Hindustan Unilever (HINLEV) 862

Result Update Rating matrix Rating : Buy Target : 1 Target Period : 12 months Potential Upside : 16% What s changed? Target Unchanged EPS FY17E Changed from 23.2 to 22.1 EPS FY18E Changed from 26.7 to 26. Rating Unchanged Quarterly performance Q4FY16 Q4FY1 YoY % Q3FY16 QoQ % Sales 789.4 7. 3.4 7822.9 -.2 EBITDA 1466.8 1318.2 11.3 143.8 2. EBITDA % 18. 17.2 129 bps 17.9 3 bps PAT 189.6 118.1 7. 971.4 12.2 Key financials Crore FY1 FY16 FY17E FY18E Net Sales 3,171 31,42 3,38 39,121 EBITDA,28,73 6,634 7,6 Net Profit 4,31 4,82 4,78,634 EPS( ) 19.9 18.9 22.1 26. Adj. EPS( ) 17.8 19. 22.1 26. Valuation summary FY1 FY16 FY17E FY18E P/E 43.2 4.7 39. 33.1 Target P/E.1 3. 4.2 38.4 Div. Yield 1.7 1.9 2. 2.4 Mcap/Sales 6.2.9.3 4.8 RoNW (%) 13.4 111. 178.1 186.2 RoCE (%) 11.4 17. 28.1 213. Stock data Particular Amount Market Capitalization ( Crore) 186,493.7 Total Debt (FY16) ( Crore). Cash and Investments (FY16) ( Crore),6.3 EV ( Crore) 181,437.4 2 week H/L 944 / 766 Equity capital 216.4 crore Face value 1 Price performance Return % 1M 3M 6M 12M HUL -. 2.4.7 -.4 ITC 1.1 3.9 -.1-1. GCPL -1.9 8.6 -.1 24.2 Colgate 3.. -11.6-17.3 Research Analyst Sanjay Manyal sanjay.manyal@icicisecurities.com Parth Joshi parth.joshi@icicisecurities.com Rural demand woes weigh on volumes May 1, 216 Hindustan Unilever (HINLEV) 862 Hindustan Unilever (HUL) reported Q4FY16 net sales that were in line with our estimates. However, it posted better-than-expected numbers on operations & profitability front. Net sales grew 3.4% YoY to 789.4 crore (I-direct estimate: 7779. crore) on the back of 4% volume growth. Sales growth in S&D, personal products, beverages & foods was 2.1%, 2.8%, 6.1% & 11.7%, YoY, respectively. For FY16, volume & sales growth were at 6% & 4.2%, respectively EBITDA margins expanded 129 bps to 18.% (I-direct estimate: 17.4%) led by lower RM cost (down 238 bps as percentage of sales). Savings on RM cost front were partially offset by higher employee cost and A&P spend PAT increased 7% YoY to 189.6 crore largely led by higher EBITDA & exceptional gain of 43 crore due to profit recognised on sale of Modern bread & bakery business. Adjusted PAT was at 18. crore (I-direct estimate: 996. crore) Volume growth expected to improve to ~9% by FY17E HUL s volume growth decelerated in line with the economic downturn from ~13% (FY11) to % in FY1, largely on the back of a slowdown in urban discretionary demand with rural growth remaining moderate. HUL witnessed 6% volume growth in FY16. Going ahead, normal monsoon, as per IMD forecast, is likely to spur rural demand. As the overall economy revives and growth gains traction, HUL s strong portfolio of brands across segments would aid volume growth back to ~9%, going forward. Volumes key driver for soaps & detergents growth S&D, HUL s largest revenue contributing segment (~47% in FY16) saw modest CAGR of 11.4% in FY11-16 led by equal mix of volumes & prices. The pricing power of HUL is backed by strong leadership position of HUL in both segments (~4% value share in detergents & ~4% value share in soaps) and its presence across the value pyramid in each of them. Going ahead, we believe volume growth in S&D would be key revenue growth driver estimated at 1% CAGR (FY16-18E) on low base of FY16. Surf, HUL s largest brand (> 3 crore in FY16), Lifebuoy, Wheel, Fair & Lovely, Brooke Bond & Rin are 2+ crore brands. We believe realisation growth would be led by premiumisation with a revival in urban discretionary demand, going forward. Premiumisation to drive growth in personal products HUL s PP (~3% of