Hindustan Unilever (HINLEV) 919

Result Update Rating matrix Rating : Buy Target : 117 Target Period : 12 months Potential Upside : 11% What s changed? Target Changed from 92 to 117 EPS FY16E Changed from 2.8 to 21.2 EPS FY17E Changed from 24.8 to 25.4 Rating Changed from Hold to Buy Quarterly performance Q1FY16 Q1FY15 YoY % Q4FY15 QoQ % Sales 7973.4 757.8 5.3 7555. 5.5 EBITDA 156.4 1316.5 14.4 1318.2 14.3 EBITDA % 18.6 17.1 152 bps 17.2 141 bps PAT 159.1 156.9.2 118.1 4. Key financials Crore FY14 FY15 FY16E FY17E Net Sales 27,48 3,171 33,164 37,223 EBITDA 4,475 5,28 5,969 7,61 Net Profit 3,869 4,316 4,577 5,497 EPS( ) 17.9 19.9 21.2 25.4 Adj. EPS( ) 13.3 14.9 15.8 18.4 Valuation summary FY14 FY15 FY16E FY17E P/E 51.4 46.1 43.4 36.2 Target P/E 56.8 51. 48. 4. Div. Yield 1.4 1.6 1.7 2. Mcap/Sales 7.3 6.6 6. 5.3 RoNW (%) 118. 115.9 16.7 14.3 RoCE (%) 128.6 132.2 132.4 128.4 Stock data Particular Amount Market Capitalization ( Crore) 198,89.4 Total Debt (FY15) ( Crore). Cash and Investments (FY15) ( Crore) 5,161.8 EV ( Crore) 193,647.6 52 week H/L 981 / 62 Equity capital 216.3 Crore Face value 1 Price performance Return % 1M 3M 6M 12M HUL 3.9 2. -5.2 42.1 ITC 2.8-8.2-11. -1.1 GCPL 9.2 6.2 11.3 51.9 Colgate 4.7 3.4 8.1 24.5 Research Analyst Sanjay Manyal sanjay.manyal@icicisecurities.com Parineeta Rajgarhia parineeta.rajgarhia@icicisecurities.com Sturdy margins to drive earnings growth July 22, 215 Hindustan Unilever (HINLEV) 919 Hindustan Unilever s Q1FY16 net sales grew 5.3% YoY to 7973.4 crore (I-direct estimate: 8261.2 crore) led by volume growth of 6%as it took price cuts in the process of passing on benefits of benign commodity prices. Sales growth YoY in S&D was.2%, personal products at 11.4%, beverages at 9.4% and foods at 11.8% Operating margins improved ~15 bps to 18.6% (I-direct estimate: 17.1%) due to lower RM costs (~375 bps decline as percentage of sales). HUL channelised these cost savings to increase A&P spend by 29 crore, an increment of 2 bps as percentage of sales PAT growth was flattish at.2% YoY to 159.1 crore (I-direct estimate: 113.6 crore) mainly due to a significant increase of 28 bps in the company's tax rate due to phasing out of tax benefits Volume growth expected to remain moderate until FY16E As the largest FMCG player, HUL s volume growth decelerated in line with the economic downturn. Volume growth has declined from ~13% (FY11) to 5% in FY15, largely on the back of a slowdown in urban discretionary demand with rural growth remaining moderate. Going ahead, we believe volume growth would remain moderate until FY16E led by a slower revival in GDP growth and headwinds in rural consumption. However, we believe that as the economy revives and growth gains traction, HUL s strong portfolio of brands across segments would aid volume growth back to 7-8% in future. Premiumisation to drive soaps & detergents growth S&D, HUL s largest revenue contributing segment (~48% in FY15) witnessed modest CAGR of 12.5% in FY1-15 led by an equal mix of volumes and prices. The pricing power of HUL is backed by the strong leadership position of HUL in both segments (~4% of value share in detergents and ~45% value share in soaps) and its presence across the value pyramid in each of them. Going ahead, we believe that led by the high penetration (~99%), volume growth in S&D would remain muted and price growth would be the key revenue growth driver estimated at 12.5% CAGR (FY15-17E) in S&D. Surf, HUL s largest brand (~ 26 crore in FY15), Lifebuoy, Wheel & Rin are 2+ crore brands. We believe that price led growth would also be led by premiumisation with a revival in urban discretionary demand. Sustained healthy growth expected in personal product revenues HUL s PP (~29% of revenues, ~47% of PBIT in FY15) growth at 12.3% CAGR (FY1-15) has been largely led by volumes following lower penetration of oral, hair & skin care products and HUL s strengthening presence across these segments led by its strong brands, Fair & Lovely, Ponds, Lakme, Clinic Plus, Close-Up, etc. We believe going ahead HUL s brand strength would revive sales growth to 13.8% CAGR (FY15-17E) as consumer demand gains traction. Strong earnings, margins justify premium valuation With strong brands in the growing aspirational segments, HUL, aided by an improvement in margins (17.6% in FY16E & 18.6% in FY17E), is strongly placed to capture a revival in consumer demand, going forward. We estimate healthy sales growth & profitability growth of 11.1% & 12.9% CAGR respectively in FY15-17E. We value the stock at 4x its FY17E EPS of 25.4 and arrive at a target price of 117/share with a BUY recommendation. ICICI Securities Ltd Retail Equity Research

