BUY CMP 560.00 Target Price 620.00 HINDUSTAN UNILEVER LIMITED Result Update: Q3 FY14 JANUARY 28 th 2014 ISIN: INE030A01027 Index Details Stock Data Sector FMCG BSE Code 500696 Face Value 1.00 52wk. High / Low (Rs.) 725.00/432.25 Volume (2wk. Avg.) 164000 Market Cap (Rs. in mn.) 1211056.00 Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY13A FY14E FY15E Net Sales 258102.10 280039.13 299641.87 EBITDA 52190.50 52572.98 57136.90 Net Profit 37966.70 39416.41 42104.36 EPS 17.56 18.23 19.47 P/E 31.90 30.72 28.76 Shareholding Pattern (%) 1 Year Comparative Graph HINDUSTAN UNILEVER LTD S&P BSE SENSEX SYNOPSIS Hindustan Unilever Limited (HUL) is India's largest FMCG Company with a heritage of over 80 years in India and touches the lives of two out of three Indians. Unilever Plc has about 67.25% shareholding in HUL. The company s net profit jumps to Rs. 10623.10 million against Rs. 8713.60 million in Q3 FY13, an increase of 21.88%. Revenue for the quarter rose by 8.54% to Rs. 72233.50 million from Rs. 66548.30 million, when compared with the prior year period. Net Sales grew by 9.4% during the quarter. Domestic Consumer Business (FMCG + Water) grew by 9.9% with a 9.9% growth in HPC and 10.3% growth in Foods businesses. A&P investments were increased by Rs. 1070 million (+40 bps) in the quarter. Profit before interest and tax (PBIT) grew by 13% and PBIT margin improved by 50 bps. EPS of the company stood at Rs. 4.91 a share during the quarter, registering 21.88% increase over previous year period. Profit after tax before exceptional items, PAT (bei), grew by 9% to Rs.9550 million. During the quarter, Pears was relaunched with a new proposition around younger looking skin. Wheel was re-launched with a superior formulation at the end of the quarter. Net Sales and PAT of the company are expected to grow at a CAGR of 11% and 16% over 2012 to 2015E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Hindustan Unilever Ltd. 560.00 1211056.00 17.56 31.90 45.30 1850.00 ITC Ltd 324.25 2573711.00 10.63 30.50 11.54 525.00 Dabur India Ltd 169.00 294006.90 3.69 46.69 18.43 150.00 Godrej Consumer Ltd 703.50 238928.60 15.92 44.09 8.65 500.00
Recommendation & Analysis - BUY FMCG major Hindustan Unilever Ltd (HUL) reported a 21.91% growth in its standalone net profit for the quarter ended 31 st December, 2013 at Rs 10,623.10 million, driven by strong domestic consumer sales and exceptional items. Net sales of the company rose by 10% to Rs 67,745.10 million in Q3 FY14 from Rs 61,584.90 million in Q3 FY13, helped by strong volume growth. During the quarter, the domestic consumer business grew at 10%, ahead of market, with 4% underlying volume growth. The operating context during the quarter remained challenging with market growth under pressure, firm input costs given the rupee depreciation, an uncertain media environment and the high competitive intensity. Investment behind brands was sustained at competitive levels; overall A&P was up by Rs. 1070 million (+40 bps) in the quarter. Profit before interest and tax (PBIT) grew by 13% and PBIT margin improved by 50 bps. Soaps and Detergents category grew 7%, driven by Dove, Pears, Lifebuoy and Breeze. In Laundry, growth was led by the premium segment. Surf growth was buoyed by the robust performance in Surf Excel Easy Wash and Excel Matic while Rin saw good growth on the bars portfolio. Personal Products category grew by 11% in a slowing market. The re-launch of Fair & Lovely, with the new Best Ever Formula and a focused activation plan in the last quarter, is on track. In Oral Care, both Pepsodent and Close Up delivered stepped up double digit growth in a competitive market. Tea delivered another quarter of broad based growth with Taj Mahal, Red Label, 3 Roses and Taaza growing in double digits, driven by a strengthened mix and focused in-market activities. Packaged Foods segment grew by 11%. Over FY2012-15E, we expect the company to post a CAGR of 11% and 16% in its top-line and bottom-line respectively. Hence, we recommend BUY for Hindustan Unilever Ltd with a target price of Rs. 620.00 on the stock.
