HUL’s aggressive expansion in PPs, we expect its contribution to HUL’s gross revenues to increase to

~35% by FY14E with the volume and value growth accelerating to 18.8% and 17.2% (CAGR FY12-14E), respectively.

Business on track; valuations expensive

The stock ran up (~73%) significantly in the last 12 months, led by HUL’s persistently high single/double digit volume growth (last 10 quarters), sustained margins and increasing market share across categories. At the

CMP, the stock is trading at 34.9x FY13E and 36.1x FY14E EPS of | 16.3 and | 15.8, respectively. We have valued HUL using DCF methodology as the stock is a long term play on the opportunity arising from the consumption boom in the country, arriving at a target price of | 522.

Exhibit 1: Financial Performance

(Year-end March) FY10 FY11 FY12 FY13E FY14E

Net Sales (| crore) 17,523.8

19,401.1

21,735.6

23,959.6

26,954.3

EBITDA (| crore)

Net Profit (| crore)

EPS (|)

P/E (x)

Mkt Cap/Sales (x)

RoCE (%)

RoNW (%)

2,750.0

2,202.0

10.1

55.9

7.0

99.3

85.2

2,699.3

2,306.0

10.7

52.8

6.3

94.1

87.6

3,291.3

2,691.4

12.5

45.3

5.6

87.5

76.6

3,708.2

3,529.3

16.3

34.5

5.1

86.5

87.7

4,206.4

3,414.1

15.8

35.7

4.5

89.5

77.3

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Shareholding pattern (Q1FY13)

Shareholder

Promoters

Institutional Investors

Public

FII & DII holding trend (%)

Holding (%)

52.5

29.9

17.6

25

20

15

10

5

0

21.1

9.0

20.1

9.9

19.4

10.3

18.7

11.4

17.7

12.1

Q2FY13 Q1FY13 Q4FY12 Q3FY12 Q2FY12

FII DII

Revenue break-up (FY12)

Foods

6.3%

Beverage

12.0%

Others

1.3%

Soap &

Detergent

48.9%

Personal

Products

31.5%

Company Background

Hindustan Unilever Ltd (HUL) is the country’s largest FMCG company with an annual turnover of | 21735.6 crore (FY12). It is a subsidiary of Unilever

(the world’s leading supplier of fast moving consumer goods), which holds 52.5% share in the company.

HUL is headquartered in Mumbai and operates in the segments, soaps & detergents (48.9% of revenues FY12), personal products (31.5% of revenues FY12), beverages (12.0% of revenues FY12), packaged foods

(6.3% of revenues FY12) and other products such as scourers, water purifiers, etc (1.3% of revenues FY12). The company has a strong brand portfolio of ~35 brands in 20 different categories (refer Annexure) with a leadership position in soaps, detergents hair care, home care, skin care and deodorants. The most popular brands of the company are Lifebuoy and Lux in soaps, Surf Excel and Wheel in detergents, Lakme, Ponds and

Vaseline in Personal Products, Lipton, Taj Mahal and Bru in beverages and Kissan in foods.

Over the years, the company has constantly introduced new brands in each segment capturing the growth opportunity along with extension and innovation of mother brands into higher growth segments. Hence, the company’s net sales and earnings have more than doubled from | 9926.9 crore and |1197.3 crore in CY04 to | 21735.6 crore (CAGR 11.8%) and

| 2691.4 crore (CAGR 12.3%) in FY12, respectively.

Being the largest FMCG company in India, we believe HUL’s growth is coupled with the country’s economic growth and demographic changes.

Therefore, with India’s long term economic growth expected to remain healthy, we expect HUL’s revenues and earnings to grow at a CAGR

(FY12-14E) of 11.4% and 12.6%, respectively.

Exhibit 2: HUL's timeline

Set up its 3 subsidiaries;

Hindustan Vanaspati

Mfg, Lever Bros,

India Ltd. & United

Traders Limited

Head office at

Bombay

Reclamation,

Mumbai opens

Construction work at Haldia chemicals complex begins

Unilever's shareholding in the company comes down to 52%

Tata Oil Mills merges with HUL;

Entered into 50:50

JV with Kimberley

Clark USA

Pond's India

Ltd merges with HUL;

HUL acquires

100% stake in

Lakme

Project

Shakti , a rural initiative was launched

Name formally changed to

Hindustan

Unilever Limited

(HUL)

1931 1956 1963 1974 1976 1980 1993 1994 1996 1998 2000 2001 2002 2007

3 cos merged to form HUL offering

10% of its equity to public

Pilot Plant for industrial chemicals at Taloja opens

Acquired Kissan brand from UB group;

Dollops Ice Cream acquired from Cadbury

India

Brooke Bond

Lipton India Ltd merged with HUL;

Lakme Lever

Limited, a JV with

Lakme Limited is formed

HLL acquires

74% in Modern

Foods ; marking its entry in bread market

Made its foray into ayurvedic

Health &

Beauty

Centre

Category


ICICI Securities Ltd | Retail Equity Research Page 2

Investment Rationale

Revenue mix: All that glitters is ‘personal products’

Over the years, HUL’s revenue contribution has been dominated by soaps and detergents (S&D) being 48.9% in FY12 and personal products (PP) dominating the contribution to PBIT at 52.2% (FY12). We expect S&D’s dominance to slide to 44.5% by FY14E. This would be captured by the faster growing PP revenues, thereby increasing its share to 34.3% by

FY14E from 31.5% in FY12.

Exhibit 3: Sales revenue mix (%)

100

90

80

70

60

50

40

30

20

10

0

15.4

11.9

24.6

44.4

3.7

14.3

11.4

26.4

44.3

3.7

11.9

10.8

27.4

45.6

4.3

11.1

5.1

11.1

26.6

46.2

9.4

5.1

11.2

26.2

48.1

7.6

5.4

12.1

28.4

46.5

7.8

6.0

11.9

29.7

44.6

CY04 CY05 CY06 CY07 FY09 FY10 FY11

Soaps & Detergents Personal Products Beverages Foods Others


* FY09 corresponds to 15 months data due to change in company’s reporting from CY to FY

1.3

6.3

12.0

31.5

48.9

FY12

2.7

6.7

11.7

32.2

46.7

FY13E

3.1

6.9

11.3

34.3

44.5

FY14E

The S&D segment witnessed an increase in revenue contribution to 48.9% in FY12 from 44.6% in FY11 driven by a steep price increase (we assume

~25% YoY in FY12) taken in detergents with volume growth remaining muted. Going ahead, we believe that with S&D being a highly penetrated category, growth would largely be price led. Hence, the segment would lose its sheen in volume growth contribution for HUL.

In contrast, PP’s revenue growth of 17.1% in FY12 was largely driven by volumes with marginal price increases. With HUL’s dominance in the segment (~50% of PP brand in the industry are HUL’s brands) and the company’s rapid innovation within each category, we expect the S&D share loss to be captured by PP, thereby increasing its share to 34.3% by

FY14E.

The other two segments that are relatively smaller in HUL’s baskets are beverages and foods contributing 12.0% and 6.3% to its revenues (FY12).

We expect the foods contribution to increase marginally to 6.9% by

FY14E and beverages to slide marginally to 11.3% by FY14E.

The other business where HUL is actively ramping up its presence is the water purifiers under the brand ‘Pureit’. It is currently a very small revenue generator for the company but the company is ramping up its scale in this business at a faster rate to capture the untapped market and opportunity from this.


Exhibit 4: Contribution to PBIT by segments (%)

0

-20

40

20

100

80

60

13.7

46.4

44.5

CY04

-5.0

1.2

13.6

47.4

38.4

CY05

11.2

47.9

39.3

10.4

46.0

44.1

9.6

44.6

46.3

11.4

46.2

42.3

CY06 CY07 FY09 FY10

Soaps & Detergents Personal Products Beverages Foods Others



1.2

13.1

54.6

30.5

FY11

11.0

52.2

36.9

FY12

Though personal products contribute only ~1/3 rd to revenues (FY12), they contributed 52.2% to the company’s PBIT. The contribution of other segments to PBIT in FY12 was S&D (36.9%), beverages (11%) and foods at less than 1%. Further, PP’s PBIT has been the fastest growing at 11.6%

CAGR FY04-12 compared to S&D at 6.9% and beverages at 6.3%.

We believe that with the increasing dominance of PP in the company’s revenue mix and expected improvement in the segment’s PBIT with expansion in the premium segment (higher margin products), earnings from the segment will increase at a faster rate simultaneously leading to an increase in the contribution in PBIT.


Business presence: Market leader and strong brands across segments

According to IMRB, the penetration of toilet soaps and washing powder in urban India (2011) stood at 100% and

99%, respectively. The penetration of the same in rural India is 99% and 97%, respectively

.

Soaps and detergents: High penetration to drive growth through prices

HUL, the market leader in soaps and detergent (S&D), derived 48.9%

(| 10636.3 crore in FY12) of its gross revenues and 36.3% of its earnings

(PBIT) from the S&D segment (FY12). Revenues from this segment have grown at a CAGR of 13.2% (CY04-FY12), which we expect to moderate to

8.6% CAGR (FY12-14E), going ahead. We believe the revenue growth would largely be driven by price increases keeping the volume growth restrained due to the high penetration of >90% in the category.

Exhibit 5: Soaps & detergents sales (| crore) and YoY sales growth (%)

15000

2500

0

-2500

-5000

12500

10000

7500

5000

4470.7

CY04

4961.7

CY05

~21% jump was led by steep price increases in FY12

5595.9

CY06

6399.9

CY07

9880.6

FY09*

Soaps & Detergents (LHS)


*FY09 corresponds to 15 months data due to change in company’s reporting from CY to FY

8265.6

FY10

8791.6

FY11

YoY Increase (RHS)

Premium

Popular

Mass

10636.3

FY12

11717.0

FY13E

12554.2

FY14E

Detergents

HUL has maintained its leadership position (~36% share by value and

~43% share by volume FY11) in the Indian detergent market (estimated at ~| 12000 crore as in FY11) with a strong portfolio of brands across the value chain. It has constantly strengthened and re-launched its existing brands to preserve its position.

