Hindustan Unilever Ltd.

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Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17. Volume No.. I Issue No. 152 Hindustan Unilever Ltd. December 1, 2017 BSE Code: 500696 NSE Code: HINDUNILVR Reuters Code: HLL.NS Bloomberg Code: HUVR:IN Rural revival to drive volume growth ahead Hindustan Unilever Limited (HUL), a subsidiary of Unilever Plc, is India's leading consumer products company. It has a dominant market share in categories like soaps, laundry, skin care, shampoos & tea. Investment Rationale Strong growth in topline: On a comparable basis, revenue grew by a strong 9% YoY in Q2FY18 driven largely by robust volume growth of 4% YoY as consumer offtake remains steady. Management indicated that wholesale and CSD channels have started to recover and are expected to stabilize gradually. Despite higher advertisement and promotion (A&P) spend due to launch of Lever Ayush nationally, EBITDA margin expanded by 180 bps YoY (on a like-tolike basis) on the back of lower raw material cost and benefits of operating leverage & cost saving initiatives. While EBITDA grew by ~20% YoY, Adj. PAT growth stood at 15% due to lower other income. Broad-based growth across key categories: In Q2FY18 Home care category reported robust comparable sales growth of 13% YoY led by laundry segment which witnessed double-digit growth coupled with continued strong performance of household care led by Vim. Similarly, Personal Care segment witnessed decent growth of 8% YoY (comparable basis) driven by robust performance of brands across Personal Wash and Personal Products category. Dove led the growth in Hair Care with Indulekha continuing its strong growth momentum. Lever Ayush witnessed good traction after its launch on a pan- India basis. Foods category saw a growth of 11% YoY (comparable basis) driven mainly by Ketchups while multiple new variants were launched under both Soups and Noodles categories. Strong growth in tea led to 10% YoY (comparable basis) growth in Refreshment segment. Rural demand improving gradually: As per the management, the rural demand which was lagging the urban demand previously is now broadly in-line with urban demand (generally rural demand outpaces the urban demand given lower penetration). Further, the reduction in GST rates from 28% to 18% in some of the key categories such as detergents, shampoos, cosmetics will drive strong volume growth ahead as the company will pass on the benefit to the consumers. Broad-based product portfolio, innovative pipeline, strong distribution network and government s thrust on rural economy to drive Revenue/PAT CAGR of ~11/17% over FY17-20E. We expect EBITDA margin of 20.5%/21.4%/22.2% over FY18/19/20E. Outlook and Valuation: HUL is best placed to capitalize on demand recovery. Further, it has the potential to deliver industry leading growth rates going ahead. This coupled with high dividend payout and RoEs justify rich valuations. The stock is currently trading at 46.4x FY19E and 39.9x FY20E EPS. We recommend BUY rating on the stock with a target price of Rs. 1,412. Market Data Rating BUY CMP (Rs.) 1,252 Target (Rs.) 1,412 Potential Upside 13% Duration Long Term Face Value (Rs.) 1 52 week H/L (Rs.) 1,314/783 Decline from 52WH (%) 3.0 Rise from 52WL (%) 62.7 Beta 1.0 Mkt. Cap (Rs.Cr) 270,946 Fiscal Year Ended Y/E FY17 FY18E FY19E FY20E Revenue (Rs.Cr) 31,890 34,386 38,646 43,303 Adj. profit (Rs.Cr) 4,249 4,980 5,846 6,792 Adj. EPS (Rs.) 19.6 23.0 27.0 31.4 P/E (x) 63.8 54.4 46.4 39.9 P/BV (x) 41.7 41.5 40.7 38.9 ROE (%) 66.5 76.5 88.6 99.6 One year Price Chart 1,500 1,000 500 HUL Sensex (Rebased) Shareholding Pattern Sep-17 Jun-17 Chg. Promoters 67.2 67.2 0 FII s 13.3 13.4-0.1 MFs/Insti 5.7 5.6 0.1 Public 11.7 11.8-0.1 Others 2.1 2.0 0.1