QUARTERLY HIGHLIGHTS (STANDALONE) Results updates- Q3 FY14, Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods Company with a heritage of over 80 years in India and touches the lives of two out of three Indians, reported its financial results for the quarter ended 31 st Dec, 2013. Months Dec-13 Dec-12 % Change Revenue 72233.50 66548.30 8.54 PAT 10623.10 8713.60 21.91 EPS 4.91 4.03 21.88 EBITDA 13694.60 12152.20 12.69 The company s net profit jumps to Rs. 10623.10 million against Rs. 8713.60 million in the corresponding quarter ending of previous year, an increase of 21.91%. Revenue for the quarter rose by 8.54% to Rs. 72233.50 million from Rs. 66548.30 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs. 4.91 a share during the quarter, registering 21.88% increase over previous year period. Profit before interest, depreciation and tax is Rs. 13694.60 millions as against Rs. 12152.20 millions in the corresponding period of the previous year. Break up of Expenditure Break up of Expenditure Rs. Millions Q3 FY14 Q3 FY13 Cost of Material Consumed 27015.10 25519.00 Purchase of Stock in Trade 8374.40 7837.90 Employee Benefit Expenses 3477.20 3427.10 Depreciation & Amortization Expense 644.20 592.80 Advertising & promotion 9294.60 8221.60 Other Expenses 10593.00 9820.80
Segment Revenue Latest Updates Net Sales grew by 9.4% during the quarter. Domestic Consumer Business (FMCG + Water) grew by 9.9% with a 9.9% growth in HPC and 10.3% growth in Foods businesses. Beverages and Packaged Foods segment of HUL grew by 7% and 11% respectively during the quarter. During the quarter Pears was relaunched with a new proposition around younger looking skin. Wheel was re-launched with a superior formulation at the end of the quarter. COMPANY PROFILE Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods Company with a heritage of over 75 years in India and touches the lives of two out of three Indians. HUL works to create a better future every day and helps people feel good, look good and get more out of life with brands and services that are good for them and good for others. With over 35 brands spanning 20 distinct categories such as soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, and water purifiers, the Company is a part of the everyday life of millions of consumers across India. Its portfolio includes leading household brands such as Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond s, Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Wall s and Pureit.
The Company has over 16,000 employees and has an annual turnover of around Rs. 258102.10 milions (financial year 2012-2013). HUL is a subsidiary of Unilever, one of the world s leading suppliers of fast moving consumer goods with strong local roots in more than 100 countries across the globe with annual sales of about 51 billion in 2012. Unilever has about 67.25% shareholding in HUL. In April, 2012, the Customer Insight & Innovation Centre (CiiC) was inaugurated at the Hindustan Unilever Campus at Andheri, Mumbai. In 2011 Uniliver spent 1 billion on research & development. Currently the company has over 6000 people working in R&D in all Unilever regions across the globe. The company typically files between 250 & 350 new patent applications a year. Worldwide the company has over 20000 registered patents & patent applications. Brands: Food Brands Home Care Brands Personal Care Brands Water Nutrition Health, Hygiene & Beauty Products Food Products Brooke Bond 3 Roses Brooke Bond Red Label Brooke Bond Taj Mahal Kissan Kwality Wall s Modern Annapurna Brooke Bond Taaza Bru Knorr Lipton Brooke Bond Sehatmand Home care brands Active Wheel Cif Comfort Fabric Conditioner Domex Rin Sunlight Surf Excel Vim