Variance analysis Q1FY16 Q1FY16E Q1FY15 YoY (%) Q4FY15 QoQ (%) Comments Net Sales 7,973.4 8,261.2 7,57.8 5.3 7,555. 5.5 Net sales grew 5.3% led by 6% volume growth. HUL took price cuts to pass on the benefits of benign commodity prices Operating Income 131.8 165.2 145.6-9.5 12.6 9.2 Raw Material Expenses 3,92. 4,266.7 3,73.8 4.6 3,827. 2. With the decline in palm oil, PFAD & crude, raw material costs as percentage of sales dipped 375 bps in the quarter Employee Expenses 363.5 421.3 335.7 8.3 388.4-6.4 Marketing Expenses 1,153.4 1,17. 944.9 22.1 1,27.9 12.2 A&P spend was up by 29 crore as it increased 2 bps as percentage of sales Other operating expenses 1,179.8 1,193.7 1,129.6 4.4 1,114.2 5.9 EBITDA 1,56.4 1,437.6 1,316.5 14.4 1,318.2 14.3 EBITDA margin (%) 18.6 17.1 17.1 152 bps 17.2 141 bps Operating margins increased ~15 bps led by lower RM costs Depreciation 74.9 72.3 66.7 12.3 7.5 6.3 Interest.1. 6.3-98.9. NA Other Income 18.6 211.2 22.1-46.3 98.4 1.4 PBT 1,54. 1,576.6 1,445.7 6.5 1,525.5 1. Exceptional Items 9.8. 39.6-75.4 179.4-94.6 Exceptional gain mainly due to property sales Tax Outgo 49.7 473. 428.5 14.5 57.4-3.3 PAT 1,59.1 1,13.6 1,56.9.2 1,18.1 4. Net profit was up.2% mainly on the back of an increase in tax rate for the company as tax benefits get phased out Key Metrics growth YoY (%) Soaps & detergents.2 1. 12.9 5.6 Muted sales growth in S&D with price de-growth offsetting volume growth Personal Products 11.4 14.4 14.7 13.4 Robust growth in personal products Beverages 9.4 16.5 1.5 12.3 Foods 11.8 1.7 18.8 13.6 Foods segment witnessed strong growth on the back of healthy growth in Magnum, Knorr & Kissan brands Change in estimates FY16E FY17E ( Crore) Old New % Change Old New % Change Comments Sales 33,38.7 33,164.4 -.4 37,395.1 37,222.9 -.5 EBITDA 5,871.4 5,968.7 1.7 6,965.6 7,61.2 1.4 EBITDA Margin (%) 17.3 17.6 36 bps 18.3 18.6 34 bps We expect an improvement in margins on the back of subdued commodity prices PAT 4,499.1 4,576.9 1.7 5,352.9 5,497.2 2.7 We expect the decline in corporate tax rate to reduce tax liability for the company, going forward EPS ( ) 2.8 21.2 1.7 24.8 25.4 2.7 Assumptions Current Earlier Comments ( crore) FY14 FY15 FY16E FY17E FY15 FY16E FY17E Soaps & detergents 13,683.4 14,876.6 17,9.6 18,813.3 14,876.6 16,876.7 18,77.5 No significant change in our estimates Personal Products 8,12.9 9,6.5 1,7.2 11,667.7 9,6.5 1,276.6 11,846.3 Beverages 3,311.9 3,631.5 3,897.3 4,44.6 3,631.5 4,13.7 4,661.1 Foods 1,648.3 1,891.8 2,262.2 2,451.3 1,891.8 2,12.7 2,334. ICICI Securities Ltd Retail Equity Research Page 2