Hindustan Unilever Ltd: Business overview Hindustan Unilever Limited (HUL), a subsidiary of Unilever Plc, is India's leading consumer products company. It has a dominant market share in categories like soaps, laundry, skin care, shampoos & tea. The company has 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. Segmental revenue breakup (FY17) Others, 2% Foods, 3% Refreshments, 14% Home Care, 33% Personal Care, 48% (Rs cr) Q2FY18 Q2FY17 Quarterly financial performance (Standalone) YoY % Q1FY18 QoQ % H1FY18 H1FY17 YoY % Sales 8,309 7,842 6.0 8,529 (2.6) 16,838 15,969 5.4 EBITDA 1,682 1,405 19.7 1,866 (9.9) 3,548 3,040 16.7 EBITDA Margin (%) 20.2 17.9 233bps 21.9 (164bps) 21.1 19.0 203bps Depreciation 115 94 22.3 114 0.9 229 187 22.5 EBIT 1,567 1,311 19.5 1,752 (10.6) 3,319 2,853 16.3 Interest 6 5 20.0 6-12 11 9.1 Other Income 204 253 (19.4) 113 80.5 317 361 (12.2) Exceptional Items 36 18 - (13) - 23 89 - PBT 1,801 1,577 14.2 1,846 (2.4) 3,647 3,292 10.8 Tax 525 480 9.4 563 (6.7) 1,088 1,021 6.6 PAT 1,276 1,097 16.3 1,283 (0.5) 2,559 2,271 12.7 Minority Interest - - - - - - - - Reported PAT 1,276 1,097 16.3 1,283 (0.5) 2,559 2,271 12.7 Adjustment (36) (18) - 13 - (23) (89) - Adj PAT 1,240 1,079 14.9 1,296 (4.3) 2,536 2,182 16.2 No. of shares (cr) 216.4 216.4-216.4-216.4 216.4 - EPS (Rs) 5.7 5.0 14.9 6.0 (4.3) 11.7 10.1 16.2

Strong growth in topline On a comparable basis, revenue grew by a strong 9% YoY in Q2FY18 driven largely by robust volume growth of 4% YoY as consumer offtake remains steady. Management indicated that wholesale and CSD channels have started to recover and are expected to stabilize gradually. Despite higher advertisement and promotion (A&P) spend due to launch of Lever Ayush nationally, EBITDA margin expanded by 180 bps YoY (on a like-to-like basis) on the back of lower raw material cost and benefits of operating leverage & cost saving initiatives. While EBITDA grew by ~20% YoY, Adj. PAT growth stood at 15% due to lower other income. Broad-based growth across key categories Home care category reported robust comparable sales growth of 13% YoY led by laundry segment which witnessed double-digit growth coupled with continued strong performance of household care led by Vim. Similarly, Personal Care segment witnessed decent growth of 8% YoY (comparable basis) driven by robust performance of brands across Personal Wash and Personal Products category. Dove led the growth in Hair Care with Indulekha continuing its strong growth momentum. Lever Ayush witnessed good traction after its launch on a pan- India basis. Foods category saw a growth of 11% YoY (comparable basis) driven mainly by Ketchups while multiple new variants were launched under both Soups and Noodles categories. Strong growth in tea led to 10% YoY (comparable basis) growth in Refreshment segment. (Rs cr) Q2FY18 Q2FY17 Segment-wise Revenue YoY % Q1FY18 QoQ % H1FY18 H1FY17 YoY % Home Care 2,739 2,777 (1.4) 3,047 (10.1) 5,786 5,653 2.4 Personal Care 3,910 4,028 (2.9) 4,368 (10.5) 8,278 8,250 0.3 Foods 282 278 1.5 284 (0.7) 566 550 2.9 Refreshments 1,222 1,169 4.5 1,346 (9.2) 2,568 2,384 7.7 Others 150 218 (31.2) 168 (10.7) 318 422 (24.6) Total segment Revenue 8,303 8,470 (2.0) 9,213 (9.9) 17,516 17,259 1.5 Rural demand improving gradually As per the management, the rural demand which was lagging the urban demand previously is now broadly in-line with urban demand (generally rural demand outpaces the urban demand given lower penetration). Further, the reduction in GST rates from 28% to 18% in some of the key categories such as detergents, shampoos, cosmetics will drive strong volume growth ahead as the company will pass on the benefit to the consumers. Broad-based product portfolio, innovative pipeline, strong distribution network and government s thrust on rural economy to drive Revenue/PAT CAGR of ~11/17% over FY17-20E. We expect EBITDA margin of 20.5%/21.4%/22.2% over FY18/19/20E.