revenues, ~49% of PBIT in FY16) growth at 1.6% CAGR (FY11-16) was 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 lead sales growth to 14.2% CAGR (FY16-18E) as consumer demand gains traction. Normal monsoon forecast bodes well for FMCG behemoth; maintain BUY We believe HUL will be a major beneficiary of a pick-up in rural consumption on the heels of normal monsoons going by IMD s forecast. With strong brands in the growing aspirational segments, HUL, aided by an improvement in margins (18.4% in FY17E & 18.9% in FY18E), is strongly placed to capture a revival in consumer demand, going forward. We estimate sales growth & profitability growth of 11.6% and 17.% CAGR, respectively, in FY16-18E. We maintain BUY recommendation with a target price of 1/share. ICICI Securities Ltd Retail Equity Research

Variance analysis Q4FY16 Q4FY16E Q4FY1 YoY (%) Q3FY16 QoQ (%) Comments Net Sales 7,89.4 7,779. 7,. 3.4 7,822.9 -.2 Net sales grew 3.4% YoY led by 4% underlying volume growth. Lower input costs curbed price led growth for the company while it faced headwinds in rural growth in particular Operating Income 136.3 1.6 12.6 13. 18.1-13.8 Raw Material Expenses 3,769.4 3,877. 3,827. -1. 3,742.1.7 With the decline in palm oil, PFAD & crude, raw material costs as percentage of sales dipped 238 bps in the quarter Employee Expenses 446.1 396.8 388.4 14.8 41.6 11.1 Employee cost increased 7 bps as percentage of sales Marketing Expenses 1,9. 1,13.8 1,27.9 6. 1,137.8-4.2 A&P spend increased marginally by 3 bps as percentage of sales Other operating expenses 1,173. 1,143.6 1,114.2.3 1,268.6-7. EBITDA 1,466.8 1,381.9 1,318.2 11.3 1,43.8 2. EBITDA margin (%) 18. 17.4 17.2 129 bps 17.9 3 bps Operating margins increased 129 bps led by lower RM costs Depreciation 87. 74. 7. 24.1 82.2 6. Interest... NA.1-4. Other Income 82.3 17. 98.4-16.4 139.6-41.1 PBT 1,461. 1,464.9 1,346.1 8.6 1,48.6 3.8 Exceptional Items 43.. 179.4-76.1-79.6-14. Exceptional items include gain due to property sales and sale of Modern bread and bakery business Tax Outgo 414.9 468.4 7.4-18.2 437.2 -.1 PAT 1,89.6 996. 1,18.1 7. 971.4 12.2 Net profit grew 7% YoY largely due to higher EBITDA and exceptional gain Key Metrics growth YoY (%) Soaps & detergents 2.1 1.7..8 Muted sales growth in S&D with price de-growth partly offset volume growth Personal Products 2.8 8.7 13.4.6 Personal products category impacted by phasing out of excise benefits & re-alignment of channel spends Beverages 6.1 7.6 12.3 7. Foods 11.7 1.3 13.6 11.8 Introduced premium range of Kissan jams & new range of Knorr wraps & rolls mix in Q4FY16. HUL also launched 'Choco Brownie' & 'Choco Coffee' variants under Magnum & Cornetto, respectively Change in estimates FY17E FY18E ( Crore) Old New % Change Old New % Change Comments Sales 34,6.3 3,38.2 2.4 38,264.1 39,121.2 2.2 We have revisited our estimates following the report of expected normal monsoon by IMD, which is likely to rejuvenate the sluggish sales growth observed in FY16. Also, 4.2% YoY growth in net sales in FY16 has resulted in creation of low base. We expect HUL to be a major beneficiary of an improvement in overall consumption scenario, rural demand in particular, with its vast distribution network. Gradually rising palm oil prices also point towards price led growth for the company EBITDA 6,428.2 6,634. 