Personal care brands Aviance Axe LEVER Ayush Therapy Breeze Clear Clinic Plus Closeup Gel Toothpaste Dove Fair & Lovely Hamam Liril 2000 Lux Pears Pepsodent Sunsilk Ponds Rexona Vaseline Water Pureit Marvella RO Pureit Marvella Pureit Classic 14 litres Pureit Classic 23 litres
FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as at March31, 2012-2015E Hindustan Unilever Ltd. FY12A FY13A FY14E FY15E SOURCES OF FUNDS Shareholder's Funds Share Capital 2161.50 2162.50 2162.60 2162.60 Reserves and Surplus 32967.80 24577.70 47913.45 58454.41 1. Sub Total - Net worth 35129.30 26740.20 50076.05 60617.01 Non Current Liabilities Other Long term Liabilities 3296.90 4762.50 5143.50 5503.55 Long Term Provisions 6669.50 7063.40 7275.30 7493.56 2. Sub Total - Non Current Liabilities 9966.40 11825.90 12418.80 12997.11 Current Liabilities Trade Payables 46229.60 51676.90 57878.13 62508.38 Other Current Liabilities 5467.70 6161.50 8626.10 9661.23 Short Term Provisions 12789.70 18720.20 7300.88 8030.97 3. Sub Total - Current Liabilities 64487.00 76558.60 73805.11 80200.58 Total Liabilities (1+2+3) 109582.70 115124.70 136299.96 153814.69 APPLICATION OF FUNDS Non-Current Assets Fixed Assets Tangible assets 21175.30 22567.90 24147.65 25596.51 Intangible assets 299.40 361.10 400.82 428.88 Capital Work in Progress 2051.30 2053.20 2196.92 2306.77 Intangible assets under development 103.20 103.20 110.42 117.05 a) Sub Total - Fixed Assets 23629.20 25085.40 26855.82 28449.21 b) Non-current investments 1863.10 5480.30 6850.38 7946.44 c) Long Term loans and advances 4012.70 3842.90 5149.49 5870.41 d) Deferred Tax Asset 2142.40 2047.80 1945.41 1828.69 e) Other non-current assets 0.00 2968.40 3116.82 3241.49 1. Sub Total - Non Current Assets 31647.40 39424.80 43917.91 47336.24 Current Assets Current Investment 22519.00 17826.30 24065.51 29016.92 Inventories 25166.5 25269.90 27311.22 28949.89 Trade receivables 6789.90 8334.80 7834.71 8226.45 Cash and Bank Balances 18300.40 17078.90 25105.98 31131.42 Short-terms loans & advances 4807.00 6482.60 7130.86 7986.56 Other current assets 352.50 707.40 933.77 1167.21 2. Sub Total - Current Assets 77935.30 75699.90 92382.05 106478.45 Total Assets (1+2) 109582.70 115124.70 136299.96 153814.69
Annual Profit & Loss Statement for the period of 2012 to 2015E Value(Rs.in.mn) FY12A FY13A FY14E FY15E Description 12m 12m 12m 12m Net Sales 221163.70 258102.10 280039.13 299641.87 Other Income 2783.10 6069.00 5959.41 6197.78 Total Income 223946.80 264171.10 285998.54 305839.65 Expenditure -187061.60-211980.60-233425.56-248702.75 Operating Profit 36885.20 52190.50 52572.98 57136.90 Interest -12.40-251.50-448.96-336.72 Gross profit 36872.80 51939.00 52124.02 56800.18 Depreciation -2182.50-2360.20-2611.33-2820.23 Exceptional Items 0.00 0.00 564.00 0.00 Profit Before Tax 34690.30 49578.80 50076.70 53979.95 Tax -7776.30-11612.10-10660.29-11875.59 Net Profit 26914.00 37966.70 39416.41 42104.36 Equity capital 2161.50 2162.50 2162.60 2162.60 Reserves 32961.10 24571.00 47913.45 58454.41 Face value 1.00 1.00 1.00 1.00 EPS 12.45 17.56 18.23 19.47 Quarterly Profit & Loss Statement for the period of 30 th June, 2013 to 31 st March, 2014E Value(Rs.in.mn) 30-Jun-13 30-Sep-13 31-Dec-13 31-Mar-14E Description 3m 3m 3m 3m Net sales 68090.40 68926.40 72233.50 70788.83 Other income 1767.50 1509.90 1426.60 1255.41 Total Income 69857.90 70436.30 73660.10 72044.24 Expenditure -56171.90-58073.30-59965.50-59214.86 Operating profit 13686.00 12363.00 13694.60 12829.38 Interest -62.20-62.80-182.00-141.96 Gross profit 13623.80 12300.20 13512.60 12687.42 Depreciation -664.40-639.20-644.20-663.53 Exceptional Items 0.00 334.30 229.70 0.00 Profit Before Tax 12959.40 11995.30 13098.10 12023.90 Tax -2766.90-2857.30-2475.00-2561.09 Net Profit 10192.50 9138.00 10623.10 9462.81 Equity capital 2162.50 2162.60 2162.60 2162.60 Face value 1.00 1.00 1.00 1.00 EPS 4.71 4.23 4.91 4.38
Ratio Analysis Particulars FY12A FY13A FY14E FY15E EPS (Rs.) 12.45 17.56 18.23 19.47 EBITDA Margin (%) 16.68% 20.22% 18.77% 19.07% PBT Margin (%) 15.69% 19.21% 17.88% 18.01% PAT Margin (%) 12.17% 14.71% 14.08% 14.05% P/E Ratio (x) 44.97 31.90 30.72 28.76 ROE (%) 76.63% 142.02% 78.71% 69.46% ROCE (%) 111.23% 204.05% 110.20% 98.91% EV/EBITDA (x) 32.32 22.88 22.56 20.65 Book Value (Rs.) 16.25 12.36 23.16 28.03 P/BV 34.46 45.30 24.18 19.98 Charts
OUTLOOK AND CONCLUSION At the current market price of Rs.560.00, the stock P/E ratio is at 30.72 x FY14E and 28.76 x FY15E respectively. Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.18.23 and Rs.19.47 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 11% and 16% over 2012 to 2015E respectively. On the basis of EV/EBITDA, the stock trades at 22.56 x for FY14E and 20.65 x for FY15E. Price to Book Value of the stock is expected to be at 24.18 x and 19.98 x respectively for FY14E and FY15E. We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs.620.00 for Medium to Long term investment. INDUSTRY OVERVIEW The Indian Fast Moving Consumer Goods (FMCG) sector is the fourth largest in the Indian economy and has a market size of $13.1 billion. This industry primarily includes the production, distribution and marketing of consumer packaged goods, that is those categories of products which are consumed at regular intervals. The FMCG market is set to treble US$ 33.4 billion in 2015. Penetration level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential. The Indian FMCG industry represents nearly 2.5% of the country s GDP. The industry has tripled in size in past 10 years and has grown at ~17%CAGR in the last 5 years driven by rising income levels, increasing urbanization, strong rural demand and favourable demographic trends. The sector accounted for 1.9% of the nation s total FDI inflows in April 2000- September 2012. Cumulative FDI inflows into India from April 2000 to April 2013 in the food processing sector stood at Rs. 9,000.3 crore, accounting for 0.96% of overall FDI inflows while the soaps, cosmetics and toiletries, accounting for 0.32% of overall FDI at Rs. 3,115.5 crore. Food products and personal care together make up two-third of the sector s revenues.