50,000 40,000 30,000 20,000 10,000 - Revenue to grow at 11% CAGR over FY17-20E 43,303 38,646 31,061 31,890 34,386 12.4% 12.1% 7.8% 2.7% 0.8% FY16 FY17 FY18E FY19E FY20E Revenue (Rs. Crores) YoY (%) 15.0% 10.0% 5.0% 0.0% EBITDA to grow at 16% CAGR over FY17-20E 12,000 10,000 8,000 6,000 4,000 2,000-22.2 21.4 20.5 19.0 18.5 9,604 8,262 5,749 6,047 7,042 FY16 FY17 FY18E FY19E FY20E EBITDA (Rs. Crores) EBITDA margin (%) Return ratios to remain healthy 23.0 22.0 21.0 20.0 19.0 18.0 17.0 16.0 150.0 100.0 50.0 119.8 83.3 96.7 66.5 109.5 76.5 126.8 88.6 142.6 99.6 0.0 FY16 FY17 FY18E FY19E FY20E RoE (%) RoCE (%) Key Risks Increasing competition Depreciation of Indian currency will impact cost of raw materials Weak rural demand

Profit & Loss Account (Standalone) Y/E (Rs. Cr) FY17 FY18E FY19E FY20E Total operating Income 31,890 34,386 38,646 43,303 Profit & Loss Account (Standalone) EBITDA 6,047 7,042 8,262 9,604 Depreciation 396 469 496 535 EBIT 5,651 6,573 7,766 9,069 Interest cost 22 22 22 22 Other Income 526 563 608 656 Profit before tax 6,155 7,114 8,352 9,704 Tax 1,906 2,134 2,506 2,911 Profit after tax 4,249 4,980 5,846 6,792 Minority Interests - - - - P/L from Associates - - - - Adjusted PAT 4,249 4,980 5,846 6,792 E/o income / (Expense) 241 23 - - Reported PAT 4,490 5,003 5,846 6,792 Balance Sheet (Standalone) Y/E (Rs. Cr) FY17 FY18E FY19E FY20E Paid up capital 216 216 216 216 Reserves and Surplus 6,274 6,319 6,451 6,751 Net worth 6,490 6,536 6,668 6,967 Minority interest - - - - Total Debt - - - - Other non-current liabilities 1,059 1,059 1,059 1,059 Total Liabilities 7,549 7,595 7,727 8,026 Total fixed assets 4,227 4,308 4,312 4,277 Goodwill - - - - Investments 3,779 3,779 3,779 3,779 Net Current assets (1,310) (1,346) (1,218) (883) Deferred tax assets (Net) 160 160 160 160 Other non-current assets 693 693 693 693 Total Assets 7,549 7,595 7,727 8,026 Cash Flow Statement (Standalone) Y/E (Rs. Cr) FY17 FY18E FY19E FY20E Pre-tax profit 6,155 7,114 8,352 9,704 Depreciation 396 469 496 535 Changes in W.C 666 144 303 299 Others (460) (541) (586) (634) Tax paid (1,804) (2,134) (2,506) (2,911) C.F.O 4,953 5,052 6,059 6,992 Capital exp. (1,024) (550) (500) (500) Change in inv. (970) - - - Other invest.cf 1,242 563 608 656 C.F - investing (752) 13 108 156 Issue of equity - 0 - - Issue/repay debt - - - - Dividends paid (4,264) (4,935) (5,714) (6,493) Other finance.cf - (22) (22) (22) C.F - Financing (4,264) (4,957) (5,736) (6,515) Chg. in cash (63) 108 431 633 Key Ratios (Standalone) Y/E FY17 FY18E FY19E FY20E (%) Net Sales 2.6 9.9 12.4 12.1 EBITDA 5.2 16.5 17.3 16.2 Net profit 1.9 17.2 17.4 16.2 Margin (%) EBITDA 19.0 20.5 21.4 22.2 EBIT 17.7 19.1 20.1 20.9 NPM 13.3 14.5 15.1 15.7 Return Ratios (%) RoE 66.5 76.5 88.6 99.6 RoCE 96.7 109.5 126.8 142.6 Per share data (Rs.) EPS 19.6 23.0 27.0 31.4 DPS 17.0 19.0 22.0 25.0 Valuation(x) P/E 63.8 54.4 46.4 39.9 EV/EBITDA 44.5 38.2 32.5 27.9 EV/Net Sales 8.6 7.8 7.0 6.2 P/B 41.7 41.5 40.7 38.9 Turnover Ratios (x) Net Sales/GFA 7.9 6.9 7.0 7.2 Sales/Total Assets 2.2 2.3 2.5 2.6