3.2 7,282.9 7,.7 3.7 EBITDA Margin (%) 18.2 18.4 1 bps 18.7 18.9 27 bps PAT,18.7 4,784.7-4.7,78.6,633.7-2.6 PAT estimates have been cut on the back of an expected significant decline in other income as a result of HUL's decision to return ~ 22 crore to shareholders by way of transfer of general reserve balance to P&L account. However, the terms of the said scheme of arrangement are unknown EPS ( ) 23.2 22.1-4.7 26.7 26. -2.6 Assumptions Current Earlier ( crore) FY1 FY16E FY17E FY18E FY16E FY17E FY18E Comments Soaps & detergents 14,876.6 1,3.3 16,93.3 18,23.7 1,91. 16,768.3 18,37.9 Personal Products 9,6. 9,66. 1,984.4 12,62.4 9,86.6 1,984.4 12,62.4 Beverages 3,631. 3,887.7 4,49.9,27. 3,931.3 4,49.9,27. Foods 1,891.8 2,117.1 2,41.9 2,813.7 2,262.2 2,41.9 2,813.7 ICICI Securities Ltd Retail Equity Research Page 2

Company Analysis Volumes to drive soaps & detergents growth S&D comprises the largest revenue segment for HUL contributing ~47% to revenues (FY16). 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 & ~4% value share in soaps) over the years despite the constant tough competition from global player, P&G. Hence, despite the high penetration in the segment (~99%), S&D revenue growth of 11.4% CAGR in FY11-16 has been a mix of volume and price led growth. Going ahead, we believe S&D revenues would be largely driven by volumes. HUL s pricing power in the segment along with increasing rate of premiumisation would aid realisation growth. We expect S&D revenues to grow at a CAGR of 1% in FY16-18E on the back of the low base of FY16. With higher contribution of prices in the sales mix, we believe margins from the segment would also improve, thereby increasing the contribution of the segment to overall EBIT from ~38% in FY16. Exhibit 1: S&D revenue ( crore) and YoY growth (%) 2 18 16 14 12 1 8 6 4 2 21. 19.4 12. 6.4 7.7 8.7 7.6 1.2-16.4 FY1 FY11 FY12 FY13 FY14 FY1 FY16 FY17E FY18E 2 2 1 1 - -1-1 -2 Soaps & Detergents Sales (LHS) S&D Sales Growth (RHS) Exhibit 2: S&D EBIT ( crore) LHS & S&D EBIT Margin (%) RHS Exhibit 3: S&D s revenue, EBIT contribution to overall performance 214.3 2 1 1 9. 11.6 12.7 13.1 13.1 FY1 FY11 FY12 FY13 FY14 FY1 FY16 14.216 14 12 1 8 6 4 2 6 46. 48.9 49.3 44.6 49. 48.4 47.1 4 42.3 3 36.9 4. 4.1 39.6 38. 2 3. 1 FY1 FY11 FY12 FY13 FY14 FY1 FY16 S&D EBIT S&D EBIT Margin (%) Contribution to Revenues Contribution to EBIT ICICI Securities Ltd Retail Equity Research Page 3

Premiumisation to steer growth in personal products Personal products (PP), the highest contributor to HUL s PBIT (~49% in FY16) over the years, has witnessed a moderation in revenue growth and segmental margins following the slowdown in consumer discretionary demand and increasing competition. PP revenue growth 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. With the acquisition of Indulekha brand from Mosons Group for a consideration of 33 crore in Q3FY16, HUL seeks to leverage its strong brand equity in personal care segment and tap into the growth potential across the nascent naturals segment in personal care. HUL has a 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). Hence, we believe the company will be the key beneficiary of a revival in discretionary demand and booming personal products demand in the economy. During Q4FY16, Lakme Absolute Eye Shadow Palette was launched by HUL while it added more shades to the Lip Love lip balm & Absolute lipstick portfolio. It also relaunched Pepsodent core toothpaste and Fair & Lovely Ayurvedic Care in Q4FY16. HUL s premium hair care brand TRESemme became a 1 crore brand in FY1 further helping the company in the implementation of its premiumisation strategy. We expect the PP segment to post CAGR (FY16-18E) at 14.2% and revive its contribution to EBIT to FY11-12 levels (2-4%). The higher contribution to EBIT would also be aided by increasing rate of premiumisation once demand revives. Exhibit 4: Personal product revenues ( crore) and growth (%) trend 14 12 1 8 1.8 17.1 9.1 8.7 1.9 7.2 13.8 2 14.7 1 1 6 4 2-6.3-2 FY1 FY11 FY12 FY13 FY14 FY1 FY16 FY17E FY18E - -1 Personal Products Sales (LHS) PP Sales Growth (RHS) ICICI Securities Ltd Retail Equity Research Page 4

