01 may 2020 results review 4qfy20 hindustan unilever · indulekha neemraj oil pan-india - hair care...

01 May 2020 Results Review 4QFY20

Hindustan Unilever

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters

Miss led by supply chain disruptions

HUL posted weak performance across all fronts in 4QFY20 despite our

estimates being lower than consensus. Revenue and volume decline of 9% and

7% was impacted by weak BPC market growth and lockdown led trade de-

stocking in March. Lockdown led supply chain disturbance will be resolved

in the coming months. However, underlying demand which was already

reeling in FY20 will be further impacted in FY21. Consumer trends are

expected to change sharply for many categories in FY21. Discretionary, OOH

consumption and rural will remain tepid. In our recent thematic report (link),

we have already cut down estimates for our coverage universe. However, we

expect there can be more downside risk to our estimates for all. We cut our

EPS estimates for HUL by 7-8% for FY21 and FY22. We value HUL at 47x on

Mar-22E EPS, our TP is at Rs 1,969 (earlier 2,113). Maintain REDUCE.

Revenue weakness again led by BPC: Revenues declined by 9% (+9% in

4QFY19 and +4% in 3QFY20) vs expectation of 3% decline. Volume dipped

by 7% (+7% in 4QFY19 and +5% in 3QFY20) vs expectation of 1% decline.

Decline in Home Care/BPC/F&R was 4/14/7%. The impact on BPC was

sharper as a result of weak demand pre-Covid along with the lockdown

impact.

Miss in margins: GM expanded by 142bps to 53.7% (-27bps in 4QFY19 and

+44bps in 3QFY20) vs. exp of +119bps. Reclassification of certain cost lower

down RM (impact was 40bps). Employee/A&P/Other expenses increased by

-12/+5/-8%. The increase in A&P led to a dip in EBITDA margin of 40bps to

22.9%. Adj EBITDA margin was down 160bps to 21.8% (+83bps in 4QFY19

and +237bps in 3QFY20) vs expectation of +220 bps. EBITDA declined by

16% YoY. EBIT margins for Home Care/BPC/F&R up by +131/-291/-547bps.

Call & other takeaways: (1) HUL’s 80% portfolio gained market share,

aggregate market share up by 50bps, (2) Rural and discretionary categories

impacted consumer offtake in March (down by 1% in value/vol terms), (3)

Out of 12% revenue swing post Covid, ~6% was attributed to constraints at

the distributor level and ~3% at the retail level, (4) Co is now working at 75-

80% of capacity, (5) Downtrading within SKUs is possible, (6) Recent

innovations were around Lifebuoy (Germ kills spray and hand sanitizer),

Domex and Surf Excel.

Maintain REDUCE: While HUL remains a resilient business model within

the sector, it’s not immune to slowdown given select discretionary

categories and possible downtrading. Recent run-up amidst flight to

safety, limits upsides in the medium term. Risk-reward is unattractive.

Financial Summary

YE Mar (Rs mn) 4Q

FY20

4Q

FY19

YoY

(%)

3Q

FY20

QoQ

(%) FY19 FY20P FY21E FY22E

Net Sales 90,110 99,450 (9.4) 98,080 (8.1) 393,100 397,830 469,145 506,628

EBITDA 19,600 23,210 (15.6) 23,324 (16.0) 88,800 98,610 123,814 138,499

APAT 15,630 15,900 (1.7) 16,910 (7.6) 60,800 68,604 87,149 98,364

Diluted EPS (Rs) 7.2 7.3 (1.7) 7.8 (7.6) 28.1 31.7 37.1 41.9

P/E (x)

78.1 69.3 59.2 52.4

EV / EBITDA (x)

52.8 47.5 40.9 36.3

RoCE (%)

69.2 71.2 33.2 22.6

Source: Company, HSIE Research

REDUCE

CMP (as on 30 Apr 2020) Rs 2,196

Target Price Rs 1,969

NIFTY 9,860

KEY

CHANGES OLD NEW

Rating REDUCE REDUCE

Price Target Rs 2,113 Rs 1,969

EPS % FY21E FY22E

-8% -7%

KEY STOCK DATA

Bloomberg code HUVR IN

No. of Shares (mn) 2,348

MCap (Rs bn) / ($ mn) 5,155/68,787

6m avg traded value (Rs mn) 5,282

52 Week high / low Rs 2,614/1,656

STOCK PERFORMANCE (%)

3M 6M 12M

Absolute (%) 7.9 0.9 24.9

Relative (%) 25.1 16.9 38.5

SHAREHOLDING PATTERN (%)

Dec-19 Apr-20

Promoters 67.18 61.90

FIs & Local MFs 6.68 6.32

FPIs 12.32 12.04

Public & Others 13.82 19.74

Pledged Shares 0.0 0.0

Source : BSE

Varun Lohchab

[email protected]

+91-22-6171-7334

Naveen Trivedi

[email protected]

+91-22-6171-7324

Aditya Sane

[email protected]

+91-22-6171-7336

https://www.hdfcsec.com/hsl.docs/FMCG%20-%20Defensive%20businesses%20but%20not%20valuations%20-%20HDFC%20sec-202004130746349436873.pdf

Page | 2

Hindustan Unilever: Results Review 4QFY20

HUL Quarterly Commentary Particulars 1QFY20 2QFY20 3QFY20 4QFY20

Industry - Near term demand to remain

subdued given macro economic

conditions

- Expect pickup in 2HFY20

- Rural is at par with Urban

- Nielsen is saying 300bps decline

in growth sequentially

- Demand outlook continues to

be challenging

- Premiumisation is intact

- Naturals is growing faster

- MP, Chattisgarh, Greater

Maharashtra, Punjab, Haryana

have been slow

- Southern mkts and UP are doing

well

- Demand outlook continues to

be challenging

- Rural remained muted, 0.5x of

Urban (1.4-15x in FY19), Naturals

is growing faster. Liquidity

challenges continue

- Premiumisation is intact.