Exhibit 6: Detergent portfolio

Brand

Active Wheel

Comfort

Rin

Surf Excel

Variants

Bar & Powder

Market Position

Largest selling detergent brand in India

Lily Fresh & Comfort Blue World's largest Fabric conditioner brand

Rin Bar, Rin Powder, Rin Matic Also sold in Africa, Asia & Latin America

Quick Wash, Excel Matic, Gentle Wash One of the oldest detergent powder brand in

India. Extended the brand to bars in FY12

Cif

Domex

Vim

Sunlight

Cif Blue & Cif Yellow

Floor cleaner, Disinfectant, Phenolic,

Toilet Block

Bars, Powders & Liquids

Bar & Powder

No.1 cream cleaner in the world

No.1 /2 bleach in the 9 countries

Leading dishwashing brand in India (~60% mkt share)

First brand of Unilever in India; No.1 band in

Kerala & West Bengal


60

10

0

-10

-20

50

40

30

20


12

10

8

6

4

2

0

In the detergent segment, HUL’s nearest competitor is P&G with brands like Tide and Ariel. The companies entered into a price war in 2004 and

2010 in order to garner a higher market share, which consequently led to

HUL’s fat margins from the segment to get leaner. HUL’s PBIT from S&D slid from ~25% (CY01-03) to ~15% (CY04-06) and further to ~12%

(FY10-12). We believe the significant skimming of margins leaves very little scope for further price wars between companies in this segment, thereby providing relief that the market share decline from here seems unlikely.

Further, the extension of HUL’s detergent portfolio into the premium category to tap consumers moving up the value chain will aid its volume growth and keep margins at current levels, going ahead.

The volume growth in detergents would also be supported by the increasing per capita consumption of detergents in India, which continues to remain lower in comparison to other countries. According to industry players, this opportunity could drive volume sales growth of detergents by ~7-9% per annum in the coming years.

Exhibit 7: Per capita detergent consumption (FY11)- kg per annum Exhibit 8: Per capita detergent consumption (FY11)- US$

2 2


2.7

3.7

25 22.9

10

20

15

16.6

12.1

10

5

1.4

1.9

2.2

0

India Indonesia China Brazil Germany USA


With HUL’s brand dominance in the category and presence across the value pyramid, we expect detergent revenues to grow through price increases of 4.5% (CAGR FY12-14E) and modest volume growth of 3.2%

(CAGR FY12-14E). The price led growth would have a higher contribution to the overall growth led by increasing sales of premium products in the detergents portfolio. The company reported volume and price growth of

6.8% and 8.9% CAGR from CY04-FY12.


Exhibit 9: Detergents sales value and volume growth (%)

66.1

-10

-25

65

50

35

20

5

4.3

15.6

15.9

17.8

27.8

19.6

CY04

1.4

10.6

CY05

7.5

CY06

8.2

CY07 FY09*

Detergents Volume Growth

-22.5

FY10

-20.4

FY11

6.4

Detergents Value Growth



PREMIUM

POPULAR

MASS

Volume growth to be led by rise in per capita consumption & premium product sales

29.2

3.8

FY12

8.7

7.1

3.0

FY14E

Soaps

The leader in the soaps category (~46% share in toilet soaps FY11; category size ~| 8900 crore), HUL has an extensive portfolio of brands encompassing the premium, popular and economy price points through established brands Lux & Dove, Pears & Liril and Lifebuoy, respectively.

The soaps category in India is a mature category with ~100% penetration in urban India and ~99% in rural India. The category is growing at a moderate rate of ~10% per annum. We believe that with HUL’s share being far ahead of its competitor’s share (~10% share in FY12), it would continue to grow ahead of the category led by extension of the company’s product portfolio into premium products and increasing rural reach.

Exhibit 10: HUL’s brand portfolio for soaps

Brand

Breeze

Dove

Hamam

Lifebuoy

Liril

Lux

Pears

Rexona

Variants

Lemon Twist, Rose Mallika, Sandal Sparsh,

Rajni Gandha

Details

Launched in 1988

Bar & Skin Cleansing, Hair Care, Deodrants Leading brand of Unilever globally, fastest growing hair category brand in India

Sampoorna Snan, Scrub Bath, Abhyangana

Snan

Core Soaps, Handwash, Skin guard, clear skin

Only herbal soap brand with ~| 400 crore sales; 21.4% market share in Tamil Nadu

Undisputed leader in soaps market in India

(18.4% share); consumer base of ~140 mn households in India

Liril 2000 soap One of the oldest soap brands in India

Strawberry & Cream, Peach & Cream, Lotus

& Cream, International

A US$1 bn brand, it is the largest selling & No.1 soap brand in India

Pears Pure & Gentle, Pears Germ Shield,

Pears Oil Clear

Rexona Green, Rexona White

Has extended the brand to liquid soaps and shower gels.

Launched as early as 1947


Going forward, we expect HUL’s soap sales to gain traction driven by increasing consumer preference towards liquid and premium soaps. We expect the volume led growth to be 4.2% (CAGR FY12-14E) and value growth to be 8.3% (CAGR FY12-14E). HUL’s volume growth in soaps has been 2.5% (CAGR CY07-FY12). However, the strength in the brands aided the value growth of 9.1% (CAGR CY07-FY12).


Exhibit 11: Soaps volume (LHS) and value growth (RHS)

6000

4000

On a annnualised basis, sales volumes dipped in FY09 &

FY10 and HUL lost market share by ~600 bps due to down trading by consumers. Howeve, aggressive marketing & strong brand equity has helped it ro regain its share in FY11 and FY12

41.5

2000

2.1

2381

6.8

2543

10.5

2809

8.3

3792 3041 4535 4302 3554 3727

0

CY04 CY05 CY06 CY07 FY09* FY10

-2000

Soaps (mn nos.)



-13.4

Soaps (| crore)

5.7

3855 3940

FY11

4181

Soaps Value Growth (%)

9.2

4303

FY12

9.3

4362 4706

FY13E

4539

FY14E

45

30

15

0

-15

60

50

40

30

20

10

0

Margin expansion for S&D to remain constricted

HUL’s margins from S&D have declined from 17.3% (CY04) to 11.6%

(FY12) on the back of increasing competition in the segment. The company undertook a significant price increase (~15% for FY12) to pull back margins to ~12% in FY12. Going ahead, we expect increasing competitive intensity and higher advertisement expenses (to promote usage of premium laundry products and newer products in pre and post wash categories) in S&D to keep margins capped at current levels until

FY14E.

Exhibit 12: Contribution to PBIT (percentage of total PBIT) and PBIT from S&D (percentage of gross sales)

Cut-throat price war with P&G led to the margin erosion

Margins dented drastically due to exceptional increase in RM costs from Q4FY11 onwards.

Substantial price hike to pass on the input cost pressure and introduction of premium products helped in margin improvement

17.3

45

13.8

38

13.8

39

15.3

44

15.0

46

14.3

42

9.5

30

11.6

37

25

20

15

10

5

0

CY04 CY05 CY06 CY07

Contrbution to overall PBIT from S&D (%) - LHS

FY09* FY10 FY11

S&D PBIT margins (% of gross sales) -RHS

FY12




HUL’s personal care business includes sales products under categories of hair care, skin care, oral care, grooming and other beauty services

Personal products: Biggest winners for HUL

Personal products contribute 31.5% (FY12) to HUL’s revenues and 52.2%

(FY12) to PBIT. With the PP segment expected to witness growth of

~19% CAGR 2011-15 (source: Report from Research on India, February,

2012) and HUL being the market leader in key categories, we expect

HUL’s revenues from the segment to grow at a CAGR of 18.8% (FY12-

14E). HUL’s constant effort at reshaping its PP portfolio through relaunching brands, extending established brands to growth categories and attracting consumers through integrated communication channel

(Annexure) has led HUL’s PP revenues to grow at a CAGR of 15.7%

(CY04-FY12).

Exhibit 13: Personal care segment- A snapshot across categories with respective brands

Category

Hair Care

Brand

Clear

Skin Care

Hair care & Skin Care

Oral Care

Men's grooming

Women's Grooming

Cosmetics

Sunsilk

Clinic Plus

Fair & Lovely

Pond's

Vaseline

Lakme

Dove

Close Up

Pepsodent

Axe

Rexona

Aviance

Services

Others

Lakme Salons

Lever Ayush Therapy


Variants

Women (Soft & Shiny, Dry & Damaged, Anti-Hair Fall); Men

(Cool Sport, Hair Fall Defense, Itch Control); Unisex (Active

Care, Cool Menthol)

Soft & Smooth, Thick & Long, Damaged Repair, Hair Fall

Solution, Black Shine, Anti-Dandruff

Strong & Long, Anti Dandruff

Fair & Lovely Multivitamin, Ayurvedic Balance, Antimarks,

Menz Active, Winter Fairness Cream

Details & Market Position

World's No.1 anti-dandruff shampoo; reaches out to more than 1 billion people across the globe

Launched in 1964, No. 1 in Asia, latin America & Middle East

Largest selling shampoo brand in India, Most widely distributed shampoo brand in India

World's first fairness cream and is the market leader

Brand is synonymous with skin care Is exsistent since 1846

Skin Cleansing, Skin Lightening, Anti-ageing, Moisturising

Moisturiser, Lip Care, Petroleum Jelly

Lakme 9 to 5, Lakme Range, Lakme Bridal Sutra

Bathing Range, Hair Care Range & Deodrants Range

Close Up Red, Lemon Mint, Menthol, Milk Calcium

Largest selling body lotion in India

First major beauty brand in India

Launched the hair care range in 2007, Fastest growing shampoo brand in the country.

First gel toothpaste in India, market leader in gel segment for ~3 decades

Launched in 1993 and is among the most trusted brands in India GermiCheck, Whitening, Kids, Gumcare, Sensitive, Center

Fresh

After Shave Lotion & Deodrant

Rexona Green, Rexona White

Prestige, Skin Care, Hair Care & Color Range

No.1 male deodrant brand in India; Available in 60 countries

Extended the brand to deodorants and roll-ons

An exquisite range of high technology, high performance expert beauty solutions

Offers hair, skin and beauty solution

Has 5 categories across health & personal care range Endorsed by Arya Vaidya Pharmacy, Coimbatore

Exhibit 14: Personal products volume growth (%) - Quarterly

Personal products have witnessed exceptional volume growth over the quarters. This is due to the company’s aggressive expansion of the portfolio across categories and constant innovation within existing categories

25

20

15

10

5

0

23

19

18

11

4

15

13

15

19

11

15

20

16

19

18

14

17 17



Page 9

Exhibit 15: PP brands across segments and value chain

Skin Care

Premium

Hair Care Oral Care

Popular

Mass


HUL’s presence across all categories of the PP segment with one strong brand in each category provides it an edge over competitors

Exhibit 16: HUL's dominance in segment

Players Bath &

Shower

Yes

Color

Cosmetic

Colgate Palmolive (India)

Dabur India Ltd.

Emami Ltd.

Gillette Ltd.