Rural India accounts for more than 700 mn consumers or 70% of the Indian population and accounts for 50% of the total FMCG market. With changing lifestyle and increasing consumer demand, the Indian FMCG market is expected to cross $80 bn by 2026 in towns with population of up to 10 lakh. India's labor cost is amongst the lowest in the world, after China & Indonesia, giving it a competitive advantage over other countries. Household care The fabric wash market size is estimated to be ~USD 1 billion, household cleaners to be USD 239 million, with the production of synthetic detergents at 2.6 million tonnes. The demand for detergents has been growing at an annual growth rate of 10 to 11% during the past five years Personal Care (HPC) The personal care products (PCP) market in India is estimated to be worth ~USD 4 bn p.a. Personal hygiene products (including bath and shower products, deodorants etc.), hair care, skin care, colour cosmetics and fragrances are the key segments of the personal care market. Food & Beverages Food processing industry is one of the largest industries in India, ranking fifth in terms of production, growth, consumption, and export. The total value of Indian food processing industry is expected to touch USD 194 billion by 2015 from a value of USD 121 billion in 2012, according to Indian Council of Agricultural Research (ICAR). Expenditure on advertisements by FMCG Companies in 2013 Fast-moving consumer goods (FMCG) companies, a safe haven through most of the slowdown, have felt consumption blues of late. While the annual revenues of these companies have increased 15-20 per cent, their advertisement and sales promotions spends have raised 25-30 a year. ITC, one of the biggest companies in the Indian FMCG space, spent Rs 806.65 crore on advertising in 2012-13, against Rs 682.69 crore in 2011-12. At Rs 502.37 crore, Dabur India s ad spends jumped 27 per cent in 2012-13. In 2012-13, Hindustan Unilever spent Rs 3,231.88 crore on advertising and promotional activities, compared with Rs 2,634.79 crore the previous financial year, a rise of 22.66 per cent. During the same period, Emami s spends rose 21.18 per cent to Rs 253.11 crore.
Government Policies and Regulatory Framework Goods and Service Tax (GST): GST, which will replace the multiple indirect taxes levied on FMCG sector with a uniform, simplified and single-pint taxation system, is likely to be implemented soon (the benefits are likely to come in by the end of FY 14). The rate of GST on services is likely to be 16% and on goods is proposed to be 20%. A swift move to the proposed GST may reduce prices, bolstering consumption for FMCG products. Food Security Bill: The food security Bill has been passed recently by the Union Cabinet. As per the Bill, 5Kg of food grains per person per month will be provided at subsidized prices from State Governments under the targeted public distribution system. FDI in retail: The decision to allow 51% FDI in multi brand retail and 100% FDI in single brand retail augers well for the outlook for the FMCG sector. FMCG sector accounted for 1.9% of the nation s total FDI inflows in April 2000- September 2012. Cumulative FDI inflows into India from April 2000 to April 2013 in the food processing sector stood at Rs. 9,000.33 crore, accounting for 0.96% of overall FDI inflows while that in the soaps, cosmetics and toiletries was Rs. 3,115.54 crore in, accounting for 0.32%. The food processing sector attracted FDI inflows of Rs. 6,198 crore during April 2009 to December 2012. Relaxation of license rules: Industrial licenses are not required for almost all food and agro-processing industries, barring certain items such as beer, potable alcohol and wines, cane sugar, and hydrogenated animal fats and oils as well as items reserved for exclusive manufacturing in the small-scale sector. Conclusion While the rural market certainly offers a big attraction to marketers, it would be naïve to think that any company can enter the market without facing any problems and walk away with a sizable share. Distribution is the most important variable in the marketing plans of most consumer goods manufacturers, because managing such a massive sales and distribution network is in itself a huge task. This sector will continue to see growth as it depends on an ever-increasing internal market for consumption, and demand for these goods remains more or less constant, irrespective of recession or inflation. Hence this sector will grow, though it may not be a smooth growth path, due to the present world-wide economic slowdown, rising inflation and fall of the rupee. This sector will see good growth in the long run and hiring will continue to remain robust.
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