Company Analysis Premiumisation to drive soaps & detergents growth S&D comprises the largest revenue segment for HUL contributing ~48% to revenues (FY15). HUL s strong brands in soaps (Lifebuoy, Lux, Liril and Rexona) and detergents (Wheel, Surf Excel, Surf, Vim) have aided the company s dominant position in both segments (~4% of value share in detergents and ~45% value share in soaps) over the years despite the constant tough competition from the global player, P&G. Hence, in spite of the high penetration in the segment (~99%), S&D revenue growth of 12.5% CAGR in FY1-15 has been a mix of volume and price led growth. Dove and Vim delivered double digit volume growth in Q1FY16. During Q1FY16, Dove Hybrid was introduced while Liril was relaunched by HUL. The company took ~2% price cuts in S&D category during the quarter. Going ahead, we believe with HUL s pricing power in the segment along with increasing rate of premiumisation, S&D revenues would be largely price led with volume growth remaining modest. We expect S&D revenues to grow at a CAGR of 12.5% in FY15-17E. With higher contribution of prices in the sales mix, we believe margins from the segment would also improve, thereby increasing the segment s contribution to overall EBIT from ~4% in FY15. Exhibit 1: S&D revenue ( crore) and YoY growth (%) 2 18 16 14 12 1 8 6 4 2 6 54.4 5 4 3 21. 19.4 2 14.3 6.4 7.7 8.7 1.6 1-1 -16.4-2 -3 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E Soaps & Detergents Sales (LHS) S&D Sales Growth (RHS) *FY9 contains 15 months numbers due to change in reporting from CY to FY Exhibit 2: HUL s S&D EBIT ( crore) LHS & S&D EBIT Margin (%) RHS Exhibit 3: S&D s revenue and EBIT contribution to overall performance 25 2 15 1 5 15. 14.3 12.7 11.6 13.1 9.5 ` FY9 FY1 FY11 FY12 FY13 FY14 FY15 16 13.7 14 12 1 8 6 4 2 6 48.1 46.5 48.9 49.3 44.6 5 49. 48.4 446.3 42.3 3 4. 4.1 36.9 39.6 2 3.5 1 FY9 FY1 FY11 FY12 FY13 FY14 FY15 S&D EBIT S&D EBIT Margin (%) Contribution to Revenues Contribution to EBIT ICICI Securities Ltd Retail Equity Research Page 3

Sustained healthy growth expected in personal product revenues Personal products (PP), the highest contributor to HUL s PBIT (~47% in FY15) over the years has witnessed a moderation in revenue growth while segmental margins following the slowdown in consumer discretionary demand and increasing competition. PP revenue growth has moderated from high double digits in CY7-FY12 to high single digits in FY14. The growth in CY7-FY12 was led largely by volumes with price increases remaining minimal. However, following the significant inflation in the economy along with the slowdown in demand, price increases at this time have impacted volume growth tremendously for the company. However, we believe that with HUL s strong brand portfolio across the value pyramid (Premium - Pond s, Axe, Dove, Close Up; Popular - Vaseline, Sunsilk, Pepsodent; Mass Fair & Lovely, Clinic Plus) and presence across all categories of personal care (hair care, oral care, skin care, men s grooming, cosmetics & services), the company will be the key beneficiary from a revival in discretionary demand and booming personal products demand in the economy. During Q1FY16, HUL launched Lakme 9 to 5 Insta light cream, Lakme Absolute Vinyl eye liner, Dove Oxygen Moisture shampoo & Fair & Lovely BB cream, Color Boost (new lip color under Elle 18). HUL s premium hair care brand TRESemme became a 1 crore brand in FY15 further helping the company in the implementation of its premiumisation strategy. Pepsodent Clove & Salt, launched in South India in FY15, was extended nationally during Q1FY16. We expect the PP segment to post healthy CAGR (FY15-17E) at 13.8% and revive its contribution to EBIT to FY11-12 levels (52-54%). The higher contribution to EBIT would also be aided by the increasing rate of premiumisation once demand revives. Exhibit 4: Personal product revenues ( crore) and growth (%) trend 14 46.1 12 1 8 6 4 2-2 5 4 3 17.1 15.9 2 15.773 9.1 1.9 11.8 8.7 1-6.3 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E -1 Personal Products Sales (LHS) PP Sales Growth (RHS) ICICI Securities Ltd Retail Equity Research Page 4

