CMP: INR1,151 TP: INR1,335(+16%)

BSE SENSEX S&P CNX 27,698 8,545 Motilal Oswal values your support in the Asiamoney Brokers Poll 2016 for India Research, Sales and Trading team. We request your ballot. Bloomberg HMN IN Equity Shares (m) 227.0 M.Cap.(INRb)/(USDb) 261.1 / 3.9 52-Week Range (INR) 1,368/ 901 1, 6, 12 Rel. Per (%) -2/-3/-11 12M Avg Val (INR M) 231 Free float (%) 27.3 Financials & Valuations (INR b) Y/E Mar 2016 2017E 2018E Net Sales 23.9 28.0 32.9 EBITDA 6.8 8.1 9.6 PAT 5.7 6.3 7.8 EPS (INR) 25.2 27.7 34.3 Gr. (%) 17.7 10.0 23.9 BV/Sh (INR) 61.8 86.1 105.5 RoE (%) 43.4 37.5 35.8 RoCE (%) 37.9 34.5 38.6 P/E (x) 45.7 41.5 33.5 P/BV (x) 18.6 13.4 10.9 Estimate change TP change Rating change CMP: INR1,151 TP: INR1,335(+16%) 3 August 2016 Q1FY17 Results Update Sector: Consumer Buy Double-digit volume growth likely in FY17 s (HMN) sales grew 19.9% YoY (est. of 20%) in 1QFY17 to INR6.44b (Ind-AS). EBITDA posted healthy 49.2% growth (est. of 22.8%), led by the Kesh King YoY impact. PAT before amortization growth rose 18.4% YoY (est. of +7.1%) to INR1.2b. Domestic sales grew 21% YoY in 1QFY17, with HMN gaining market share across its key categories. International business and CSD segment posted sales growth of 14% and 12% YoY, respectively. Gross margin stood at 64.5% (up 390bp YoY). Higher A&P spends (up 70bp YoY to 23.8%) were partially offset by lower other expenses (down 120bp YoY to 8.6%). EBITDA margin expanded 450bp YoY to 22.9% (est. of +40bp YoY), mainly due to gross margin improvement. EBITDA thus grew 49.2% (est. of +22.8%) to INR1.5b. Adjusted PAT grew 18.4% (est. of +7.1%) to INR 1.2b. Reported PAT declined due to a steep increase in amortization. Portfolio performance during the quarter: Sales of Navratna oil and talc were up 8% YoY and 15% YoY, respectively. Boro Plus antiseptic cream sales grew 38% YoY, while Kesh King sales increased 23% QoQ. Zandu Healthcare division sales grew 14% YoY. Fair and Handsome Fairness cream sales rose 1% YoY, while Face wash grew 16%. Concall highlights: (a) guidance of 15% top-line growth in FY17 maintained; (b) Management is expecting a 100bp increase in gross margin in FY17; A&P increase by 100bp YoY on account of new launches will restrict EBITDA margin improvement; (c) Management expects 20% growth in the international market in FY17, led by Bangladesh and GCC. Valuation and view: With ongoing product/packaging improvements in key brands, the company is likely to get back to double-digit volume growth in FY17. We continue to like HMN, given its strong medium-term earnings visibilities post the Kesh King acquisition (45% EBITDA margin business turning EPS-accretive in the second year). s track record of driving synergies from the Zandu acquisition strengthens our conviction on potential upside from Kesh King. 23% sequential sales growth and market share improvement in Kesh King are encouraging. Stock trades at 31.9x June 2018 EPS. We maintain Buy rating with a revised target price of INR1,335 (37x June 2018 EPS). Krishnan Sambamoorthy (Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 