Godrej Consumer Products

HUL

ITC

Beiersdorf AG

L'Oreal

Johnson & Johnson

P&G Home Products

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Source: Research on India, ICICIdirect.com Research

Fragrance

Yes

Yes

Yes

Yes

Hair Care Oral

Care

Yes Yes

Yes Yes

Skin

Care

Yes

Yes

Yes

Yes

Men's

Grooming

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes Yes

Yes

Yes

Yes

Yes

Yes

Yes


Exhibit 17: Presence across growth categories

Category

Face Wash

Hand & Body

Handwash

Premium Skin Lightening

Anti-Aging

Conditioners

Size (| crore)

900

2300

250

800

250

250


Growth Rate (%)

50

30

30

30

30

30

CY10 CY11

Skin care

HUL’s skin care portfolio comprises some of the strongest and oldest brands, Lakme, Fair and Lovely, Pond’s and Vaseline. It has been extending its existing mother brands’ strength to newer products targeting the aspirational beauty customers and capitalising on the growing opportunity in the categories of premium skin lightening (CAGR of ~42% CY08-11), hand and body lotion (CAGR of ~24% CY08-11) and face wash (CAGR of ~41% CY09-11).

Skin care products in India have a remarkably lower per-capita consumption of

€

0.6 compared to China and Indonesia at

€

5.9 and

€

3.2, respectively. Further, the monthly penetration of skin care products stands at only 45% (CY11) against 79% annually. Hence, we believe that increasing daily consumption would drive the increase in per capita consumption spend as well as penetration. With HUL’s presence across the value pyramid, we expect the company to benefit from the categories growth in both rural and urban India.

Exhibit 19: Skin care consumption per capita– Euros

100

80

60

40

20

0

Exhibit 18: All-India skin care penetration (%)

Increasing affluence is driving growth through multiple usage within a day, using variety of products (face wash, face cream, body wash) and increasing rural usage

(especially fairness creams) in small sachets, hence driving penetration

79 79

Annual

48 45

Monthly

65 63

Dec Qtr

10

8

6

4

2

0

5.3

5.9

China

2.7

3.2

Indonesia

CY2010 CY2011

0.6

0.6

India

Source: IMRB Fact Book, Company, ICICIdirect.com Research

HUL's Brands

Pears, Lakme, Ponds

Vaseline, Lakme, Dove

Lifebuoy, Pears, Lux, Hamam

Ponds, Lakme

Ponds

Dove, Sunsilk, Clinic Plus

Source: Euromonitor, Company, ICICIdirect.com Research


HUL’s market share in shampoos (2012)

Dabur

L'Oreal

4%

8%

ITC

1%

Cavin Kare

10%

HUL

46%

P &G

31%

Source: Business Standard, A.C. Nielsen, ICICI Direct Research

HUL is the market leader in shampoos with brands at all price points. With increasing demand for premium products in urban markets and increasing rural penetration of shampoos, growth in this category would continue to maintain momentum

Exhibit 20: All India Hair Care Penetration (CY10) in %

Hair Care

HUL is the leader in shampoos category (46% share by value) with its oldest brand Clinic Plus. Clinic Plus is the largest selling and most widely distributed shampoo brand in India. HUL also has a strong foothold in the anti-dandruff shampoo segment. Further, HUL’s entry into the high growth hair conditioners segment (CAGR of ~30% CY08-11) and extension of Dove into premium hair care products has contributed significantly to HUL’s growth in this category.

Comparing the per capita consumption of shampoos in India (

€

0.5) with other growing economies, China (

€

1.7) and Indonesia (

€

1.6), we believe there is a vast growth opportunity in the segment. Also, with the penetration of shampoos increasing at a faster pace than hair oil, HUL’s leadership position would help it to accelerate revenues from this segment. Having brands across all price points would aid in tapping consumers both in the rural and urban markets as penetration increases.

Exhibit 21: Shampoo penetration (CY10) – US$ & shampoo sales contribution in percentage (January, 2012)

100

80

60

40

Penetration is set to increase with the launch of recruiter packs in almost all hair care products especially in rural India.

Products

Shampoos

Hair Oil/Dressing

Penetration

Urban Rural

Jan-Jul,2010 Jan-Jul, 2011 Jan-Jul,2010 Jan-Jul, 2011

88 89 82 84

89 89 83 83

20

0

88 89

Annual

60 63

Monthly

CY10 CY11

75 79

Dec Qtr

Bottles

Sachets

Contribution by variant (%) - Jan, 2012

Value Wise (%)

54

46

Volume wise (%)

26

74

\

Source: IMRB Fact Book, , Company, ICICIdirect.com Research

Source: Euromonitor, Business Standard, A.C, Nielsen Data,ICICIdirect.com Research

Exhibit 22: Shampoo market in India, 2012 (| crore) Exhibit 23: Shampoo consumption per capita– Euros

4500

3600

2700

1800

900

0

1987

2286

CAGR 15%

2629

3024

3478

4000

Jan, 2007 Jan, 2008 Jan, 2009 Jan, 2010 Jan, 2011 Jan, 2012

Source: Business Standard, A.C, Nielsen Data, ICICIdirect.com Research

1

0.5

0

2

1.5

1.6

1.7

1.5

1.6

Being the market leader in shampoos would help HUL to capitalise on this opportunity

0.4

0.5

China Indonesia

CY2010 CY2011

India

Source: Company, Euromonitor, ICICIdirect.com Research


Exhibit 24: All-India oral care penetration (FY10) in %

Oral Care

HUL occupies second position (~30% share by value in FY11) in the

~| 4400 crore (FY12) oral care market. HUL’s nearest competitor in oral care is Colgate-Palmolive India Ltd with a market share of ~55% by volume (FY12). With P&G postponing its plans to re-enter the toothpaste market in India, lower penetration (~55% for toothpastes) and per capita consumption (~138 gm per annum) in India there is sizeable scope for

HUL to grow. HUL expects to stimulate growth in the premium oral care portfolio by re-launching its existing products and increasing promotional activity.

In India, currently only 55% of the Indian population uses toothpaste among which only 15% brush twice daily in contrast to the developed markets where ~97% people use toothpaste and ~87% brush twice daily.

Hence, if toothpaste penetration increases to ~75% and brushing twice daily increases to ~35%, the toothpaste market (~|2700 crore in CY11) alone could double from current levels.

There is also a huge untapped market for premium oral care products with an increasing shift in urban consumption towards value-added toothpastes like gels (HUL is the leader in gel toothpastes with its brand

Close-Up), mouth washes, dental floss & teeth whitening products (HUL has limited presence). Rural India is witnessing growth with consumers shifting from twigs and toothpowders to toothpastes.

Exhibit 25: Oral care consumption per capita (FY10) – US$

100

80

60

40

20

0

Though penetration on an annual basis is high, the increase in monthly and daily consumption would be the key growth driver.

89 91

Annual

60 63

Monthly

CY10


CY11

78 80

Dec Qtr

3.5

3

2.5

2

1.5

1

0.5

0

The huge opporunity is characterized by lower consumption. Being the No.2 player, opportunity for growth is sustainable.

3.3

China

1.7

Indonesia

0.4

India


Led by strong prospective demand across PP categories and HUL’s constant effort to drive sales through re-shaping its portfolio, extension of its brand equity into higher growth categories and attracting consumers through integrated communication channel, we expect revenues from PP to grow at a CAGR of 18.8% (FY12-14E). The growth would be chiefly volume driven (14.7% CAGR FY12-14E) as intense competition in PP would cap price led growth.


Exhibit 26: Personal products volume and value growth (%)

50

40

30

20

-10

-20

10

0

11.4

2.6

CY04

26.0

19.4

CY05

13.8

21.7

CY06

9.7

10.0

CY07

45.6

34.8

FY09*

Personal Products Vol growth



-6.0

FY10

-10.3

15.8

15.1

FY11

Personal Products Value Growth

17.1

9.5

FY12E

17.8

15.3

FY13E

19.7

14.0

FY14E

PP is the largest contributor to HUL’s margins with ~51% share in FY12, having increased from ~45% in CY04. We believe HUL’s strong brand equity across the PP portfolio and expansion in the high growth and premium categories would sustain margins.

Exhibit 27: Profit before interest & tax (PBIT) and its contribution to HUL’s overall PBIT from PP segment

40

30

20

10

0

60

50

32.7

46

CY04

28.6

47

CY05

28.1

27.7

48 46

CY06 CY07

Contribution to overall PBIT from PP (%) - LHS




26.6

25.7

25.6

45 46 55

FY09* FY10

PP PBIT margins (% of gross sales) -RHS

FY11

25.5

52

FY12

Page 14

35

28

21

14

7

0

The organised coffee market in India is around | 950 crore, or 30% of the total domestic coffee consumption of | 3,000 crore (Source: Hindu, September, 2011)

In the branded tea sector in India, Tata Tea (Tata Global

Beverages) is the market leader with 19.5% (volume) closely followed by HUL. (Source: Financial Express, June,

2012)

PREMIUM

POPULAR

MASS

HUL has ventured into coffee retailing by opening eight pilot coffee outlets, Bru World Café, in Mumbai. Based on the response to these, the company would decide on national expansion of the franchisee

Beverages: ‘Bru’ing the premium market

Beverages contribute 12.0% to HUL’s revenues (FY12) and 11.0% to PBIT.

This segment constitutes sales of tea and coffee under the brands Lipton,

Taj Mahal, Red Label, Brooke Bond and Bru (only coffee brand). HUL’s revenue growth from this segment has been moderate at 11.9% CAGR

CY04-FY12, largely price led. Tea volume growth during the same period was -1.9% CAGR with price led growth (tea) being 7.7% CAGR CY04-

FY12.

Lately, HUL has been actively ramping up its beverages portfolio to tap the budding under-penetrated coffee consumption in the country. Hence, we expect the contribution of coffee in beverages sales to increase and growth in tea sales volume to remain subdued. Going ahead, we expect beverage revenues to increase at 10.5% (CAGR FY12-14E).