Exhibit 5: PP EBIT ( crore) LHS and PP EBIT margin (%) - RHS Exhibit 6: PP s revenue and EBIT contribution to overall performance 3 25 2 15 1 5 1948.9 268.1 26.5 1744.6 1429. 1494.8 1296.5 26.1 25.7 25.6 25.5 ` 2424.4 25.5 28 26.9 27 27 26 26 25 6 5 4 3 2 1 44.6 46.2 26.2 28.4 54.6 52.2 29.7 31.5 48.3 46.4 47.2 29. 29.1 29.3 FY9 FY1 FY11 FY12 FY13 FY14 FY15 25 FY9 FY1 FY11 FY12 FY13 FY14 FY15 PP EBIT PP EBIT Margin (%) Contribution to Revenues Contribution to EBIT Premiumisation to be key revenue driver for beverages HUL s beverage business (tea brands: Lipton, Taj Mahal, Red Label; coffee brands: Bru) growth at 11.1% CAGR (FY1-15) has been led largely by prices following the high penetration of tea consumption in India, keeping volume growth muted. HUL is the second largest branded tea company in the country and is growing aggressively in the branded coffee business with its brand Bru. We believe that with increasing green tea and coffee culture in the country (home and out-of-the home) and shift of consumers to premium flavoured teas and tea bags, premiumisation would be the key revenue driver for HUL s beverage portfolio, going ahead. We expect revenue growth at 1.6% CAGR from FY15-17E. Further, we believe that with the increasing contribution of premium brands in sales mix, EBIT and EBIT margins from the segment would also improve further. Exhibit 7: Beverages revenues ( crore) and growth (%) trend 6 5 4 3 2 1-1 -2 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E 6 5 4 3 2 1-1 -2 Beverages Sales (LHS) Beverages Growth (RHS) ICICI Securities Ltd Retail Equity Research Page 5

Exhibit 8: Beverages EBIT ( crore) LHS and EBIT margin - RHS Exhibit 9: Beverages revenue & EBIT contribution to overall performance 7 6 5 4 3 2 1 16.9 14.9 15.3 16. 17.5 14. 13.4 FY9 FY1 FY11 FY12 FY13 FY14 FY15 2 15 1 5 14 13 12 11 9.6 111.2 9 8 7 6 5 11.4 13.1 11. 12.1 11.9 12. 11.8 13. 12. 11.6 11.9 11.8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 Beverages EBIT Beverages EBIT Margin (%) Contribution to Revenues Contribution to EBIT Foods business growth expected at 13.8% CAGR in FY15-17E The foods segment, the biggest opportunity for the future but the weakest performer in HUL s portfolio, posted healthy revenue growth of 21% CAGR in FY1-15 but remained a dragger on the earnings front. The segmental margins have remained subdued over the years. We believe that though HUL has strong brands in the segment, Kissan, Knorr, Kwality Walls, the company has been unable to establish itself in the higher growth segments of packaged food (noodles, dairy, biscuits), keeping earnings growth muted. HUL has been ramping up its presence across various categories recently (premium ice cream Magnum, Kissan Twist ketchup, relaunch of Kissan Mango as flagship jam). Going ahead, we believe that increasing competition in the segment from leading players in the branded foods category (Nestlé, ITC, Britannia) would keep HUL s foods revenue growth at 13.8% CAGR (FY15-17E) with no significant contribution to EBIT until FY16E. Exhibit 1: Foods revenues ( crore) and growth (%) trend 3 48.7 25 6 5 2 4 15 1 5 22.393 15.5 1.8 9.5 14.8 19.6 3 2 8.4 1-5 -7.8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E -1 Foods Sales (LHS) Foods Sales Growth (RHS) ICICI Securities Ltd Retail Equity Research Page 6

