August A Research Report On. By Islami Tijara Research Team. Copyright Reserved

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1 A Research Report On By Islami Tijara Research Team

2 Hindustan Unilever Limited Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods Company; the company was first incorporated in HUL has more than 670 live patents and 700 million consumers use HUL brands in India as part of their daily lives. The company stirring the lives of two out of three Indians with over 20 distinct categories in Home & Personal Care Products and Foods & Beverages and also one of the country's largest exporters. HUL's brands includes Lifebuoy, Lux, Surf Excel, Rin, Wheel, Fair & Lovely, Pond's, Sunsilk, Clinic, Pepsodent, Close-up, Lakme, Brooke Bond, Kissan, Knorr-Annapurna, Kwality Wall's are household names across the country. HUL has over 40 manufacturing factories across India. The company has 7 brands with turnover in excess of Rs 1000 crore and 5 brands with turnover in excess of Rs 500 crore. The company s has reported growth of 11% standalone net sales for Financial Year 2011(FY11) to Rs Domestic Consumer business grew 11% driven by a strong 13% volume growth.

3 Business Segment HUL Soaps and detergents Personal Products Beverages Processsed Foods Ice Creams Exports Others Source: Company and Pragmatic Wealth Management Research Hindustan Unilever Ltd. (HUL) reported strong topline growth of 13% year-on-year(y-o-y) to Rs crore, the growth in the sales was driven by strong volume growt of 14% due to new launches and relaunches across the segments and aggressive expansion and distribution in some categories. HUL Domestic Consumer and FMCG business grew 14%, with strong performance across Home and Personal Care (HPC) and Foods segments. Home and Personal Care business grew by 16%. Soaps and Detergents grew strongly at 11%. Foods business grew 26% across categories. Beverages grew by 11%, with both Tea and Coffee performing well. OPM declined by 58 basis points to 13% due to rise in raw material and packaging material cost. Profit before tax before exceptional item inclined by 13% to Rs crore.

4 Segment Revenue 4% 1% 2% 6% 12% 30% 45% Soaps and Detergents Personal Products Beverages Foods Ice Creams Exports Other Operations Source: Company and Pragmatic Wealth Management Research Strong Volume growth Despite strong inflationary pressures & high competitive intensity HUL reported strong volume growth of 14% y-o-y which resulted in topline increasing by 14% y-o-y to Rs 4899 crores. strong volume growth was due to new launches and relaunches across the segments and aggressive expansion and distribution in some categories. The growth was seen across the key categories with both HPC & Foods recording 13.3% & 16% y- o y growth respectively. The growth in the HPC segment was led by 16% y-o-y growth in Personal products Skin Cleansing, Dove, Pears and Liril grew strongly. Hand and Body Wash liquid volumes doubled during the quarter. In Laundry, Surf, Rin and Wheel delivered double digit volume growth led to 11% y-o-y growth in the Soaps & Detergent segment. In the Foods segment the growth was led by strong growth across all the 3

5 key categories i.e Packaged Foods (27%) Ice-creams (21%) & Beverages (11%). Foods business grew 15% across categories. Beverages grew by 11%, with both Tea and Coffee performing well. Company relaunches 3 Roses, promoting the health benefits of tea. Taj Tea Bags continued to develop the market with strong double digit growth. Coffee portfolio was expanded with launch of Bru Lite a premium offering in instant coffee. In Packaged Foods, Kissan and Knorr continued to grow strongly. Ice Creams category delivered strong growth, driven by the launch of new variants and formats and the continued expansion of Swirl Parlours, which now exceed 150 outlets. Operating Margins under pressure: Operating profits registered growth of 8.6% YoY Rs 6465 mn & EBIDTA margins reduced by 60 bps to 13% in Q4FY11 largely due to steep rise in the key raw materials (palm oil, LAB, Soda Ash, Coffee) & other expenses, which led to the EBIDTA margin contraction of 58 bps YoY. However the company managed it s A&P and employee expenses effectively which reduced by 170 bps y-o-y to 12.7% resulting in OPM of 11.8%,marginal decline of 50 basis points (bps) y-o-y for Q4FY11. Category wise Soaps & Detergents margins, continued to remained under pressure with margins declining by 525 bps y-o-y due to higher raw material costs & increased competition where as Personal products and beverages has shown good performance in terms of volumes and margins mainly due to new launches and better innovation, they reported 400 bps increase to 25% and 200 bps increase to 15.6% in their EBIT margins respectively.