3982 5428 Vishal Punmiya (Vishal.Punmiya@MotilalOswal.com); +91 22 3980 4261 Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/institutional-equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Kesh King addition, sales growth drives strong EBITDA performance 1QFY17 sales grew 19.9% (est.20%) to INR6.44b Ind AS. Overall volumes grew by 17% YoY. We estimate domestic volume growth to be around 18% (est.13%). We were expecting Organic volume growth (ex kesh King) to be 3-4% which actually came at 6.4%. Gross margin stood at 64.5%, up 390bp YoY (est. 50 bps YoY). Higher A&P spends (up 70bp YoY to 23.8%) were partially offset by lower other expenses (down 120bp YoY to 8.6%). Thus mainly due to gross margin improvement, EBITDA margin expanded 450bp YoY (est. 40 bps YoY) to 22.9%. EBITDA thus grew 49.2% (est. 22.8%) to INR1.5b Adjusted PAT grew 18.4% (est. 7.1%) to INR 1.2b. Reported PAT declined due to steep increase in amortization. Exhibit 1: Double digit growth across brands Category Performance 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 Boroplus Antiseptic Cream NA -16% NA 19% 43% 12% 16% 2% 41% 38% Balms -5% 13% 12% 15% 10% 27% 3% 10% 12% 6% Fair & Handsome -2% 14% 16% 21% 9% 20% 10% 8% 0% 1% Navratna Cool Oil 5% 14% 22% 27% 14% 17% 0% -6% 4% 8% Zandu HCD 52% 32% 30% 18% 24% 28% 45% 25% 30% 14% International 9% 104% 33% 21% 48% 22% 12% 11% 17% 14% CSD 42% 6% 16% 16% 11% 6% -1% 13% 12% 12% Source: Company, MOSL Brand-wise performance Navratna oil sales were up 8% YoY with 100 bps margin improvement YoY to 62.3% while Navratna talc grew 15% on sales with 24.1% volume market share. New launch under this brand included Navratna Almond Cool Oil in a non-sticky format and a new talc variant Navratna i-cool. Balms grew by 6% YoY with market leadership maintained and volume market share of 54.5%. The company relaunched Zandu Balm with new packaging and better formulation. Fair and Handsome: Fairness cream sales grew 1% with volume market share up by 120 bps YoY to 64.9% Face wash grew 16% on sales with 70 bps increase in volume market share to 12.6%. Kesh King sales grew 23% QoQ and gained 360 bps volume market share to 33.6%. Boro Plus antiseptic cream sales grew by 38% YoY with market leadership maintained at 76.2%. He Range- The company relaunched He deodorants in premium packaging, introduced new fragrance and forayed into No-Gas deodorants with two new collections. Zandu Healthcare Division sales grew by 14% YoY. Others: 7 Oils in One sales grew by 38% YoY. International business performance International business grew 14% in 1QFY17 led by performance in Bangladesh and GCC regions with leadership maintained across all categories. 3 August 2016 2