Exhibit 11: Foods EBIT ( crore) LHS and EBIT margin - RHS Exhibit 12: Foods revenue and EBIT contribution to overall performance 7 6 6 4.4 5 5 4 3.7 4 2.5 3 3 1.8 1.1 2 2.5 1.1 1-1 FY9 FY1 FY11 FY12 FY13 FY14 FY15-1 7 6. 6.3 5.8 5.9 6.2 6 5 5.1 5.4 4 3 1.2 1.4 1.6 2.6.7.9.3 1 FY9 FY1 FY11 FY12 FY13 FY14 FY15 Foods EBIT Foods EBIT Margin (%) Contribution to Revenues Contribution to EBIT ICICI Securities Ltd Retail Equity Research Page 7

EBITDA margin improvement to 18.6% by FY17E HUL has maintained its raw material (RM) cost to sales ratio at ~53% over the years (CY7-FY15). In spite of an unprecedented increase in RM costs in FY12 (~54%), the company s strong brand equity across categories helped it to pass on the impact through higher prices while 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 moderate to ~5% by FY17E on the back of global decline in commodity prices and aid margins to 18.6% by FY17E. We believe the savings in raw material costs would be directed towards higher marketing spends to fight competition and aid new launches. Exhibit 13: EBITDA margin (%) and RM cost to sales (%) trend 2 19 18 17 16 15 14 13 12 11 1 18.6 17.6 16.9 16. 15.5 15.5 14.7 14.9 13.7 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E 56 55 54 53 52 51 5 49 48 EBITDA Margin (%) - LHS RM cost to sales (%) - RHS Higher margins & lower taxes to aid PAT growth HUL s effective tax rate has increased over the years from ~17% in CY7 to ~23% in FY14 and ~3% in FY15 as a result of phasing out of tax benefits. However, going ahead, we believe that lower corporate tax rate would more than compensate for expiry of tax benefits in most of its factories. We believe a strong 17 bps improvement in operating margins due to a decline in RM cost would result in healthy earnings growth at 12.9% CAGR in FY15-17E. ICICI Securities Ltd Retail Equity Research Page 8

Exhibit 14: Adjusted PAT ( crore) & tax rate (percentage of PBIT) 5 4 3 2 1 233 28 1982 2383 2866 3215 3421 3978 481 35 3 25 2 15 1 5 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E PAT - LHS Tax Rate (% of PBIT) - RHS ICICI Securities Ltd Retail Equity Research Page 9

Outlook & valuation We believe that though HUL s volume growth would remain subdued until FY16E, being the largest FMCG player in the country, it would be the key beneficiary of a revival in consumer demand, going forward. HUL s key growth driver would be the company s presence across the value pyramid in the segments where it is present. Also, with the company s increasing focus towards premiumisation (launch of liquid detergents, Magnum, Sunsilk Keratin range, Bru Gold, Flavoured Tea bags, etc), we believe revenue and margin growth would continue to remain healthy with a revival in discretionary demand. HUL s soaps and detergents growth would be largely led by premiumisation given the company s dominance and ability to develop the market in the segment. Hence, we expect S&D revenue growth at 12.5% CAGR (FY15-17E). For personal products, we believe higher innovation and premiumisation would be key revenue drivers. We expect heightened activity on part of the company in this segment to regain its lost volume growth. We expect revenue growth in PP to revive to 13.8% CAGR (FY15-17E). For beverages, we believe premium tea and coffee would drive revenue growth at 1.6% CAGR (FY15-17E). We expect HUL s food business growth at 13.8% (FY15-17E) CAGR largely led by prices. With prolonged revenue and earnings growth visibility led by a revival in volume growth and improving product mix, we believe the stock would command a premium to its peers. We believe that an improvement in operating margins (17.6% in FY16E and 18.6% in FY17E) due to subdued commodity prices globally, premiumisation strategy and reducing corporate tax rate, going forward, augur well for the company and justify premium valuation. We value the stock at 4x its FY17E EPS of 25.4 to arrive at a target price of 117 per share with a BUY recommendation. Exhibit 15: Valuations Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE ( cr) (%) ( ) (%) (x) (x) (%) (%) FY14 2748.3. 17.9. 51.4 43.9 118. 128.6 FY15 317.5 1.1 19.9 11.5 46.1 37.7 115.9 132.2 FY16E 33164.4 9.9 21.2 6.1 43.4 32.7 16.7 132.4 FY17E 37222.9 12.2 25.4 2.1 36.2 27.6 14.3 128.4 ICICI Securities Ltd Retail Equity Research Page 1