Exhibit : PP EBIT ( crore) LHS and PP EBIT margin (%) - RHS Exhibit 6: PP s revenue, EBIT contribution to overall performance 3 2 2 1 1 27.4 2424.4 1948.9 268.1 1744.6 26.9 1296. 1494.8 26.1 2.7 2.6 2. 2. ` FY1 FY11 FY12 FY13 FY14 FY1 FY16 29 28. 28 27 26 2 24 23 4.6 6 2.2 46.2 48.3 46.4 47.2 48.9 4 28.4 31. 29. 29.1 29.3 3.2 3 29.7 2 1 FY1 FY11 FY12 FY13 FY14 FY1 FY16 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 1.6% CAGR (FY11-16) 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. Bru coffee became market leader by volume and value in Q3FY16. 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 13.7% CAGR in FY16-18E. We believe 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 4 3 2 1-1 -2 FY1 FY11 FY12 FY13 FY14 FY1 FY16 FY17E FY18E 2 1 1 - -1 Beverages Sales (LHS) Beverages Growth (RHS) ICICI Securities Ltd Retail Equity Research Page

Exhibit 8: Beverages EBIT ( crore) LHS and EBIT margin - RHS 7 17. 1.3 16. 16.8 2 6 14.9 14. 16.9 1 4 3 1 2 1 FY1 FY11 FY12 FY13 FY14 FY1 FY16 Exhibit 9: Beverages revenue & EBIT contribution to overall performance 13.1 14 13 11.4 12 1112.1 11.9 1 9 8 7 6 11. 12. 11.8 13. 12. 11.6 11.9 11.8 11.6 12.2 FY1 FY11 FY12 FY13 FY14 FY1 FY16 Beverages EBIT Beverages EBIT Margin (%) Contribution to Revenues Contribution to EBIT Foods business growth expected at 1.3% CAGR in FY16-18E The foods segment, the biggest opportunity for the future but the weakest performer in HUL s portfolio, posted healthy revenue growth of 18.6% CAGR in FY11-16 but remained a dragger on the earnings front. 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, extension of Knorr portfolio to masalas and cooking mixes and premium range of Kissan jams). In Q4FY16, it introduced premium range of Kissan jams & new range of Knorr wraps & rolls mix. HUL also launched 'Choco Brownie' & 'Choco Coffee' variants under Magnum & Cornetto, respectively, in Q4FY16. Going ahead, with HUL s increasing focus towards developing its foods portfolio while driving premiumisation, we expect foods revenue growth at 1.3% CAGR (FY16-18E). Exhibit 1: Foods revenues ( crore) and growth (%) trend 3 22.4 2 2 2 1 1.487 1.8 9. 14.8 11.9 1.8 2 14.8 1 1 1-7.8 - FY1 FY11 FY12 FY13 FY14 FY1 FY16 FY17E FY18E - -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 6. 7 6 6 3.7 4.4 4 4 2. 3 3 1.8 1.1 2 2. 1 1-1 FY1 FY11 FY12 FY13 FY14 FY1 FY16-1 Exhibit 12: Foods revenue and EBIT contribution to overall performance 6.6 7 6.3.8.9 6.2.4 6 6. 4 3 2.2 1.2 1.4 1.6 2.6.7.9 1 FY1 FY11 FY12 FY13 FY14 FY1 FY16 Foods EBIT Foods EBIT Margin (%) Contribution to Revenues Contribution to EBIT ICICI Securities Ltd Retail Equity Research Page 7

EBITDA margin improvement to 18.9% by FY18E HUL has maintained its raw material (RM) cost to sales ratio at ~3% over the years (CY7-FY1). In spite of an unprecedented increase in RM costs in FY12 (~4%), the company s strong brand equity across categories helped it to pass on the impact through higher prices while maintaining margins and volume growth. HUL witnessed ~3 bps decline in RM cost as a percentage of sales in FY16 following the significant fall in global commodity prices. Consequently, HUL was able to drive A&P spend to record high levels of 14.4% of sales. However, we believe that with prospects of rural demand receiving