Concall highlights Performance Domestic business grew 21% led by volume growth of 18%. Rural and urban contribution equal. Excellent monsoon across India. Going forward expect healthy growth. Relaunched key brands Navratna, He deodorants, Zandu balm with new packaging and formulation. Gained market share in Navratna cooling oil, Fair and Handsome fairness cream as well as face wash and Kesh King during the quarter. For Cooling oil and Kesh King, Nielsen changed base as it increased number of sampling outlets. International business grew by 14%. Gross margin improved by 390bp (Kesh and existing portfolio contributed equally) and EBITDA 450bp despite high A&P spends. Amortization at INR600m vs INR135m YoY. Net debt @ INR2.04b; would retire the debt in next 5 quarters. Raw material: Mentol 10% of total COGS; prices slightly up in last few months. Crude derivatives around 25% of COGS; LLP around 8-9% of COGS. Distribution: 6.4lac direct reach with 2,900 distributors; 8lac by FY18 target. Ind AS impact No significant change in profit; revenue reduced due to sales tax and trade promotions schemes. Guidance 15% topline growth in FY17 maintained. Expecting 1% increase in Gross margin in FY17 from last year; A&P to be 19% vs 18% YoY. Expecting 20% growth in International market in FY17 led by Bangladesh and GCC. Tax rate to be around 20% for FY17. Capex: INR1.75b for FY17. Kesh King All new plans were implemented; change in formulation, and advertising, small size packs 60 ml (INR 70) (below 5% only now) and improved formulation. 10.4% of total revenue (INR670m as per Ind AS; INR750m as per IGAAP); 23% growth on QoQ basis. Target of INR2.8b as per Ind AS for FY17. 9months revenue in FY16 as per Ind AS was INR1.72b. 75k retail outlet reach currently; 1lac reach target. Brandwise details Men s fairness cream market declined during the quarter. Contribution of HE, F&H face wash and 7 Oils in One contributed 5% to the sales. Planning to come with more male grooming products under HE. Healthcare last 4-5 quarters growth was led by Zandu Pancharist which was 23% growth earlier over 50%, mainly as base has increased. 60% of healthcare sales from Pancharist. Test marking new products in South India. Will wait for around 1 quarter before rolling out nationally. Navratna 65% sales from rural areas; 3 August 2016 3

major part of the 8% growth for 1Q from rural. Navratna oil did well in 1 st two months. INR250m from 7 Oils in One in FY17. Greater opportunity in Honey compared to Chyawanprash; not competing on price in Honey category with competitors; targeting niche audience. Valuation and view With ongoing product/packaging improvements in key brands, the company is likely to get back to double digit volume growth in FY17. We continue to like given its strong medium term earnings visibilities post the Kesh King acquisition (45% EBITDA margin business turning EPS accretive in 2nd year). s track record of driving synergies from Zandu acquisition gives us conviction on the potential upside from Kesh King. 23% sequential sales growth as well as market share improvement in Kesh King is encouraging. Stock trades at 31.9x June 2018 EPS. We maintain BUY rating with revised target price of INR1,335 (37x June 2018 EPS). Exhibit 2: EPS unchanged for FY18 New Old Change FY17E FY18E FY17E FY18E FY17E FY18E Sales 28,010 32,889 30,817 36,179-9.1% -9.1% EBITDA 8,114 9,645 8,240.0 9,659.8-1.5% -0.2% PAT 6,291 7,792 6,542 7,816-3.8% -0.3% Source: Company, MOSL Exhibit 3: P/E (x) 55.0 PE (x) Peak(x) Avg(x) Min(x) 49.9 45.0 35.0 37.1 23.5 25.0 15.0 8.3 5.0 Jul-06 Oct-07 Jan-09 Apr-10 Jul-11 Oct-12 Jan-14 Apr-15 Jul-16 Source: Company, MOSL Exhibit 4: P/E premium vs. Sensex 200 PE Relative to Sensex PE (%) LPA (%) 150 112.0 100 50 39.1 0-50 Jul-06 Oct-07 Jan-09 Apr-10 Jul-11 Oct-12 Jan-14 Apr-15 Jul-16 Source: Company, MOSL 3 August 2016 4