Exhibit 28: HUL's beverages product portfolio

Brand

Brooke Bond

Sub Brand Variants

Red label Dust, Natural Care & Special

3 Roses

TajMahal

Taaza

Mind Sharp & Natural care

Taaza Leaf & Taaza Dust

Sehatmand

Bru (Only coffee brand of HUL)

Lipton

Roast & Ground, Instant, Gold,

Gold, Exotica, Lite,Select, Ice

Cappuccino, Hot Cappuccino

Yellow Label, Green Tea,

Darjelling Tea, Iced Tea


Market Position

Second largest tea brand in India, 107 year old brand

HUL's largest food brand; market leader in

Tamil Nadu & South India

Most Premium tea brand in India

Twenty year old brand with strong presence in north, west & east India. Fourth largest tea brand in India

Tea brand enriched with vitamins

Launched in 1962 under the name Deluxe

Green Label; No. 1 coffee brand in India

Lipton is world's No.1 tea brand

India is largely a tea consuming nation with tea penetration as high as

96% and coffee penetration only at 12-15% (The Hindu, September,

2011). Coffee consumption is largely an urban phenomenon with consumption growing at ~20% per annum compared to tea where consumption is increasing at only 2-3% per annum. We believe HUL’s sales of tea gardens have also impacted the company’s revenue growth negatively. Since the company sold its tea gardens in 2005 tea prices have been on an uptrend, which has consequently increased HUL’s cost of purchases, hurting the PBIT from the segment. Currently, HUL is aggressively aiming to tap the rising trend of coffee consumption at home

(largely high end premium demand) and cafés.

‘Bru’, the 50 year old coffee brand of HUL, is rapidly being extended to the premium end coffee market. Currently, there is just one brand in the premium segment, Nescafe Gold by Nestle India (HUL’s nearest competitor) and HUL is aiming to capture this opportunity to tap into the increasing trend of consuming high-end coffee at home. It is also expanding through opening coffee retail chains under the name ‘Bru Café

World’ (Annexure)


Exhibit 29: Beverages (tea & coffee) and tea sales growth for HUL

60

50

40

30

20

10

0

-10

-20

-30

0.9

CY04

6.9

CY05

4.2

CY06

15.8

CY07

48.9

FY09*

-6.6

FY10

Tea sales volume growth (%) Tea sales value growth (%)



9.4

FY11

11.7

FY12

Beverages Sales Growth (tea & coffee)-%

12.6

FY13E

8.4

FY14E

We expect beverages sales to grow at 10.5% CAGR FY12-14E largely led by higher realisation from tea (10.5% CAGR FY12-14E) with tea volumes remaining muted (CAGR -0.6% FY12-14E). Further, we also believe that with the shift in consumer consumption to coffee (~25% of beverage sales in FY12E) and a steadily evolving café culture, the contribution of coffee sales would increase in total beverage sales.

We expect margins from the beverages segment to remain under pressure until FY14E due to mounting commodity prices (tea and coffee beans) and limited ability of HUL to pass on the complete impact of commodity inflation with the risk of losing market share to the market leader (Tata Global Beverages) and the unorganised market. Moreover, higher investments on brand building and investments in ‘Bru Café World’ for coffee would keep earnings growth from the segment capped.

Exhibit 30: PBIT margins from beverages and segment’s PBIT contribution to HUL’s overall PBIT

15

12

9

6

3

0

20.0

19.0

16.6

14.9

13.7

CY04

13.6

11.2

10.4

CY05 CY06 CY07

Contribution to overall PBIT from Beverages (%) - LHS




13.4

14.9

15.3

9.6

11.4

13.1

FY09* FY10 FY11

Beverages PBIT margins (% of gross sales) -RHS

14.0

11.0

FY12

Page 16

20

16

12

8

4

0

PREMIUM

POPULAR

MASS

Foods: Building strength

HUL’s foods business contributes 6.3% (FY12) to revenues and less than

1% to PBIT (FY12). The portfolio comprises products in processed foods

(Kissan, Knorr and Annapurna), frozen dessert (Kwality Walls) and bakery

(Modern Foods) categories. Revenues from the foods segment have grown at a healthy rate of 20.2% CAGR (CY04-FY11). We expect the segment’s overall growth to be maintained at 19.7% CAGR (FY12-14E) led by a combination of volume and price growth in frozen desserts at 10.2% and 11.1% CAGR FY12-14E and a higher price led growth over volumes in processed foods at 11.8% and 6.1% CAGR FY12-14E, respectively.

Exhibit 31: Foods portfolio of brands and products

Brand

Annapurna

Kissan

Knorr

Kwality Walls

Modern

Sub Brand Variants

Annapurna Salt Iodised Salt, Crystal Salt, Low

Sodium Salt, Captain Cook

Annapurna Atta Farm Fresh & Multi Grain

Creamy Spread, Jams, Ketchup,

Soya Juice

Classic, Chinese, Indian, Meal makers, Soupy Noodles

Cornetto, Feast, Paddle Pop,

Selections

White -Family Shakti, Oven Fresh,

Regular

Premium -Milk, Butter, Kairali

Health & Wellness -Atta Shakti, 7

Must, Whole Wheat, Brown

Fun/Taste, Sweet, Cream Rolls

Cakes, Cookies, Rusks


Market Position

Crystal Salt has a presence largely in South India

Tough competition from ITC's Aashirvaad

75th year in India; category leaders in India

Largest soup brand in India with ~70% share of the country's soup market

Kwality Walls present in India since 1993 and has

~18% share by value (FY11)

India's No.1 brand in breads

Exhibit 32: Foods sales (| crore) and growth (%)

2000

49.1

1500

34.4

26.7

1000

235.1

231.0

500

10.1

98.1

313.7

CY05

137.1

384.9

CY06

161.5

0

-500

88.9

285.1

CY04

540.1

CY07

810.7

FY09*

730.8

FY10

-8.0

Foods (| crore) - excl ice creams Ice-creams (| crore)



274.6

22.4

902.6

FY11

354.3

15.5

1005.1

FY12

Foods (total) - value growth (%)

441.9

22.9

1229.3

FY13E

531.0

16.5

1416.0

FY14E

Low-margin nature of atta business compelled HUL to withdraw the brand from the north Indian markets

HUL faces strong competition in the soups and noodles category from the market leader, Nestle (~85% share)


HUL’s foods revenues (excluding ice-creams) grew at a CAGR of 19.7%

(CY04-FY12) driven by price growth of 23.6% and meagre volume growth of -3.1%. Though it is the market leader in the ketchup and spreads category (Kissan), the branded staples (Annapurna), soups, noodles

(Knorr) and bakery (Modern) products have been a drag on the

Page 17

50

40

30

20

10

0

-10

The per capita ice-cream consumption (value and volume) in

India is significantly low. However, the changing consumption pattern (increasing demand for ice-cream parlours and exotic take home flavours) has helped ice cream sales in the country to witness a CAGR of ~15% from | 1429 crore in 2007 to | 2500 crore in 2011. (Source: Business Standard, March, 2012). company’s portfolio. Foods, as a whole, are not a big money-spinner for

HUL compared to its parent (51% of Unilever’s revenues in FY11) but the company is baking revival plans for its brands through re-launching, thereby entailing huge brand investments, going ahead.

Though there is a slowdown in the packaged foods portfolio for HUL

(volumes), ice-cream sales have been hearty recording volume growth of

13.3% and value growth of 21.8% (CAGR CY04-FY12). With HUL occupying ~18% (FY11) of the branded ice-cream market (~| 1500 crore in FY11), we expect price led sales growth to be higher at 11.1% (CAGR

FY12-14E) and volume growth of 10.2% (CAGR FY12-14E).

Exhibit 33: Ice-cream volume sales (million litres) and growth (%)

35

30

25

20

15

10

-5

-10

5

0

11.0

15.0

15.0

CY04 CY05 CY06

17.0

22.0

22.0

CY07 FY09* FY10

23.0

FY11

26.4

29.3

32.1

50

40

30

20

10

FY12 FY13E FY14E

0

-10

Ice-creams (LHS) Ice-creams Vol Growth (RHS) Ice-creams Value Growth (RHS)



Exhibit 34: Per capita ice cream consumption (FY11)- US$ Exhibit 35: Per capita Ice cream consumption (FY11)- litres/per annum

4

3

2

3.3

1.7

28

21

14

26

1 7

0.4

0.6

0.3

0 0

China Indonesia India USA Pakistan India

Source: Business Standard, March,2012, ICICIdirect.com Research

The size of the water purifier market in India is ~ | 3500 crore (FY12). The market leader in purifiers is Eureka

Forbes with ~52% share

Source: Business Standard, March,2012, ICICIdirect.com Research

Water business: Exploring and growing

HUL entered the water purifier segment in 2008 with its brand ‘Pureit’ and has seven models in the segment ranging from | 900-13000 crore. This is currently a small revenue business for the company. Its direct competitor in this business is Eureka Forbes and Tata Group’s Swach (priced at | 899 and | 1199). HUL ventured into the segment to provide safe drinking water across the globe (HUL’s sustainable action plan) and tap the share from the ~| 13000 crore bottled water market.


Portfolio that straddles across the pyramid

With numerous brands present across categories, HUL has garnered the complete value pyramid in each category by having products across each price point. It has efficiently used the brand extension strategy to reach out to consumers across the pyramid by launching a brand in a particular category initially (for instance: Vaseline body lotion in the popular category) and further extending the established brand equity to other segments (men’s range) and a position in the value chain (from popular to premium).

Similarly, the extension of its premium soap brand ‘Dove’ to premium hair care range (shampoos, conditioners and expected to enter hair oils) was done in 2007. HUL launched the Dove soap in India in 1993, positioning it as a premium range of soap. In 2007, with the established brand positioning in the consumer’s mind it ventured into the premium hair care range by launching Dove shampoos. Dove Shampoo has been recognised as the fastest growing shampoo in the country.

The company also extended its Surf brand (initially a popular segment brand) to the premium category through Surf Excel, Surf Blue and Surf

Excel Matic. Having done this, it slowly phased out Surf and now markets

Rin in the popular segment.

Hence, the company has efficiently introduced and re-shuffled its portfolio periodically to garner the upcoming demand (Surf for machines, Pond’s

Age Miracle targeting the older working women) and simultaneously addressing all segments of the society. We believe this gives HUL an edge over competitors in times of up trading and down trading by consumers.