a much needed boost in near to medium term, HUL would be a major beneficiary of improvement in demand scenario. Therefore, we have modelled lower A&P (14% of sales in FY18E) for the company going forward on the back of expected revival in volume growth. Faster than expected revival of rural demand would allow the company to even further reduce A&P spend & this remains a positive risk to our assumption. Going ahead, with HUL shifting its focus towards higher growth and premium product categories that would drive higher realisation coupled with HUL s internal cost efficiencies, we expect margins to improve to 18.9% by FY18E. We believe the savings in raw material costs, if any, 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 1 14 13 12 11 1 18.9 18.4 17.9 16.9 1. 16. 1. 14.9 13.7 FY1 FY11 FY12 FY13 FY14 FY1 FY16 FY17E FY18E 6 4 3 2 1 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 3.3% in FY1 and 3.% in FY16 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 that a 1 bps improvement in operating margins by FY18E would result in steady earnings growth at 17.% CAGR in FY16-18E. ICICI Securities Ltd Retail Equity Research Page 8

Exhibit 14: Adjusted PAT ( crore) & tax rate (percentage of PBIT) 6 4 3 2 1 634 478 411 3692 382 3331 299 2124 2184 FY1 FY11 FY12 FY13 FY14 FY1 FY16 FY17E FY18E 4 3 3 2 2 1 1 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 has remained subdued in FY16, being the largest FMCG player in the country, it would be the key beneficiary of a revival in consumer demand, going forward. HUL s strong portfolio of brands across segments would aid volume growth back to ~8-9%, 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, Lipton Green Tea, 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 volumes given the company s dominance and ability to develop the market on the back of promotions in the segment. Hence, we expect S&D revenue growth at 1% CAGR (FY16-18E). 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 14.2% CAGR (FY16-18E). For beverages, we believe premium tea and coffee would drive revenue growth at 13.7% CAGR (FY16-18E). We expect HUL s food business growth at 1.3% (FY16-18E) CAGR largely led by realisation growth. HUL s Board of Directors has approved a scheme of arrangement to return 2187.3 crore (excess cash reserve) to shareholders. The company will seek approval of shareholders and sanction of the High Court of Mumbai before going ahead with it. If implemented, this move by the company is expected to drive the efficiency of the company s balance sheet and significantly improve return ratios further for HUL (RoCE of 17.% and RoE of 111.% in FY16). This corporate action is expected to be completed by FY17E. 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 (18.4% in FY17E and 18.9% in FY18E) due to low commodity prices globally, premiumisation strategy as well as reducing corporate tax rate, going forward, augur well for the company and justify premium valuation. We value the stock at 38x its FY18E EPS of 26. to arrive at a target price of 1 per share and maintain BUY recommendation. Exhibit 1: Valuations Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE ( cr) (%) ( ) (%) (x) (x) (%) (%) FY1 317. 1.1 19.9 11. 43.2 3.3 13.4 11.4 FY16 3142.3 4.2 18.9 -.4 4.7 32.1 111. 17. FY17E 338.2 12.6 22.1 17.2 39. 27.9 178.1 28.1 FY18E 39121.2 1.6 26. 17.7 33.1 24.4 186.2 213. ICICI Securities Ltd Retail Equity Research Page 1