Exhibit 1: Valuation Matrix of coverage universe Company Reco Price Mkt Cap EPS Growth YoY (%) P/E (x) EV/EBITDA (x) ROE (%) Div. (%) (INR) (USD M) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY16 Consumer Asian Paints Neutral 1,143 16,379 25.0 20.1 16.3 61.7 51.4 44.1 41.3 34.2 29.4 34.4 0.8 Britannia Buy 2,828 5,066 41.9 21.6 15.2 41.7 34.3 29.8 28.4 23.7 19.6 54.6 0.9 Colgate Buy 938 3,811 6.9 8.5 21.4 42.7 39.4 32.4 27.1 23.7 19.5 66.8 1.1 Dabur* Neutral 297 7,791 17.5 12.3 15.5 41.6 37.0 32.1 33.5 29.9 25.8 33.2 0.7 * Buy 1,151 3,900 17.7 10.0 23.9 45.7 41.5 33.5 39.0 32.3 26.7 43.4 0.7 Godrej Consumer Neutral 1,566 7,965 24.4 22.9 25.8 47.2 38.4 30.5 35.0 29.4 24.2 23.4 0.6 GSK Consumer Buy 6,208 3,899 17.7 9.7 14.7 38.0 34.6 30.2 28.0 25.2 21.1 29.9 1.1 Hind. Unilever Neutral 915 29,562 12.9 7.1 12.8 48.0 44.9 39.8 33.6 31.2 27.6 82.4 1.7 ITC Buy 253 45,563-3.5 17.9 15.6 32.8 27.8 24.0 20.8 18.5 15.8 29.3 2.7 Jyothy Labs Buy 287 774 24.2-6.7 12.4 32.8 35.2 31.3 25.3 22.5 19.9 19.2 1.4 Marico* Neutral 297 5,723 23.7 14.6 16.6 54.1 47.2 40.4 35.9 31.8 27.1 36.2 1.1 Nestle Neutral 6,808 9,803-7.3-5.5 25.5 56.8 60.1 47.9 40.0 34.9 27.8 40.9 0.7 Page Industries Buy 13,954 2,324 21.0 25.0 31.3 65.6 52.5 40.0 40.9 33.3 25.7 46.9 0.7 Parag Milk Foods Neutral 317 334-66.7 41.1 32.5 47.2 33.4 25.2 17.6 16.0 13.1 19.5 0.0 Pidilite Inds. Buy 718 5,499 46.6 23.0 18.2 48.4 39.3 33.3 30.6 25.4 21.4 30.4 0.6 P&G Hygiene Buy 6,410 3,107 19.8 12.0 19.7 50.2 44.9 37.5 33.6 28.8 23.3 31.2 1.0 Radico Khaitan Buy 90 177-2.6 14.7 21.0 13.9 12.1 10.0 9.9 8.6 7.3 9.3 1.1 United Spirits Buy 2,317 5,028 LP 21.1 50.8 74.9 61.8 41.0 34.6 32.6 24.4 36.7 0.0 Retail Jubilant Foodworks Buy 1,206 1,181-6.0 54.0 46.1 75.7 49.2 33.7 28.2 20.5 15.1 14.1 0.2 Shopper's Stop Neutral 369 453 19.3 48.9 30.9 63.3 42.5 32.5 15.1 12.5 10.3 6.3 0.0 Titan Company Neutral 414 5,494-11.7 17.0 15.3 50.6 43.3 37.5 40.7 31.8 27.4 21.8 0.6 Note: For Nestle FY16 means CY15 Source: Company, MOSL 3 August 2016 5

Financials and Valuations Income Statement (INR Million) Y/E March 2011 2012 2013 2014 2015 2016 2017E 2018E Net Sales 12,471 14,535 16,991 18,208 22,172 23,937 28,010 32,889 Change (%) 22.1 16.6 16.9 7.2 21.8 8.0 17.0 17.4 COGS 5,232 6,264 7,154 6,803 7,800 8,513 9,704 11,316 Gross Profit 7,239 8,271 9,837 11,405 14,373 15,424 18,305 21,573 Gross Margin (%) 58.0 56.9 57.9 62.6 64.8 64.4 65.4 65.6 Operating expenses 4,587 5,483 6,421 6,961 9,018 8,580 10,191 11,928 EBITDA 2,652 2,788 3,415 4,444 5,355 6,844 8,114 9,645 Change (%) 8.2 5.1 22.5 30.1 20.5 27.8 18.6 18.9 Margin (%) 21.3 19.2 20.1 24.4 24.2 28.6 29.0 29.3 Depreciation 140 188 220 352 343 