6 Outlook: HUL reported double-digit volume growth in Q4 volumes remained strong despite cut down in promotional spends, rising competitive intensity in an inflationary input cost. HUL s strong performance in the highly competitive scenario is a clear indicator of its effective product mix & operating efficiency. HUL has entered various segments such as cheese spreads and soya-based juice. It has also re-launched products such as Pepsodent on a freshness platform and Liril as a family soap.hul get benefit of product re-launches & increases in price in coming quarters. We believe the full benefit of price hikes & relaunch of its majority portfolio will be seen in coming quarters further improving the overall volumes & margins going forward. Good monsoons can result in decline in key raw material costs. Also company s increased focus in the high growth & high margin categories like Personal care & Beverages would improve the overall profitability going forward. Rising input cost and further price hikes will affect the HUL s volume growth and overall demand in the sector. Increasing competitive pressures and matching to their price cut,are major concerns, could impact HUL s FY12 revenue. India is the world s fifth largest and one of the fastest-growing consumer markets, with the third-largest middle-class population. Over time and with growing purchasing power, the Indian consumer is moving from food to non-food, non-discretionary to discretionary and goods to services. Consumer product firms net sales likely to grow around 15 to 18 per cent in June quarter. HUL s volume growth could narrow down on a high base and high penetration in categories like detergents and soaps, HUL has taken price hikes in Soaps and Detergents recently; the full impact of which should be visible Q1FY12 onwards. The company could manage its business dynamically, through judicious pricing actions and

7 increased focus on cost effectiveness, while ensuring at the same time that it remains competitive in the market place. FMCG Factsheet Co.Name Net Sales Net Sales Growth Net Profit Net Profit Growth2 ITC* % % Hind. Unilever % % Dabur India % % Godrej Consumer % % Marico % % Colgate-Palm % % * ITE Shariah Non Compliant

8 Particulars 4th Qtr th Qtr VAR [%] Full Year Full Year VAR [%] Net Sales 4, , , , Expenditure Raw Material Consumed 2, , , , % of Net Sale Employee Expenses (0.01) , (0.13) % of Net Sale Total Expenditure 4, , , , % of Net Sale PBIDT (0.04) 3, , PBIDT margin(%) Interest (0.86) (0.97) PBDT (0.04) 3, , Depreciation Tax (0.14) Reported Profit After Tax (0.02) 2, , Key Financial Ratio Price Earning (P/E) Price to Book Value ( P/BV) EV/EBIDTA Market Cap/Sales ROCE (%) Source: Capitaline corporate database

9 Hindustan Unilever Limited is India's largest Fast Moving Consumer Goods Company and is an Index Component of the frontline ITE Shariah 35 Index, ITE Shariah 251 and ITE Shariah Consumer Index. Hindustan Unilever Limited is a Shariah Compliant stock for last quarter and has the following ratios as on June Co. Name Islami Tijara Sector Islami Tijara Industry Debt to TTM Avg. Market Capitalisation Cash & Interest bearing sec to TTM Avg. Market Capitalisation Receivables to TTM Avg. Market Capitalisation Interest + Impure Income to Total Revenue Hindustan Unilever Limited Consumer FMCG Stocks in order to be Shariah Compliant needs to fulfill certain Financial Ratio Criteria certified by Shariah Board.* *1) Debt to Average Market capitalization should not exceed 33 percent. 2) Cash + interest based investments of the company to Average Market capitalization should not exceed 33 percent. 3) Receivables to Average Market capitalization should not exceed 33 percent. 4) Interest and impure income to total Revenue should not exceed 5 percent.