Company snapshot 1,1 1, Target Price 117 9 8 7 6 5 4 3 2 1 Dec-8 Mar-9 Jun-9 Sep-9 Dec-9 Mar-1 Jun-1 Sep-1 Dec-1 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Source: Bloomberg, Company, ICICIdirect.com Research Key events Event 28-9 Stock remains a non-performer following no key innovations and a significant increase in palm oil and crude oil prices keeping earning growth moderate FY9 Volume growth starts declining following weakening economic growth. Volumes witness de-growth of 5% during January-March, 29 Oct-Dec, 29 Led by the slowdown in CY9, volume growth until Q3FY1 remains below 5% with market share falling across categories Feb-1 Launches 'Must Win, 21' programme involving strategic pricing & huge distribution push to mop up the company's falling performance Dec-1 Though profit growth remains moderate at 15%, the stock posts a return of ~28% following strong volume growth and marketing initiatives of HUL Q4FY11 Soaps & detergents margins get dented drastically due to exceptional increase in input (LAB) costs leading the stock to correct ~21% from January-March, 211 Q1FY12 Hikes prices (5-8% overall & ~21% in S&D) to pass on input cost inflation. Gains market share from unorganised players with rising input costs Softening in volume growth to high single digits along with slowing rate of premiumisation. However, stock continues to rise until October, 212 (return of ~4% H1FY13 from April, 213) mirroring the FMCG Index as defensives were the safest bet in the market considering the slowing economic scenario H2FY13 Stock declines ~12% led by consistent weakness in volume growth (low sigle digits) Apr-13 Unilever announces open offer at 6/share to increase its stake in HUL to 75% from 52.5% Jul-13 Stock soars ~12% on account of FTSE and MSCI re-balancing post the closure of open offer Oct-14 Volume growth remains subdued at 4% as urban discretionary demand remain dismal Dec-14 Commodity prices including palm oil, crude and related derivatives witness significant decline Top 1 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Unilever PLC 3-Jun-15 67.22 1,454.4. 2 Vontobel Asset Management, Inc. 3-Apr-15 1.43 31. 1.3 3 Life Insurance Corporation of India 3-Jun-15 1.7 23.1 23.1 4 The Vanguard Group, Inc. 3-Jun-15.9 19.4.6 5 BlackRock Institutional Trust Company, N.A. 3-Jun-15.9 19.4 1. 6 Aberdeen Asset Management (Asia) Ltd. 3-Apr-15.79 17.. 7 William Blair & Company, L.L.C. 31-Mar-15.42 9.1 7.6 8 Aberdeen Asset Managers Ltd. 3-Apr-15.27 5.9.5 9 Lyxor Asset Management 3-Jun-15.21 4.6 -.1 1 British Columbia Investment Management Corp. 31-Mar-14.18 3.9-1.7 Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Mar-14 Sep-14 Dec-14 Mar-15 Jun-15 Promoter 67.3 67.2 67.2 67.2 67.2 FII 14.1 15.1 15. 15. 14.6 DII 4.1 3.9 3.9 3.9 4.2 Others 14.4 13.8 13.9 13.9 14. Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares Life Insurance Corporation of India 333.5m 23.14m CPP Investment Board -16.86m -1.67m William Blair & Company, L.L.C. 15.85m 7.55m British Columbia Investment Management Corp. -16.69m -1.65m Vontobel Asset Management, Inc. 17.13m 1.28m J.P. Morgan Asset Management (Hong Kong) Ltd. -13.56m -1.34m BlackRock Institutional Trust Company, N.A. 14.83m 1.3m Deka Investment GmbH -9.68m -.96m The Vanguard Group, Inc. 8.21m.57m Driehaus Capital Management, LLC -8.83m -.72m ICICI Securities Ltd Retail Equity Research Page 11