450 493 521 Int. and Fin. Charges 152 152 66 54 51 543 302 0 Financial Other Income 331 541 557 622 964 449 532 625 Profit before Taxes 2,691 2,989 3,687 4,660 5,924 6,301 7,852 9,749 Change (%) 24.0 11.1 23.3 26.4 27.1 6.4 24.6 24.2 Margin (%) 21.6 20.6 21.7 25.6 26.7 26.3 28.0 29.6 Tax 337 393 548 636 994 588 1,562 1,957 Tax Rate (%) 15.0 13.4 14.6 11.7 18.1 7.3 19.9 20.1 Adjusted PAT 2,287 2,588 3,147 4,025 4,856 5,718 6,291 7,792 Change (%) 27.2 13.2 21.6 27.9 20.7 17.7 10.0 23.9 Margin (%) 18.3 17.8 18.5 22.1 21.9 23.9 22.5 23.7 Amortization 0.0 0.0 0.0 0.0 0.0 2,100 2,400 2,400 Non-rec. (Exp)/Income 0 0 0 89 0 0 0 0 Reported PAT 2,287 2,588 3,147 4,025 4,856 3,618 3,891 5,392 Note: We have adjusted FY16, FY17 and FY18 P&L numbers for Ind AS Impact. Since Ind AS Balance Sheet has not been shared we have retained earlier numbers. Balance Sheet (INR Million) Y/E March 2011 2012 2013 2014 2015 2016 2017E 2018E Share Capital 151 151 151 227 227 227 227 227 Reserves 6,747 6,915 7,623 9,094 12,079 13,804 19,312 23,721 Net Worth 6,899 7,066 7,775 9,321 12,306 14,031 19,539 23,948 Minority Interest 1 1 0 0 46 41 41 41 Loans 2,294 1,611 1,201 450 470 6,777 3,774 0 Deferred Liability 137 145 137 48 120-9 -9-9 Capital Employed 9,330 8,824 9,113 9,819 12,942 20,840 23,345 23,980 Goodwill on consolidation 8 42 46 0 41 41 41 41 Gross Block 7,993 8,377 9,394 10,341 6,393 24,172 25,922 27,422 Less: Accum. Depn. 3,148 4,342 5,472 6,382 1,882 4,409 5,908 7,488 Net Fixed Assets 4,845 4,035 3,922 3,959 4,511 19,763 20,014 19,934 Capital WIP 65 768 475 119 265 616 616 616 Investments 66 803 1,631 2,958 5,013 186 166 166 Curr. Assets, L&A 5,998 6,125 6,088 5,987 6,934 6,031 8,804 10,153 Inventory 1,234 1,122 1,140 1,411 1,267 1,505 1,899 2,247 Account Receivables 1,087 1,005 1,122 793 1,027 1,301 1,710 2,108 Cash and cash equivalents 2,107 2,760 2,817 2,700 3,541 1,084 2,704 3,030 Others 1,570 1,237 1,009 1,083 1,100 2,140 2,491 2,768 Curr. Liab. and Prov. 1,649 2,949 3,049 3,203 3,821 5,797 6,297 6,930 Account Payables 883 1,071 1,061 1,480 1,990 2,487 2,429 2,763 Other Liabilities 32 256 267 341 468 708 708 708 Provisions 733 1,621 1,721 1,383 1,363 2,602 3,159 3,459 Net Current Assets 4,349 3,176 3,039 2,783 3,113 234 2,507 3,223 Application of Funds 9,332 8,825 9,113 9,819 12,942 20,840 23,344 23,980 E: MOSL Estimates 3 August 2016 6

Financials and Valuations Ratios 630 Y/E March 2011 2012 2013 2014 2015 2016 2017E 2018E Basic (INR) EPS 15.1 17.1 20.8 17.7 21.4 25.2 27.7 34.3 Cash EPS 16.0 18.3 22.3 19.3 22.9 27.2 29.9 36.6 BV/Share 45.6 46.7 51.4 41.1 54.2 61.8 86.1 105.5 DPS 3.5 8.0 8.0 7.0 7.3 8.0 11.0 12.0 Payout % 23.2 46.8 38.5 39.5 32.7 27.9 39.7 35.0 Valuation (x) P/E 76.1 67.3 55.3 64.9 53.8 45.7 41.5 33.5 Cash P/E 71.7 62.7 51.7 59.7 50.2 42.3 38.5 31.4 EV/Sales 14.0 11.8 10.1 14.1 11.4 11.1 9.4 7.8 EV/EBITDA 65.7 61.7 50.0 57.6 47.3 39.0 32.3 26.7 P/BV 25.2 24.6 22.4 28.0 21.2 18.6 13.4 10.9 Dividend Yield (%) 0.3 0.7 0.7 0.6 0.6 0.7 1.0 1.0 Return Ratios (%) RoE 34.8 37.1 42.4 47.1 44.9 43.4 37.5 35.8 RoCE 27.5 28.6 35.6 43.2 44.0 