Exhibit 36: Product portfolio in each category and segment

Premium

Detergents

Brands

Prices (per kg)

Brands

Soaps

Surf Excel Blue;Excel Matic; Surf Quick Wash

|123; |213; |170

Dove; Pears

Shampoos

Skin Care

Oral Care

Tea

Coffee

Processed Foods

Ice-Creams

Prices (per 100gm) |56; |43-45

Brands Dove, Tresemme; Clear;Sunsilk Keritanilogy

Prices (100 ml)

Prices

|60-80; |55-65; |60-65; |100

Brands Red Label 3 Roses Natural, Lipton Yellow

Label.Green & Darjelling,Brooke Bond Tajmahal

Prices (per 500gm) |200; |275-|550; |200

Brands Bru Gold, Bru Exotica

Prices

Brands

100gm- |200; 100gm- |300-640

Kissan Spreads, Knorr Soups & Meal Makers

Prices (per 100gm) |33; 100gm-|66-83

Brands Selections, Shahi Delights

1litre- |145-215; 1 kg- |400-460

Popular

Rin (Powder); Rin Matic; Sunlight (Powder)

|77; |98

Lux, Liril; Lifebuoy Clinic care

|32; |36; |30-36

Sunsilk

|45-|62

Brands

Prices (100 ml)

Brands

Vaseline Men's,Lakme,Pond's White Beauty & age miracle

|58-300; |115-350; |100-575;

Close-Up (Freeze,Calcium & Lemon Mint);

Pepsodent (Whitening,kids & expert)

Prices (per 100gm) |47-50; |60-70

Vaseline, Pears; Axe men; Pond's popular range;

Fair & Lovely

|75-85; |55-85; |75-200; |45-100; |105-192

Pepsodent (2 in1 & germi check)

100 gm- |35-45

Red Label 2 roses

|120-175

Bru Instant,Choco Mint; Mochaberg

100gm -|175; 100gm- |80; 100 gm- |80

Kissan Jam & Ketchup; Knorr Noodles

|20-25; |11-20; 17-22

Cornetto; Chocobar; Feast; Fruit & Nut

~35-70 gm- |25-|70

Mass

Active Wheel; Active Wheel Gold

|42; |50

Rexona; Hamam

|22-23; |23

Clinic Plus

|35-|50

Fair & Lovely recruiter packs

Close-Up recruiter packs

15 gm - |5

Brookebond Sehatmand, Arogya & Ruby

Bru recruiter packs

12gm- |8-10

Kissan ketchup (packs of ~10 gm)

|1 packs

Fruitarre, Paddle Pop, Walls cups

~40-50 gm- |10-15; 20-40gm- |5-10



Exhibit 37: An example (detergents) of how consumer up-trading is benefiting HUL due to its presence across the pyramid

Increasing affluence in cities is driving the shift to usage of premium products (detergents for machine wash and liquid detergents)

Rising middle income population in semi-urban and rural areas leads to the shift in consumption from mass to popular products

Branded

Unbranded



The increasing shift of rural consumers from un-branded to affordable branded products is delivering well for HUL with a presence in the mass segment with brands

‘

Wheel’ and ‘Sunlight’. This conversion is getting ramped up with the availability of | 1 packs, which are helping to increase the daily and monthly detergents penetration

Page 20

Changing product mix: Premiumisation and expanding in potential segments

HUL is extending its presence in the premium segment across all categories, tapping the demand arising out of the changing demographics of the Indian consumer. Along with inclusion of premium products in the portfolio it is also extending its offerings to higher growth segments by building on its existing brand equity in the respective segment. HUL’s portfolio of premium products is relatively larger than any of its competitors. Hence, we believe that increasing premiumisation across

FMCG categories would considerably benefit this brand-master.

Exhibit 38: HUL's premium product offerings across segments

Segment

Detergents

Soaps

Shampoos

Skin Care

Oral Care

Product

Surf Excel Blue, Surf Quick wash & Excel Matic

Dove & Pears

Dove, Clear, Tresemme, Sunsilk Keritonology

Vaseline Men's Range,Lakme, Pond's White Beauty

Close-Up, Pepsodent

Tea

Coffee

Red Label natural, Lipton Yellow, Green & Darjelling, Brooke Bond Tajmahal

Bru Gold, Bru Exotica

Processed Foods Kissan Spreads, Knorr Soups & Meal Makers

Ice-Creams Selections, Shahi Delights


Price

1 kg- |125-|170

100 gm -|43-56

100 ml - |55-100

100 ml- |58 - |575

100 gm- |47-70

500 gm- |200-550

100gm- |200-640

100 gm- |33-83

1 litre- |145-460

Competitors

P&G. Jyothy Lab (Henko)

ITC (Vivel), P&G (Olay)

P&G (Head & Shoulders), Lo'real

Johnson & Jhnson (Neutrogena), Orflame, Emami

Colgate (Active Salt, sensitive, Max Fresh)

Tata Global (Tata Tea)

Nestle (Nestle Gold), Davidoff; Lavazza

Nestle (Maggi Pazzata), Fun n Food Spreads

Amul , Baskin Robbins

Exhibit 39: Driving mix through premiumisation

Skin Cleansing Laundry Skin Care (Face) a t i s i o n

P r e m i u m



Exhibit 40: Skin care (Face)

Market Construct (%)

20

30

50

Premium

Mid

Mass


Though the premium category is relatively the smallest in size it has the highest growth potential with the increasing demand shift of consumers especially in urban India

Market CAGR 2009-11 (%)

40

35

10

Exhibit 41: India premium F&B markets future outlook

10%

Share in overall packaged F&B

16%

500

400

300

200

100

0

140

26% p.a.

450

FY11

Prem. F&B mkt in | bn

FY16E

Source: Brand Equity, ICICIdirect.com Research

Exhibit 42: Per capita spending on premium cosmetics ($/capita)

Thailand

Brazil

China

Nigeria 0.3

3.1

3.5

10.9

There is a huge scope to increase the per capita consumption of premium products with the rate of increase in income and work force labour in India expected to be higher than other developing nations

India 0.2

0 2 4

Source: Economic Times, ICICIdirect.com Research

6 8 10 12

According to a report by McKinsey Global Research Institute (MGI), urban

India is witnessing rapid growth in global consumers (annual household income of more than | 10,00,000) who have tastes and preferences similar to that of the rich across the world. By 2025, the number of these global consumers in urban India is expected to increase at a CAGR of

14% and reach ~15 million (~1.1 million in 2005). Further, the total real disposable income and consumption of global households is estimated to increase more than 12x. Hence, we believe the upsurge in this class would keep up the demand for premium products across categories.


Exhibit 43: Urban global class to witness rapid growth

16

14

12

10

8

6

4

2

0

1.1

1.7

14%

3.4

6.9

14.6

2005E 2010F 2015F 2020F 2025F


According to Brand Equity analysis of 86 million urban households in

FY11, ~22% belonged to the poor category (deprived), ~76% to the middle and upper middle class (aspirers, seekers and strivers) and mere

2% to the rich class. However, with the changing demographics of the country the proportion is expected to transform to ~15% poor, ~87% to the middle and upper middle class and ~3% to the rich. Also, the number of urban households is expected to increase by ~40%.

Exhibit 44: India income pyramid

No. of Urban household (HH) in Mn

123

*Figures in brackets are the estimated per capita income,

FY11, in | lakh

86

1.5

2.1

21

42

19

FY2011

Clear to Super Rich (more than 7.7)

Near Rich (3.8-7.7)

Seekers & Strivers (0.8-3.8)

Aspirers (0.4-0.8)

Deprived (less than 0.4*)

Source: Brand Equity, ICICIdirect.com Research

4.2

5.3

40

62

19

FY2016E

~5.3 million households with per capita income greater than

US national per capita income in 2010 on PPP basis

Earnings of women in India (in $ trillion)

2011 13

2016E 18

Average monthly income of urban Indian women

(|)

2001 4492

2010 9457

Projected growth in new entrants in workforce in next 30 years

Women

Men

38%

33%


We believe this income shift for the population would be driven by the increasing per capita income ($1527 in 2011 and is expected to increase at the rate of ~13% per annum), faster urbanisation (30% by 2008 to increase to ~40% by 2030), rising young working population (India is expected to add a workforce of ~170 million from 2005-2025), more working women and trending towards nuclear family culture. Hence, these changes would increase the affordability, acceptability, awareness and availability among Indian consumers leading to evolution of new categories and shifting demand across and categories apart from uptrading (premiumisation).

Page 23


Keeping the changing trends in mind, HUL’s early move of extending its established brand equity (across segments) to higher growth segments has helped the company to clock impressive growth rate across categories and maintain healthy volume growth consecutively over the quarters (FY10-12).

Exhibit 45: HUL's presence and extension into high growth categories

Segment

Facewashes

Handwashes

Hand & Body Care

Noodles

Premium Skin Lightening

Anti Aging

Conditioners

Tea Bags

Size (| crore)

>900

>250

>2300

>1700

>800

>250

>250

>140


Segment

Growth

50%

30%

30%

30%

30%

30%

30%

40%

HUL's Brands & Products

Fair & Lovely, Lakme fruit, Dove, Pond's, Pears

Lifebuoy, Pears & Lux

Dove, Pond's, Lakme, Vaseline

Knorr

Pond's, Lakme, Fair & Lovely

Pond's

Dove, Clinic Plus, Sunsilk

Tajmahal

We believe the venture into the fast growing segments and strong presence in the existing segments would continue to provide HUL an edge over competitors, especially in the fastest growing (by volume) personal care segment, at a CAGR of 15.7% CY04-FY12. However, the company needs to pull up its strings to drive growth in foods (excluding ice-creams) and beverages (only tea) where volume growth has suffered a setback at -3.1% and -1.9% (CAGR CY04-FY12), respectively.

Page 24

Targeting Indian rural consumption story

HUL is targeting growth in the higher potential rural markets and actively expanding its network there through its initiatives of ‘Project Shakti’

(started in 2001), ‘Khushiyon ki Doli’ and ‘Project Express’. By the end of

2012, HUL’s Shakti network covered ~1,00,000+ villages across 15 states reaching ~5 million households (tripled its rural coverage in past two years) with ~45,000 Shaktiammas and ~30,000 Shaktimaans. Currently,

HUL generates almost 40% of its sales from rural India.

Exhibit 46: HUL’s rural initiatives

Project Shakti Khushiyon Ki Doli Project Express

45,000 Shaktiammas 70,000 villages HUL-Tata Tele Services Limited Alliance

30,000 Shaktimaans 25 million customers >20,000 markets across India

1,00,000 villages 4,00,000 retailers Rolled out in 4 states, 4 more WIP


Rural Urban sales break-up (%)

Company

Dabur

Rural

40

Emami

HUL

Godrej Consumer

Marico

50

40

30

30

Urban

60

50

60

70

70

According to the Census of 2011, ~69% of India’s population resides in rural areas. In the past four years (FY08-12), India’s nominal GDP (at constant prices) has grown at a CAGR of 13.7% with the rural GDP CAGR being 14.0% and urban GDP CAGR being 13.6%.

According to a Crisil Research Report, the additional spending between

2009-10 and 2011-12 by rural India was | 3.75 lakh crore compared to urban India at | 2.9 lakh crore. The report also stated that there was a visible shift in rural consumption pattern from necessities to discretionary goods. Hence, we believe that with HUL’s highest presence in rural India among all FMCG players, it would be the largest beneficiary of this growing consumption.