Financial summary Profit and loss statement Crore (Year-end March) FY14 FY15 FY16E FY17E Total operating Income 2819.1 385.6 33827.7 37967.4 Growth (%) 8.7 9.9 9.8 12.2 Raw Material Expenses 14,343.6 15,623.6 16,931.3 18,566.8 Employee Expenses 1,436. 1,578.9 1,691.4 1,898.4 Marketing Expenses 3,613.6 3,874.9 4,444. 5,62.3 Administrative Expenses 1,847.9 1,93.8 2,56.2 2,37.8 Other expenses 2,32.8 2,589.2 2,736.1 3,7.9 Total Operating Expenditure 23,543.9 25,597.4 27,859. 3,96.2 EBITDA 4475.2 528.2 5968.7 761.2 Growth (%) 11.8 16.4 14.6 18.3 Depreciation 259.5 285.9 289. 29. Interest 36. 16.8.1. Other Income 621. 618.4 844.9 982.3 Exceptional Income 228.7 664.3 9.8. PBT 5,29.4 6,188.2 6,534.3 7,753.5 Total Tax 1,16.9 1,872.2 1,957.4 2,256.3 PAT 3868.5 4316. 4576.9 5497.2 Growth (%) 1.9 11.6 6. 2.1 EPS ( ) 17.9 2. 21.2 25.4 Cash flow statement Crore (Year-end March) FY14 FY15 FY16E FY17E Profit after Tax 3,868.5 4,316. 4,576.9 5,497.2 Add: Depreciation 259.5 285.9 289. 29. (Inc)/dec in Current Assets -769.4-94.5 512.7-1,559.5 Inc/(dec) in CL and Provisions 948. 179.4 29.9 1,256. CF from operating activities 436.6 4686.9 5588.5 5483.6 (Inc)/dec in Investments -88.1-17.9-5. -25. (Inc)/dec in loans & advances -221.2 22.1 172. -293.7 (Inc)/dec in Fixed Assets -493.6-48.6-3. -2. Others 274.1-25... CF from investing activities -528.8-51.5-628. -743.7 Issue/(Buy back) of Equity..1.. Inc/(dec) in loan funds.... Dividend paid & dividend tax -3,273. -3,881.2-4,13.6-4,515.3 Inc/(dec) in Sec. premium 4.1 21.4.. Others 4.4-9.6 1.8. CF from financing activities -3264.5-3869.3-411.8-4515.3 Net Cash flow 513.3 316. 948.6 224.6 Opening Cash 1,78.7 2,222. 2,538. 3,486.7 Closing Cash 2222. 2538. 3486.7 3711.2 Balance sheet Crore (Year-end March) FY14 FY15 FY16E FY17E Liabilities Equity Capital 216.3 216.4 216.4 216.4 Reserve and Surplus 3,61.8 3,58.4 4,73.5 5,55.5 Total Shareholders funds 3,278. 3,724.8 4,289.9 5,271.8 Other Non Current Liabilities 278.8 17.1 17.1 17.1 Long Term Provisions 838.7 956.4 956.4 956.4 Total Liabilities 4395.6 4851.2 5416.3 6398.3 Assets Gross Block 4,138.8 4,48.6 4,78.6 4,98.6 Less: Acc Depreciation 1,74.9 1,973.1 2,262.1 2,552.1 Net Block 2,397.9 2,435.5 2,446.5 2,356.5 Capital WIP 312.1 479. 479. 479. Total Fixed Assets 2,71. 2,914.5 2,925.5 2,835.5 Net Intangible Assets 31.8 22. 22. 22. Other Investments 636.2 654.1 84.1 94.1 Liquid Investments 35 5 Inventory 2,747.5 2,62.7 3,757.6 2,769.1 Debtors 816.4 782.9 954. 1,7.8 Loans and Advances 537.7 657.3 669.3 819.6 Investments & Other CA 71.9 59.3 139.7 83.6 Cash 2,222. 2,538. 3,486.7 3,711.2 Total Current Assets 8,853.5 9,264. 9,7. 11,484.1 Creditors 5,793.9 5,288.9 6,86. 7,342.6 Provisions & other CL 2,81. 3,494.4 2,133.1 2,96.5 Total Current Liabilities 8,63.8 8,783.3 8,993.1 1,249.1 Net Current Assets 249.6 48.7 76.8 1,235. Others Non-Current Assets 767.2 779.4 67.4 91.2 Application of Funds 4395.5 4851.2 5416.3 6398.3 Key ratios (Year-end March) FY14 FY15 FY16E FY17E Per share data ( ) EPS 17.9 2. 21.2 25.4 Cash EPS 19.1 21.3 22.5 26.8 BV 15.2 17.2 19.8 24.4 DPS 13. 15. 16. 18. Cash Per Share 1.3 11.7 16.1 17.2 Operating Ratios (%) EBITDA/Total Operating Income 16. 16.9 17.6 18.6 PBT Margin 18.3 2.5 19.7 2.8 PAT Margin 14.1 14.3 13.8 14.8 Inventory days 35 32 35 32 Debtor days 11 9 11 11 Creditor days 77 64 76 72 Return Ratios (%) RoE 118. 115.9 16.7 14.3 RoCE 128.6 132.2 132.4 128.4 RoA 88. 89. 84.5 85.9 Valuation Ratios (x) P/E 51.4 46.1 43.4 36.2 EV / EBITDA 43.9 37.7 32.7 27.6 EV / Net Sales 7.2 6.5 5.9 5.2 Market Cap / Sales 7.3 6.6 6. 5.3 Price to Book Value 6.7 53.4 46.3 37.7 Solvency Ratios Debt/EBITDA.... Debt / Equity.... Current Ratio 1. 1.1 1.1 1.1 Quick Ratio.8.8.7.8. ICICI Securities Ltd Retail Equity Research Page 12