37.9 34.5 38.6 RoIC 29.7 36.2 49.1 56.3 50.9 42.5 31.2 36.1 Working Capital Ratios Debtor (Days) 31 25 24 16 17 18 20 21 Asset Turnover (x) 1.4 1.5 1.7 1.6 1.4 1.4 1.4 1.6 Leverage Ratio Debt/Equity (x) 0.0-0.2-0.6-0.8-0.3 0.4 0.1-0.1 Cash Flow Statement (INR Million) Y/E March 2011 2012 2013 2014 2015 2016 2017E 2018E OP/(loss) before Tax 2,652 2,788 3,415 4,444 5,355 6,844 8,114 9,645 Int./Div. Received 5 5 5 177 1,012 705 0 0 Interest Paid -152-152 -66-54 -51-540 -336 0 Direct Taxes Paid -404-401 -540-547 -1,070-459 -1,562-1,957 (Incr)/Decr in WC -1,215 1,830 187 139 512 422 246-390 CF from Operations 886 4,070 3,002 4,159 5,758 6,972 6,463 7,298 (Incr)/Decr in FA -358-1,088-723 -591 3,802-18,130-1,750-1,500 (Pur)/Sale of Investments 550-737 -828-1,327-2,054 4,826 20 0 CF from Invest. 192-1,825-1,551-1,918 1,748-13,304-1,730-1,500 (Incr)/Decr in Debt -297-682 -410-751 19 6,307-3,003-3,774 Dividend Paid -618-1,405-1,416-1,743-1,727-1,912-3,005-3,278 Others 329 495 433 136-4,956-519 2,894 1,579 CF from Fin. Activity -585-1,592-1,394-2,358-6,664 3,876-3,114-5,473 Incr/Decr of Cash 493 653 57-117 842-2,456 1,619 325 Add: Opening Balance 1,614 2,107 2,760 2,817 2,700 3,541 1,084 2,704 Closing Balance 2,107 2,760 2,817 2,700 3,541 1,085 2,704 3,030 E: MOSL Estimates 3 August 2016 7

Corporate profile Company description Limited is the flagship company of the ~INR60b Group. The two promoters, Mr RS Agarwal and Mr RS Goenka in 1978, they acquired Himani Limited, a cosmetics company based in eastern India, with a factory in Kolkata. Himani launched BoroPlus in 1982 and the Navratna cooling oil range in 1989. In 1998, the promoters merged the two entities, creating. The company has since focused on expanding its portfolio in the Healthcare and Personal Care space. In 2008, it acquired Zandu, giving it a leadership position in the Balm category and access to a host of Ayurvedic and OTC products. Exhibit 1: Sensex rebased Source: MOSL/Bloomberg Exhibit 2: Shareholding pattern (%) Jun-16 Mar-16 Jun-15 Promoter 72.7 72.7 72.7 DII 1.6 1.2 1.3 FII 15.7 16.3 16.3 Others 9.9 9.8 9.6 Note: FII Includes depository receipts Source: Capitaline Exhibit 3: Top holders Holder Name % Holding SMALLCAP WORLD FUND INC (FII) 3.4 Avees Trading & Finance Pvt Ltd 3.2 MATTHEWS INDIA FUND (FII) 1.6 NA 0.0 NA 0.0 Source: Capitaline Exhibit 4: Top management Name Designation Exhibit 5: Directors Name Name R S Agarwal Chairman Aditya Vardhan Agarwal Amit Kiran Deb Sushil K Goenka Managing Director K N Memani M D Mallya A K Joshi Company Secretary P K Khaitan S B Ganguly Sajjan Bhajanka Harsh Vardhan Agarwal Prashant Goenka R S Goenka Y P Trivedi Mohan Goenka Priti A Sureka Rama Bijapurkar Source: Capitaline *Independent Exhibit 6: Auditors Name S K Agarwal & Co V K Jain & Co Type Statutory Cost Auditor Exhibit 7: MOSL forecast v/s consensus EPS MOSL Consensus (INR) forecast forecast Variation (%) FY17 27.7 26.1 6.1 FY18 34.3 32.2 6.5 Source: Bloomberg Source: Capitaline 3 August 2016 8

N O T E S 3 August 2016 9

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