We believe the government’s proactive measures in FY09 contributed significantly in driving the rural sales growth thereafter (FY09-12), especially in categories with lower penetration [skin care monthly penetration (CY11) at 45%, shampoos (CY11) at ~80%, and oral care

(FY11) at ~55%] and higher aspirational value. Further, there has also been an evident shift in the demand pattern of these consumers from unbranded to branded products across categories, benefiting players like

HUL who have a portfolio to cater across the value pyramid.



Exhibit 47: Measures taken by government to boost rural growth

Measures taken by the government

Per Capita Rural Subsidy (in |)

Growth (%)

Total Outgo in social spending (| crore)

Growth (%)

Budget allocation for MGNREGA (| crore)

Growth (%)

Government spending for rural social schemes (| crore)

Growth (%)


FY07

972

FY08

1342

38.1

FY09

1965

46.4

FY10

2217

12.8

FY11

2365

6.7

154500 230100 263900 286200 344200

48.9

14.7

8.5

20.3

11250 11700 29700 39060 40095

4.0

153.8

31.5

2.6

61400 74000 79100 84900 120600

20.5

6.9

7.3

42.0

Exhibit 48: YoY increase in minimum support prices of crops (%)

Khariff Crop

Paddy

Jowar

Maize

Groundnut In Shell

Soyabeen

Rabi Crops

Wheat

2006-07

1.8

-

0.0

Moong

Urad

0.0

0.0

Cotton 0.6

0.0

0.0

Barley

Gram

Masur (Lentil)

15.4

2.7

0.7

0.7

Rapeseed/Mustard

Sugarcane@

0.0

0.9

Source: MOSPI, ICICIdirect.com Research

2007-08

11.2

11.71

14.8

11.8

11.8

1.7

2.0

1.1

33.3

15.0

10.7

10.0

5.0

1.2

2008-09

31.8

38.7

35.5

48.2

48.2

38.9

35.5

48.4

8.0

4.6

8.1

10.0

1.7

0.0

2009-10

11.8

0.0

0.0

9.5

0.0

0.0

0.0

0.0

1.9

10.3

1.7

0.0

0.0

59.9

2010-11

5.3

4.7

4.8

14.9

15.1

0.0

9.5

3.7

1.8

4.0

19.3

20.3

1.1

7.1

2011-12

8.0

11.1

11.4

10.4

10.3

12.0

17.4

17.9

2012-13

15.7

52.0

19.9

0.0

34.4

28.6

37.0

33.3

14.7

25.6

33.3

24.4

35.1

0.0

Further, the monthly per capita expenditure (MPCE) figures by NSSO for the first half of 2012 also show that growth in average MPCE in rural India has been 14.0% while that in urban India is 13.5% (during FY08-12). With

~40% of India’s total consumption currently accounted for by rural India, which is expected to grow by more than 10x to US$ ~10 billion by 2025, there lies a huge opportunity for retail spending.

Page 26


Risks & concerns

Slowdown in consumer demand

According to RBI data, India’s GDP growth is expected to slow down to

~6% in FY13E along with the growing concerns about negative real wage inflation and lack of employment opportunities. Further, if the government fails to take any populist measure (increase in MSP, Food Security Bill) in the upcoming Budget, we believe consumption growth would be effected. Hence, the robust volume growth witnessed by HUL in the past

10 quarters consecutively would face a setback. Also, any further increase in prices could lead to down trading by consumers, impacting sales growth. Hence, the company needs to remain cautiously strategic to manage its sales growth and margins simultaneously.

Increasing competition threatening margins

HUL has already been facing tough competition from P&G in the detergents space that has led to the company’s margins sliding from

~25% in CY04 to ~11% in FY12. Currently, with the attractiveness in the higher growth categories of personal products and rising aspirations of consumers for premium products it is facing challenges from players such as P&G in detergents and shampoos, ITC in soaps and skin care,

Godrej Consumer in soaps, Jyothy Laboratories in homecare, Nestle in coffee and Dabur in oral care. We believe that, going ahead, the intensifying competition could impact the margins of the company in each segment. Also, the company would have to keep its advertisement expenses higher in order to maintain its brand equity.

Margins susceptible to commodity prices and packaging norms

Being the market leader in S&D, skin care and hair care, HUL has commanded a pricing power in the industry. However, with early signs of an economic slowdown and volatility in input prices in the past year

(crude +11%, palm oil -14%, coffee -23%, tea +16%), margins could remain vulnerable. Further, the increasing competition in the FMCG space would continue to demand a higher advertisement expense for branded players to maintain their volume growth, keeping margin expansion capped from current levels.

With the packaging norms to kick in from November 1, 2012 the sales growth in larger packs could be impacted. Companies were tactfully sustaining margins by reducing the grammage in the products, keeping the same prices points of products. Hence forth the norms taking away this freedom from the companies, passing on prices could lead to slowdown in volume growth. Hence, in spite of being the market leader passing on higher costs and maintaining margins would be tough.

Untapped opportunity in foods segment

According to the Ministry of Food Processing of India, the Indian food industry is ~| 10,36,000 crore (FY10) growing at a CAGR of 8.1% (FY10-

15E). Among various food categories, packaged food is expected to record the highest growth at 24.4% per annum supported by the changing lifestyle of Indian consumers. Further, backed by the lower penetration of packaged foods currently we believe there lies a huge untapped opportunity for HUL, on which it has failed to capitalise.

In spite of HUL’s presence in the segment since inception and the parent

Unilever deriving ~50% of its revenues from food, HUL has been unable to capitalise on this opportunity.

Page 27

Financial Performance

Revenue growth of 11.4% CAGR FY12-14E to be largely volume led

HUL’s revenues have grown at a CAGR of 11.8% from CY04 to FY12 led by an equal mix of volume and prices. However, with the company getting refreshed portfolio and brand extensions in the personal care and detergents segment, volume growth (average of ~9%) gained traction over price growth (~2%) in FY10-12. Going ahead, we expect revenues to grow at a CAGR of 11.4% (FY12-14E) led by an equal mix of prices and volumes.

Exhibit 49: Sales growth trend

27000

22500

18000

13500

9000

4500

0

-4500

-9000

9927

11061

11.4

CY05

9.4

12103

13675

13.0

CY07

48.0

20239

17524

19401

10.7

21736

12.0

23960

10.2

26954

12.5

CY04

-2.1

CY06 FY09 FY10

-13.4

FY11

Value Growth (%) - RHS

FY12 FY13E FY14E

Sales (| crore) - LHS



In the past, HUL’s volume growth has been an inverse function of prices

(Q1FY09-Q4FY11) but this trend changed during Q1FY12-Q1FY13 with strong volume growth in spite of price increases. We believe that the change was driven by the increasing market size of the company’s segments led by the shifting consumer preferences to liquid soaps, post wash detergents, liquid detergents, premium personal products and packaged foods along with HUL’s presence across the value pyramid.

Exhibit 50: Volume and realisation growth (quarterly) in %

20

15

10

10

5

0

8

11

7

15

2

18

17

2

10

1

6

4.6

0

10.9 10.3

14

13

14

0

8

6

10

8

9

7

10

9

-5

-5

-3

-3

-3

-2

60

50

40

30

20

10

0

-10

-20

-10

Volume Growth Realization Growth




Going forward, we expect volume growth (CAGR FY12-14E) in soaps, personal products, foods and ice-creams to be higher at 4.2%, 17.2%,

6.1% and 10.2% against their past growth (CAGR CY04-FY12) of 0.6%,

15.3%, -4.6% and 13.1%, respectively. The higher volume growth would be driven by the company’s extension into high growth categories (in foods and personal products), a series of new launches and extending footprint in the faster growing rural markets. Volume growth for detergents and tea during the same period is expected to slide to 3.2% and -0.6%, from 7.3% and -0.4% (CAGR CY04-FY12), respectively.

Changing product mix to keep raw material costs lower, improve margins

HUL has maintained its raw material (RM) cost to sales ratio at ~54% over the years (CY04-FY12). In spite of an unprecedented increase in RM costs in FY12, the company’s strong brand equity across categories helped it to pass on the impact through higher prices simultaneously maintaining margins and volume growth. Going ahead, with HUL shifting its focus towards higher growth and premium product categories that would drive higher realisation, we expect raw material cost as a percentage of sales to decline to ~53% by FY14E.

Exhibit 51: Raw material cost to sales ratio

16

15

14

13

12

11

10

15.6

54.5

55.7

14.2

14.8

14.9

53.7

53.2

Inclusion of higher priced premium products would bring down the costs to sales ratio

14.7

53.4

15.5

50.7

13.7

51.8

14.9

54.0

15.2

53.7

15.3

52.8

CY04 CY05 CY06 CY07 FY09 FY10 FY11 FY12 FY13E FY14E

EBITDA Margin (%) - RHS RM cost to sales (%)



56

55

54

53

52

51

50

Along with higher realisation from a changing product mix, efficient cost management would also aid in reducing the operating expenses to sales ratio, aiding margins and earnings. Hence, we expect margins to improve by ~400 bps to 15.3% by FY14E and earnings growth to accelerate to

12.6% (CAGR FY12-14E) from 12.3% (CAGR CY04-FY12).

Page 29

Exhibit 52: PAT before exceptional items (| crore)

4000

3000

2000

1000

0

CY04 CY05 CY06 CY07 FY09 FY10 FY11 FY12 FY13E FY14E



Advertisement expenses to sales

HUL’s advertisement expense to sales ratio has remained at an average of

~11% in CY04-FY12. We expect this to increase to ~14% of net sales in

FY13E and FY14E on the back of numerous new launches, entry into new categories and increasing competition.

In spite of increasing advertisement expenses we do not expect margins to get impacted as the gains from higher ad expenses in volumes and revenues (higher growth and margin products) would nullify the impact of increased expenses.

Exhibit 53: Advertisement Expenses to Sales ratio and EBITDA margins

12

8

4

0

20

16

15.6

8.4

CY04

14.2

9.1

14.8

10.5

14.9

10.5

14.7

10.5

15.5

13.6

13.7

14.2

14.9

12.1

15.2

13.8

15.3

14.5

CY05 CY06 CY07 FY09 FY10

Advertisment Expenses to Sales (%)

FY11 FY12



FY13E

EBITDA Margin (%)

FY14E


Over the years, HUL has remained the biggest FMCG advertiser in the country thereby acquiring a substantial share of voice and mind of consumers that has enabled it to maintain sales growth in-spite of reducing its advertisement expenses (as percentage of sales) in FY12.