ICICIdirect.com coverage universe (FMCG) CMP M Cap EPS ( ) P/E (x) Price/Sales (x) RoCE (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E Colgate (COLPAL) 2,69 2,36 Hold 27,525 41.1 45.5 49.8 5.3 44.8 41.6 7. 6.6 5.8 97. 82.5 77.1 72.5 62.2 56.6 Dabur India (DABIND) 298 263 Hold 44,816 6.1 7.4 8.1 48.9 35.4 36.6 5.8 5.2 4.6 41.7 41.7 38.2 35.6 34.4 3.6 GSK CH (SMIBC) 6,374 7,193 Buy 25,494 138.8 164.3 192.2 45.9 43.8 33.2 5.9 5.3 4.6 31.6 31.6 31.4 27.6 27.8 27.7 Hindustan Unilever (HINLEV) 919 1,17 Buy 198,89 19.9 21.2 25.4 46.1 48.1 36.2 6.6 6. 5.3 132.2 132.4 128.4 118. 115.9 16.7 ITC Limited (ITC) 316 387 Buy 252,116 12.1 12.6 13.7 26.1 3.8 23. 7. 6.4 5.9 4.5 41.1 43.4 33.5 31.3 31.8 Jyothy Lab (JYOLAB) 311 272 Hold 4,724 6.7 1.5 11.6 46.5 25.9 26.8 3.1 2.8 2.5 1.6 13.9 15.8 11.1 15.5 21.7 Marico (MARIN) 429 42 Hold 24,56 8.9 2.8 2.7 48.3 151.4 161.6 4.3 3.6 3.1 48.8 47. 46.4 35.9 32.1 31.6 Nestle (NESIND) 5,98 6,39 Hold 57,126 122.9 75.6 12.8 48.7 79.9 49.5 5.8 6.3 5.1 6.6 56.1 85.9 47.2 41.8 32.8 Tata Global Bev (TATTEA) 14 158 Hold 9,29 4. 6.3 7.4 34.9 25.1 19. 1.2 1.1 1. 8.1 8. 8.6 8.2 4.2 6.3 VST Industries (VSTIND) 1,71 1,7 Hold 2,674 99.3 88.2 16.3 17.2 19.3 16.1 3.2 3.2 2.9 59.3 52.5 6.3 45.8 43.2 37.5 ICICI Securities Ltd Retail Equity Research Page 13

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%/2% for large caps/midcaps, respectively, with high conviction; Buy: >1%/15% for large caps/midcaps, respectively; Hold: Up to +/-1%; Sell: -1% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 4 93 research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 14

ANALYST CERTIFICATION We /I, Sanjay Manyal, MBA (Finance) and Parineeta Rajgarhia, MBA (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 views about 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. Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. 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ICICI Securities Ltd Retail Equity Research Page 15