Rating Criteria Large Cap. Return Mid/Small Cap. Return Buy More than equal to 10% Buy More than equal to 15% Hold Upside or downside is less than 10% Accumulate* Upside between 10% & 15% Reduce Less than equal to -10% Hold Between 0% & 10% * To satisfy regulatory requirements, we attribute Accumulate as Buy and Reduce as Sell. * HUL is a large-cap company. Disclaimer: Reduce/sell Less than 0% The SEBI registration number is INH200000394. The analyst for this report certifies that all the views expressed in this report accurately reflect his / her personal views about the subject company or companies, and its / their securities. No part of his / her compensation was / is / will be, directly / indirectly related to specific recommendations or views expressed in this report. This material is for the personal information of the authorized recipient, and no action is solicited on the basis of this. It is not to be construed as an offer to sell, or the solicitation of an offer to buy any security, in any jurisdiction, where such an offer or solicitation would be illegal. We have reviewed the report, and in so far as it includes current or historical information, it is believed to be reliable, though its accuracy or completeness cannot be guaranteed. Neither Wealth India Financial Services Pvt. Ltd., nor any person connected with it, accepts any liability arising from the use of this document. The recipients of this material should rely on their own investigations and take their own professional advice. Price and value of the investments referred to in this material may go up or down. Past performance is not a guide for future performance. We and our affiliates, officers, directors, and employees worldwide: 1. Do not have any financial interest in the subject company / companies in this report; 2. Do not have any actual / beneficial ownership of one per cent or more in the company / companies mentioned in this document, or in its securities at the end of the month immediately preceding the date of publication of the research report, or the date of public appearance; 3. Do not have any other material conflict of interest at the time of publication of the research report, or at the time of public appearance; 4. Have not received any compensation from the subject company / companies in the past 12 months; 5. Have not managed or co-managed the public offering of securities for the subject company / companies in the past 12 months; 6. Have not received any compensation for investment banking, or merchant banking, or brokerage services from the subject company / companies in the past 12 months; 7. Have not served as an officer, director, or employee of the subject company; 8. Have not been engaged in market making activity for the subject company; This document is not for public distribution. It has been furnished to you solely for your information, and must not be reproduced or redistributed to any other person. Contact Us: Funds India Uttam Building, Third Floor No. 38 & 39 Whites Road Royapettah Chennai 600014 T: +91 7667 166 166 Email: contact@fundsindia.com

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1. Disclosures regarding Ownership Dion confirms that: (i) Dion/its associates have no financial interest or any other material conflict in relation to the subject company (ies) covered herein at the time of publication of this report. (ii) It/its associates have no actual / beneficial ownership of 1% or more securities of the subject company (ies) covered herein at the end of the month immediately preceding the date of publication of this report. Further, the Research Analyst confirms that: (i) He, his associates and his relatives have no financial interest in the subject company (ies) covered herein, and they have no other material conflict in the subject company at the time of publication of this report. (ii) he, his associates and his relatives have no actual/beneficial ownership of 1% or more securities of the subject company (ies) covered herein at the end of the month immediately preceding the date of publication of this report. 2. Disclosures regarding Compensation: During the past 12 months, Dion or its Associates: (a) Have not managed or co-managed public offering of securities for the subject company (b) Have not received any compensation for investment banking or merchant banking or brokerage services from the subject company (c) Have not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject. (d) Have not received any compensation or other benefits from the subject company or third party in connection with this report 3. Disclosure regarding the Research Analyst s connection with the subject company: It is affirmed that I, Abhijit Kumar Das employed as Research Analyst by Dion and engaged in the preparation of this report have not served as an officer, director or employee of the subject company 4. Disclosure regarding Market Making activity: Neither Dion /its Research Analysts have engaged in market making activities for the subject company. Copyright in this report vests exclusively with Dion.