Though an increase in commodity prices in FY12 forced the company to cut back its ad expenses, we expect the higher margin products (premium products) to help it to maintain its advertisement expenditure and simultaneously manage margins.

Page 30

Dividend payments to increase

Historically, HUL’s dividend payout has been ~60% (FY09-12). We expect this to scale up to ~75% by FY14E on the back of no major capex plans of the company. We expect the EPS to increase to | 15.8 by FY14E against

| 12.5 in FY12. We believe that dividend for FY13E could jump to

| 11.5/share due to the high extraordinary income earned in Q1FY13E

(sale of property for | 604.7 crore), which the company could pay as special dividend (I-direct estimate: | 2.0/share). Thus, the increasing dividend per share (DPS) would consequently increase the dividend yield to 2.1% by FY14E from 1.3% in FY12.

Exhibit 54: Dividend per share and dividend yield trend

2.3

2.5

2.0

1.5

1.0

1.7

1.4

1.2

1.3

1.4

2.3

0.5

0.0

8.8

CY07

7.5

FY09

6.5

6.5

7.5

12.0

FY10

DPS (|) - RHS

FY11 FY12 FY13E

Dividend Yield (%) - LHS



12.0

FY14E

14

12

10

8

6

4

2

0

160

140

120

100

80

60

40

20

0

Return on equity to remain at current levels

HUL’s return on equity (RoE) has been on a declining trend since FY09 falling from 121.1% to 76.6% in FY12 on the back of reducing dividend payout by the company. We believe the higher retention by the company has been under utilised thereby pulling down the return ratios. Though we expect the dividend payout to increase to ~74% (FY13E) and ~76%

(FY14E), the return ratios would remain at current levels (~77% in FY14E) as the increase in dividend payout is lower than the increase in earnings.

Accordingly, we believe that with no capex plans on board, the company should improve its cash utilisation.

Exhibit 55: Return on equity (%)

133.8

121.1

85.2

87.6

76.6

87.7

77.3

CY07 FY09 FY10 FY11 FY12 FY13E FY14E




Page 31


Valuation

The stock has witnessed a significant run up (~73%) in the last 12 months led by company’s persistent high single/double digit volume growth (last

10 quarters), sustained margins and increasing market share across categories. At the CMP, the stock is trading at 34.9x FY13E and 36.1x

FY14E EPS of | 16.3 and | 15.8, respectively. We have valued HUL using the DCF methodology, as the stock is a long term play on the opportunity arising from the consumption boom in the country, and arrived at a target price of | 522.

At the current market price of | 571, with a WACC assumption of 10.1% the stock is discounting terminal growth of more than 6% or continuing high double digit growth in the near term. We believe the high volume growth (experienced in the last 10 quarters) would not sustain in the long run. Moreover, the 6% terminal growth is not justifiable. Therefore, it gives us a sense that the current market price has fairly discounted an optimistic future growth for the company.

We believe the simultaneous existence of underperforming markets (high liquidity being parked in defensives like HUL) and HUL’s high single digit/double digit volume growth has led to the run up in the stock price.

As the market conditions improve the money parked in defensives would be shifted to the undervalued sectors and stocks. Hence, though we remain confident on the company’s long term business performance, we believe that at the CMP the stock is richly valued.

According to our DCF based valuation, assuming a WACC of 10.1% and terminal growth of 6%, we have arrived at a target price of | 522/share.

Hence, at the current price and market conditions we believe the risk reward ratio is not favourable.

Exhibit 56: DCF calculation

Terminal Growth Rate

Terminal Value

Discounting Factor

PV of Terminal Value

6.0%

227,157.7

0.3

78,825.6

Revenue CAGR over FY12 - FY22E

FCF CAGR over FY12 - FY22E

PV of Cash Flow Till Terminal Year

Total Value of Firm

Current Debt

Total Present Value of Equity (Excluding Cash)

Total Cash on Balance Sheet

No. of Equity Shares

Per Share Value (Excluding Cash)

Cash Per Share

DCF Target Price

Upside / (Downside) (%)


*All figures are in |crore except per share data

11.9%

12.5%

32,133.0

110,958.6

-

110,958.6

1,830.0

216.0

513.8

8.5

522.3

-9%

Page 32

300

200

500

400

At a current WACC of 10.1% and terminal growth of 6% the fair value of the stock is | 522. However, as markets improve and the WACC increases to 11.3% (terminal growth constant), the fair value of the stock would be

| 399/share as investors would shift to attractively valued stocks and sectors. On the other hand, if markets continue to underperform, HUL’s share could see further upsides from here.

Exhibit 57: DCF sensitivity

5.0%

5.5%

6.0%

6.5%

7.0%


8.9%

596

662

750

874

1,064

9.5%

512

558

616

694

804

WACC %

10.1%

448

481

522

575

645

10.7%

398

422

453

490

537

11.3%

357

376

399

426

460

Price to earnings

In the past, HUL has traded at an average multiple of 25-30x its one year forward EPS. The company’s strong performance in FY11 and FY12 led the multiples to shift to 35-40x its one year forward EPS. However, we believe that with looming short-term concerns over the economic slowdown the stock is trading at very high multiples.

Exhibit 58: One year forward P/E multiple

600


Price (|)


25x 30x 35x 40x

Page 33

21

16

11

6

31

26

HUL’s share price movement with respect to benchmark Nifty

Historically, HUL has traded at P/E of ~1.8x the Nifty’s P/E. However, with the recent underperformance of the markets, HUL’s strong performance along with it being a defensive shed for the investors, the gap has expanded to ~2.8x to Nifty. The stock is trading at its all-time high P/E of

32x FY13E EPS. We believe this premium in multiple would shrink as market conditions improve.

Exhibit 59: HUL's P/E with respect to Nifty’s P/E based on 1-year forward earnings

30

25

20

15

10

40

35

Nifty P/E HUL P/E


Peer Comparison

HUL is commanding a premium in multiples (premium of ~25% over oneyear forward average P/E of its peers) on the back of its strong volume growth, consecutively in the last 10 quarters, highest rural reach and its presence across the value pyramid in soaps, detergents, personal care and beverages category. However, we believe that with margins being already lower than its peers ITC, Colgate, Nestle and Godrej, the stock could witness a downside if there is a slowdown in demand or increase in operating expenses that could unfavourably impact its performance.

Exhibit 60: Peer Comparison

HUL

ITC

Nestle India

P&G Health & Hygiene

Tata Global Beverages

Sales (| cr)

21735.6

Colgate-Palmolive 2693.2

Godrej Consumer Products 2980.1

24798.4

7490.8

1000.3

6585.3

FY12 Performance

EBITDA Margin

(%) EPS in |

14.9

12.5

21.7

19.3

36.0

21.0

16.6

9.5

46.5

5.8

32.8

18.6

7.9

99.7

RoE (%)

87.3

109.0

29.8

35.5

80.0

26.6

8.4

CAGR in % (FY08-12)

Sales EBITDA

Valuation Multiples

PAT P/E (current)

P/E (1-yr forward)

12.3

16.3

35.4

15.5

20.9

16.8

10.8

12.3

10.2

20.7

30.4

19.3

25.6

3.2

0.0

17.8

42.1

18.6

19.8

13.8

-31.8

45.7

37.7

36.1

35.8

46.6

44.4

17.0

42.3

32.8

38.7

30.5

40.5

35.8

24.6

Price/

Sales

3.8

4.7

3.2

6.7

5.3

5.5

1.1

Nestle India data corresponds to CY07-CY11; P&G’s data is for June, 2007-June,2011; Tata Global data is consolidated performance; HUL data is for CY07-FY12; HUL’s 1 yr fwd P/E is calculated on Adj. EPS




Exhibit 61: Profit & Loss Account (Standalone)

(Year-end March)

Net Sales

Other Operating Income

Total Operating Income

Raw Material Expenses

Employee Expenses

Marketing Expenses

Administrative Expenses

Power & Fuel

Royalty

Other Manufacturing Expenses

Miscellaneous Expenses

Total Operating Expenditure

EBITDA

Interest

Less: Non Operating Expenses

PBDT

Depreciation

PBT before Exceptional Items

Less: Exceptional Items

PBT

Total Tax

PAT before MI

PAT

EPS (|)


FY10

17,523.8

201.5

17,725.3

-

8,877.9

936.3

2,391.4

1,356.3

244.3

157.8

282.7

728.6

14,975.4

2,750.0

7.0

(148.1)

2,891.1

184.0

2,707.1

(99.4)

2,806.4

604.4

2,202.0

2,202.0

10.1

FY12

21,735.6

380.8

22,116.4

-

11,737.8

1,107.3

2,634.8

1,650.8

285.2

293.3

338.4

777.5

18,825.0

3,291.3

1.2

(278.3)

3,568.4

218.3

3,350.2

(118.9)

3,469.0

777.6

2,691.4

2,691.4

12.5

FY11

19,401.1

334.1

19,735.2

-

10,056.9

961.3

2,764.2

1,594.6

274.7

268.9

343.4

771.9

17,035.9

2,699.3

0.2

(252.0)

2,951.0

220.8

2,730.2

(152.7)

2,882.9

576.9

2,306.0

2,306.0

10.7

FY13E

23,959.6

419.3

24,378.9

-

12,859.9

1,198.0

3,294.4

1,701.1

311.5

311.5

335.4

658.9

20,670.7

3,708.2

5.3

(479.2)

4,182.1

230.0

3,952.1

(604.7)

4,556.8

1,027.6

3,529.3

3,529.3

16.3

(| Crore)

FY14E

26,954.3

471.7

27,426.0

-

14,243.9

1,347.7

3,908.4

1,886.8

377.4

323.5

390.8

741.2

23,219.6

4,206.4

-

(539.1)

4,745.4

253.2

4,492.2

-

4,492.2

1,078.1

3,414.1

3,414.1

15.8

Page 35


Exhibit 62: Balance Sheet (Standalone)

(Year-end March)