Company snapshot 1,1 1, Target Price : 1 9 8 7 6 4 3 2 1 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-1 Apr-1 Jul-1 Oct-1 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Source: Bloomberg, Company, ICICIdirect.com Research Key events Feb-1 Dec-1 Event Launches 'Must Win, 21' programme involving strategic pricing & huge distribution push to mop up the company's falling performance Though profit growth remains moderate at 1%, 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 (-8% overall & ~21% in S&D) to pass on input cost inflation. Gains market share from unorganised players with rising input costs 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 7% from 2.% Jul-13 The 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 Sep-1 HUL divests its bread and bakery business under the brand Modern to Nimman Foods Private Ltd., an investee company of the Everstone Group Dec-1 HUL signs an agreement with Mosons Group to acquire Indulekha, a premium Ayurvedic hair oil brand, for a consideration of 33 crore Mar-16 HUL signs an agreement for sale of its rice exports business to LT Foods for a consideration of 2 crore Top 1 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Unilever PLC 31-Mar-16 66.34 1,43. -18.9 2 Life Insurance Corporation of India 31-Mar-16 1. 33.4 1.4 3 Vontobel Asset Management, Inc. 31-Mar-16 1.2 22. -2.6 4 Aberdeen Asset Management (Asia) Ltd. 29-Feb-16.99 21.4 -.3 The Vanguard Group, Inc. 31-Mar-16.9 19.4 -.1 6 BlackRock Institutional Trust Company, N.A. 3-Apr-16.86 18.6. 7 Aberdeen Asset Managers Ltd. 31-Mar-16.7 12.3.1 8 Franklin Advisers, Inc. 31-Dec-1.23.. 9 APG Asset Management 31-Dec-1.2 4.4 -.1 1 Dimensional Fund Advisors, L.P. 29-Feb-16.16 3.4. Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Mar-1 Jun-1 Sep-1 Dec-1 Mar-16 Promoter 67.2 67.2 67.2 67.2 67.2 FII 1. 14.6 13.9 13.9 14.2 DII 3.8 4.2 4.8. 4.8 Others 13.9 14. 14.1 13.9 13.8 Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares Norges Bank Investment Management (NBIM) 24.48m 1.88m Unilever PLC -247.9m -18.87m Life Insurance Corporation of India 18.62m 1.42m William Blair Investment Management, LLC -77.67m -.96m Stewart Investors 7m.4m Vontobel Asset Management, Inc. -34.6m -2.64m BNP Paribas Investment Partners Asia Ltd. 6.39m.49m JM Financial Asset Management Pvt. Ltd. -7.12m -.4m Union Investment Luxembourg S.A. 4.39m.34m Franklin Templeton Asset Management (India) Pvt. Ltd. -.27m -.4m Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 11

Financial summary Profit and loss statement Crore (Year-end March) FY1 FY16 FY17E FY18E Total operating Income 38.6 31987.2 3687.8 3993.6 Growth (%) 9.9 3.8 12.8 1.6 Raw Material Expenses 1,623.6 1,313. 17,424.6 19,117.1 Employee Expenses 1,78.9 1,92. 1,84.4 1,97.6 Marketing Expenses 3,874.9 4,26.2,9.4,477. Administrative Expenses 1,93.8. 2,211.3 2,44.1 Other expenses 2,89.2 4,826.1 2,94.2 3,333.1 Total Operating Expenditure 2,97.4 26,27.3 29,43.8 32,347.9 EBITDA 28.2 729.9 6634. 7.7 Growth (%) 16.4 1. 1.8 13.9 Depreciation 286.7 32.8 289.3 284.8 Interest 16.8.2.. Other Income 618.4.6 442.2 499.7 Exceptional Income 664.3-39... PBT 6,187.4,87.6 6,786.8 7,77.6 Total Tax 1,872.2 1,788.2 2,2.1 2,136.9 PAT 431.3 482.4 4784.7 633.7 Growth (%) 11.6 -.4 17.2 17.7 EPS ( ) 19.9 18.9 22.1 26. Cash flow statement Crore (Year-end March) FY1 FY16 FY17E FY18E Profit after Tax 4,31.3 4,82.4 4,784.7,633.7 Add: Depreciation 286.7 32.8 289.3 284.8 (Inc)/dec in Current Assets -94. 99.8-1,2.4-86.6 Inc/(dec) in CL and Provisions 179. 34.3 1,622.3 1,137.7 CF from operating activities 4686.4 487.3 693.9 6249. (Inc)/dec in Investments -17.9-14.9-1. -1. (Inc)/dec in loans & advances 22.1 2.2-2. -2. (Inc)/dec in Fixed Assets -481.4-684.9-3. -2. Others -2. 