Equity Capital

Reserve and Surplus

Total Shareholders funds

Deferred Tax Liability

Other Non Current Liabilities

Long Term Provisions

Total Liability

Total Gross Block

Less: Acc. Depreciation

Net Block

CWIP

Total Fixed Assets

Net Intangible Assets

Other Investments

Inventory

Debtors

Loans and Advances

Other Current Assets

Cash

Total Current Assets

Creditors

Provisions

Other CL

Total Current Liabilities

Deferred Tax Assets

Loans & Advances

Total Asset

FY10

218.2

2,364.9

2,583.1

202.3

-

-

2,785.4

-

3,318.3

1,211.4

2,106.9

274.0

2,380.9

55.2

1,264.1

-

-

2,179.9

671.6

607.4

16.6

1,891.7

5,367.3

-

5,291.7

1,441.6

-

6,733.2

451.1

-

2,785.4

-


FY11

216.0

2,417.5

2,633.5

-

219.2

663.9

3,516.5

-

3,496.0

1,362.4

2,133.6

288.8

2,422.3

107.7

120.6

1,140.1

-

2,810.8

943.2

416.4

35.4

1,530.2

5,735.9

-

5,009.1

1,056.4

554.6

6,620.1

209.7

400.3

3,516.5

-

FY13E

216.2

3,807.1

4,023.2

-

329.7

667.0

5,019.9

-

3,884.4

1,646.9

2,237.5

205.1

2,442.7

40.3

286.3

2,601.9

-

2,472.2

787.7

472.6

34.2

2,007.9

5,774.6

-

4,923.2

1,280.0

555.4

6,758.6

214.2

418.4

5,019.9

-

FY12

216.2

3,296.8

3,512.9

-

329.7

667.0

4,509.6

-

3,534.4

1,416.9

2,117.5

205.1

2,322.7

40.3

186.3

2,251.9

-

2,516.7

679.0

485.8

35.3

1,830.0

5,546.7

-

4,623.0

1,279.0

546.8

6,448.7

214.2

396.2

4,509.6

-

(| Crore)

FY14E

216.2

4,202.2

4,418.3

-

329.7

667.0

5,415.0

-

4,284.4

1,900.1

2,384.3

205.1

2,589.4

40.3

386.3

3,001.9

-

2,992.5

812.3

497.8

35.8

1,490.3

5,828.8

-

5,169.3

1,344.0

630.6

7,144.0

214.2

498.0

5,415.0

-

Page 36


Exhibit 63: Cash Flow Statement (Standalone)

(Year-end March)

Profit after Tax

Add: Depreciation

CF before WC changes

Changes in Inventory

Change in debtors

Change in loans & advance

Change in CA

Net increase in CA

Change in creditors

Change in Provisions

Change in other CL

Net increase in CL

Net CF from operating activities

Change in Deferred Tax Liab

Change in loans & advances

Changes in other investments

Changes in liquid investments

(Purchase)/Sale of Fixed Assets

Change in Deferred Tax Asset

Net CF from Investing Activities

Proceeds from Equity Capital

Proceeds from secured loan

Proceeds from unsecured loans

Payment of dividend/dividend tax

One time adj. in P/L Appropriation

Transfers to General Reserve

Transfers to Capital Red. Reserve

Transfers to Capital Sub. Reserve

Changes in ESOP

Changes in Securities Prem. Acc.

Net CF from financing activities

Net Cash Flow

Opening Cash

Closing Cash

-

(1,642.0)

-

(543.1)

2.3

-

(0.2)

(70.3)

(2,255.6)

(361.5)

1,891.7

1,530.2

-

FY11

2,306.0

220.8

2,526.8

(630.8)

(271.6)

191.1

(18.7)

(730.1)

(282.6)

(385.1)

554.6

(113.1)

1,683.5

-

(202.3)

(400.3)

1,143.5

(1,140.1)

(314.8)

241.5

219.2

663.9

210.5

-

(2.2)

-

(277.3)

(1,656.0)

(55.3)

-

-

-

(0.9)

32.0

(2,102.0)

(357.2)

2,249.0

1,891.7

-

FY10

2,202.0

184.0

2,386.1

348.9

(134.7)

134.7

(0.9)

348.1

1,035.8

(86.4)

-

949.4

3,683.5

-

18.1

-

(931.5)

-

(1,013.3)

(12.0)

-

-

(1,938.8)

-

0.2

(144.6)

-

(1,883.9)

-

0.5

-

0.6

32.8

37.9

(1,811.9)

299.8

1,530.2

1,830.0

-

FY12

2,691.4

218.3

2,909.7

294.1

264.2

(69.4)

0.1

489.0

(386.1)

222.5

(7.8)

(171.4)

3,227.3

-

-

4.1

(65.7)

(1,111.8)

(51.1)

(4.6)

110.5

3.1

(1,115.6)

-

0.2

-

(| Crore)

FY14E

3,414.1

253.2

3,667.3

(520.3)

(24.6)

(25.2)

(1.6)

(571.7)

246.1

64.0

75.2

385.3

3,481.0

-

-

(79.6)

(100.0)

(400.0)

(400.0)

-

-

-

(979.6)

-

-

-

-

(3,019.0)

-

-

-

-

-

-

(3,019.0)

(517.6)

2,007.9

1,490.3

-

FY13E

3,529.3

230.0

3,759.3

44.4

(108.7)

13.2

1.0

(50.1)

300.3

1.1

8.6

309.9

4,019.1

-

-

(22.3)

(100.0)

(350.0)

(350.0)

-

-

-

(822.3)

-

-

-

-

(3,019.0)

-

-

-

-

-

-

(3,019.0)

177.9

1,830.0

2,007.9

-


Page 37

Exhibit 64: Ratio Analysis

(Year-end March)

Per Share Data

EPS

Cash EPS

Cash per Share

Revenue per Share

Operating profit per share

DPS

Operating Ratios

EBITDA / Net Sales

PAT / Total Operating Income

Return Ratios

RoE

RoCE

RoIC

Valuation Ratios

P/E

Target P/E

EV / EBITDA

EV / Net Sales

Market Cap / Sales

Target Market Cap / Sales

Dividend yield

FY10 FY11 FY12 FY13E FY14E

10.1

10.9

8.7

80.3

12.6

6.5

10.7

11.7

7.1

89.8

12.5

6.5

12.5

13.5

8.5

100.6

15.2

7.5

16.3

17.4

9.3

110.9

17.2

12.0

15.8

17.0

6.9

124.8

19.5

12.0

15.7

12.4

13.9

11.7

15.1

12.2

15.5

14.5

15.6

12.4

85.2

99.3

455.0

87.6

94.1

144.0

76.6

87.5

115.2

87.7

86.5

113.2

77.3

89.5

93.5

56.6

51.7

44.2

6.9

7.0

6.4

1.1

53.5

48.9

44.7

6.2

6.4

5.8

1.1

45.8

41.9

36.2

5.5

5.7

5.2

1.3

34.9

31.9

32.0

5.0

5.1

4.7

2.1

36.1

33.0

28.2

4.4

4.6

4.2

2.1

Turnover Ratios

Asset turnover

Debtors Turnover Ratio

Creditors Turnover Ratio

Inventory Turnover

6.4

26.1

3.3

7.4

6.2

20.6

3.9

7.8

5.4

32.0

4.7

8.2

5.0

30.4

4.9

9.6

5.2

33.2

5.2

9.9

Solvency Ratios

Current Ratio

Quick Ratio

0.8

0.5


0.9

0.6

0.9

0.6

0.9

0.6

0.8

0.6


Annexure

The annexure represent the various ways in which HUL has churned its portfolio across categories in order to maintain its position in the respective category as well as stage itself successfully in the growing categories.

Exhibit 65: HUL's efforts in re-shaping its PP portfolio by extending its brand strength to emerging and faster growing categories



Exhibit 66: Engaging more consumers through its expanding portfolio in skin and hair care

More Users More Usage More Benefits


Exhibit 67: Re-launches, innovations in soaps & detergents portfolio to capture changing demand pattern

Lux re-launch with silk protein extract

Rin Bar re-launch with superior formulation & packaging

Comfort: New variant with anti-bacterial action

Vim: Relaunched with

100 Nimboon ki Shakti



Page 40

Exhibit 68: Innovating PP portfolio to tap higher growth markets, induce higher usage and drive penetration

Fair & Lovely Future Tube: Relaunch of Lakme Fruit Vaseline Relaunched: Vaseline Lip Therapy

Aspirational and Affordable Moisture Range Multi layer moisture with four new variants

Face Wash: Range expansion across brands Sunsilk Keratinology for salon Increasing accessibility

treated hair through | 1 sachets

Expanding the Deo Range Relaunched Pepsodent- G Relaunched Clear



Exhibit 69: Re-launches and Innovations in soaps and detergents portfolio to capture the changing demand pattern

Extending the Taj Mahal brand to green tea

Launching Taj Mahal tea bags in 7 flavours for 7 days

Extending the premium segment of Bru to cold coffee and Bru Exotica

Exhibit 70: Revamping foods portfolio to gain strength


Kissan range expanded and re-launched Launch of | 5 Cup-a-Soups 100% fruit flavoured Selection Rich in 5

accessible packs instant soups ice-creams international flavours



Exhibit 71: Bru World Cafe Exhibit 72: Bru World Café at Juhu, Mumbai




Page 43

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey pankaj.pandey@icicisecurities.com Head – Research

ICICIdirect.com Research Desk,

ICICI Securities Limited,

1

st

Floor, Akruti Trade Centre,

Road No. 7, MIDC,

Andheri (East)

Mumbai – 400 093 research@icicidirect.com

ANALYST CERTIFICATION

We /I, Sanjay Manyal M.B.A.(FINANCE) Parineeta Poddar M.B.A.(FINANCE) research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

Disclosures:

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Hindustan Unilever

Initiating Coverage

Hindustan Unilever Limited (HINLEV)

Brands’ strength driving growth; valuation expensive

Company Background

Investment Rationale

Revenue mix: All that glitters is ‘personal products’

Business presence: Market leader and strong brands across segments

.

Popular

PREMIUM

Portfolio that straddles across the pyramid

‘

Changing product mix: Premiumisation and expanding in potential segments

Targeting Indian rural consumption story

Risks & concerns

Slowdown in consumer demand

Increasing competition threatening margins

Margins susceptible to commodity prices and packaging norms

Untapped opportunity in foods segment

Financial Performance

Revenue growth of 11.4% CAGR FY12-14E to be largely volume led

Changing product mix to keep raw material costs lower, improve margins

Advertisement expenses to sales

Dividend payments to increase

Return on equity to remain at current levels

Valuation

Price to earnings

HUL’s share price movement with respect to benchmark Nifty

Peer Comparison

Annexure

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey pankaj.pandey@icicisecurities.com Head – Research

ICICIdirect.com Research Desk,

ICICI Securities Limited,

1

Floor, Akruti Trade Centre,

Road No. 7, MIDC,

Andheri (East)

Mumbai – 400 093 research@icicidirect.com

ANALYST CERTIFICATION

Disclosures:

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