181. -981.6 2.4 CF from investing activities -2.3-16.2-146.6-299.6 Issue/(Buy back) of Equity.1... Inc/(dec) in loan funds.... Dividend paid & dividend tax -3,881.2-4,14.8-4,28.6 -,294. Inc/(dec) in Sec. premium.... Others 13.6 2.9-1,.. CF from financing activities -3867. -4119.9-78.6-294. Net Cash flow 316.6 221.3-1,498.3 6.9 Opening Cash 2,221. 2,37.6 2,78.8 1,26. Closing Cash 237.6 278.8 126. 1916.4 Balance sheet Crore (Year-end March) FY1 FY16 FY17E FY18E Liabilities Equity Capital 216.4 216.4 216.4 216.4 Reserve and Surplus 3,8.4 3,47.9 2,47. 2,89.7 Total Shareholders funds 3,724.8 3,687.3 2,686.4 3,26.1 Other Non Current Liabilities 17.1 218.2 218.2 218.2 Long Term Provisions 96.4 1124.4 143. 169. Total Liabilities 481.2 29.9 348.1 3413.3 Assets Gross Block 4,48.6,94.6,894.6 6,94.6 Less: Acc Depreciation 1,973.1 2,293.9 2,83.2 2,868. Net Block 2,43. 3,3.7 3,311.4 3,226.6 Capital WIP 479.... Total Fixed Assets 2,914. 3,3.7 3,311.4 3,226.6 Net Intangible Assets 22.... Other Investments 64.1 669. 769. 869. Liquid Investments Inventory 2,62.7 2,28.4 2,98. 3,21.4 Debtors 782.9 1,64. 969.3 1,71.8 Loans and Advances 67.3 673.3 77. 87. Investments & Other CA 9.3 62. 67.9 7. Cash 2,37.6 2,78.8 1,26. 1,916.4 Total Current Assets 9,263. 9,38. 8,889.1 1,31.6 Creditors,288.9,497.9 6,3.6 6,966.8 Provisions & other CL 3,493.9 3,639.3 4,48.9 4,93.3 Total Current Liabilities 8,782.8 9,137.2 1,79. 11,897.1 Net Current Assets 48.7 247.8-1,87.4-1,4.6 Others Non-Current Assets 779.4 812.2 837.2 862.2 Application of Funds 481.2 29.9 348.1 3413.3 Key ratios (Year-end March) FY1 FY16 FY17E FY18E Per share data ( ) EPS 19.9 18.9 22.1 26. Cash EPS 21.3 2.3 23.4 27.4 BV 17.2 17. 12.4 14. DPS 1. 16. 17. 21. Cash Per Share 11.7 12.7.8 8.9 Operating Ratios (%) EBITDA/Total Operating Income 16.9 17.9 18.4 18.9 PBT Margin 17.9 18. 18.8 19. PAT Margin 14. 12.8 13.3 14.1 Inventory days 31 29 3 3 Debtor days 9 12 1 1 Creditor days 64 64 6 6 Return Ratios (%) RoE 13.4 111. 178.1 186.2 RoCE 11.4 17. 28.1 213. Valuation Ratios (x) P/E 43.2 4.7 39. 33.1 EV / EBITDA 3.3 32.1 27.9 24.4 EV / Net Sales 6.1.8.2 4.7 Market Cap / Sales 6.2.9.3 4.8 Price to Book Value.1.6 69.4 61.6 Solvency Ratios Debt/EBITDA.... Debt / Equity.... Current Ratio.8.7.7.7 Quick Ratio..4.4.4. 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) FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E Colgate (COLPAL) 84 1,18 Buy 23,24 22.1 2.2 28.9 38.2 33. 29.3.7. 4.4 9.4 92.9 94.4 68.9 6.9 67. Dabur India (DABIND) 291 34 Buy 1,268 7.1 7.9 8.6 4.9 36.9 33.9.7.2 4.7 31.1 29.4 28.4 3.2 27.7 26.1 GSK CH (GLACON),83 6,966 Buy 24,8 166.4 173.2 196.6 3.2 33.8 29.8.. 4.4 37.2 36.4 36. 26.9 26.3 26.4 Hindustan Unilever (HINLEV) 862 1, Buy 186,494 18.9 22.1 26. 4.7 39. 33.1.9.3 4.8 17. 28.1 213. 111. 178.1 186.2 ITC Limited (ITC) 322 387 Buy 237,33 12.6 14.4 1.3 2. 22.4 21. 6.4.6.1 4.9 48.6.8 32.4 3.8 36.1 Jyothy Lab (JYOLAB) 314 3 Hold,166 9.1 9.7 11.1 34. 32.4 28.3 3.3 2.9 2.6 13. 1.6 2.7 16.8 17.4 19.1 Marico (MARIN) 249 28 Buy 33,48.6 6.4 7.9 44.4 38.9 31... 4.3 46.3 4.6 46.7 34.6 34.4 36. Nestle (NESIND),2 6,134 Buy 48,7 8.4 116.1 13.3 94. 47.6 36. 6. 4.4 4. 29.7 33. 39.4 32.3 36.8 42.8 Tata Global Bev (TATTEA) 119 11 Hold 6,642. 6. 7.2 23.6 18.2 16..8.8.7 7.3 8.3 8.6.8 7. 7. VST Industries (VSTIND) 1,721 1,931 Buy 2,61 99.2 11.8 128.9 17.4 14.9 13.4 3. 2.8 2. 9.7 6. 67.7 41.3 4.2 47. 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: >1%/2% for large caps/midcaps, respectively, with high conviction; Buy: >1%/1% 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

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