Commodities and currency will

continue to be volatile

- Hopeful for gradual

improvement in rural demand.

- Demand outlook remained

challenging pre-Covid

- Rural growth continue to lag

behind urban. With flow of

money from urban to rural will be

constrained, rural can be muted

in FY21

- Co is now operating at 75-80% of

capacity

- Co is partnering with

aggregators to drive revenues

- MGT expects significant shift to

Ecomm by consumers and

technology by retailers

Revenue

Home Care - Relaunched Rin nationally

- Launched Sunlight liquid in

select geographies

- Household care portfolio growth

is led by Central & South markets

- Launched premium brand Love

& Care in select channels

- Launched Magic Rinse powder

sachet in TN

- Purifiers good growth in the

premium segment

- Focus on core and

premiumisation supporting

- New campaign for Wheel

advanced

- Launched Comfort Perfume

Deluxe in select geographies

- Purifiers good growth in the

premium segment

- Demand for Home Care was

sustained during the lockdown

- Co does not expect significant

downtrading across brands

BPC - Price reduction in 4-6% on Lux

and Lifebuoy.

- Launched Lux Botanicals and

Pears Naturale range nationally

and Fair & Lovely Soap in select

geographies

- Relaunched Pond’s Men range;

launched FAL Ayurveda

facewash and facial kits

- Haircare is doing well

(Launched new Sunsilk variants

nationally with natural

ingredients)

- Momentum on Close Up and

Ayush Oral Care continues to

build. Pepsodent WIP

- Personal wash pricing actions

on popular segment landed,

Dove and Pears price cuts

coming (Total price cut of ~6%)

- Fair & Lovely soap launch well

received

- Launched Pears Natural

bodywash range nationally

- Skin Care seen double digit

growth backed by robust

performance across brands

- Hair Care seeing steady

performance across portfolio

- Colour Cosmetics sustaining

strong growth; Continued focus

in channels of the future

- Personal wash pricing actions,

delayed winter and weak

sentiments impacted BPC

- Good growth in non-winter

portfolio

- Launched Love Beauty & Planet

in Ecommerce channel and

Indulekha Neemraj oil Pan-India

- Hair care sustained healthy

growth

- Oral care growth was steady

despite weak category growth

- Co took 15% price in PC

portfolio. Price cut in sanitizers

was 50% (being in essentials)

- Demand for non-discretionary

PC products was resilient

- Launched new products like

disinfectant sprays and wipes,

immunity boosting sanitzers to

drive revenues. Co has also

launched a range of SKUs in hand

sanitizers

- Discretionary and OOH

categories will be impacted in

FY21

F&R - Robust growth in Ice Creams

- Tea - stress in few plantations.

Need to track impact on price and

quality of upcoming crop

- Ice Cream & Frozen Desserts:

Sustained strong growth

momentum

- Naturals is growing at 1.5x YTD

because Indulekha growth has

moderated

- Broad-based growth in

Beverages, new communication

for Lipton Green Tea

- Ice Cream & Frozen Desserts

sustained strong growth

- Pilot launch of Hellmann’s

Mayonnaise in Kolkata

- Out of home consumption and

ice cream witnessed impact from

mid March.

- Food services biz came to a

standstill for the co due to the

lockdown.

Margin

Gross Margin - Palm oil is down 15-20%

- Pricing strategy - Based on

outlook of commodity. Home care

and other BPC there are options

to take price hikes

- Product mix, benign RM

inflation and cost saving

initiatives drove margin

- Product mix, benign RM

inflation and cost saving

initiatives drove margin

- Palm oil and SMP are up sharply

- Veg inflation impacted GM for

FY20

- Co is exploring cost saving

models to boost margins in FY21

EBITDA

Margin

- Competitive intensity has

declined in GT hence lower A&P

spend. Home care earlier spent

more and hence moderated

- Competitive intensity has

increased in few categories in

modern trade

- Adj EBITDA Margin (ex-IND

AS and refunds) was up by

150bps YoY. Thereby, adj

EBITDA grew by 14% YoY

- Co will continue to invest on

A&P


AS and refunds) was up by

210bps YoY. Thereby, adj

EBITDA grew by 14% YoY

- Cost rationalisation initiatives

will continue


AS) was down by 160bps YoY.

Thereby, adj EBITDA declined

by 16% YoY

- Co has cut back on ASP in April

and will assess ASP on monthly

basis

Page | 3


Quarterly standalone Financial Snapshot (Standalone)

Particulars (Rs mn) Mar-20 Mar-19 YoY

(bps) Dec-19

QoQ

(bps) FY20 FY19

YoY

(bps)

Net Sales 88,850 98,090 (9.4) 96,960 (8.4) 3,82,730 3,76,600 1.6

Other Operating Income 1,260 1,360 (7.4) 1,120 12.5 5,120 5,640 (9.2)

Total Income 90,110 99,450 (9.4) 98,080 (8.1) 3,87,850 3,82,240 1.5

Material Expenses 41,700 47,430 (12.1) 44,900 (7.1) 1,77,930 1,79,600 (0.9)

Employee Expenses 3,550 4,020 (11.7) 4,540 (21.8) 16,910 17,470 (3.2)

ASP 11,640 11,070 5.1 11,630 0.1 46,860 45,520 2.9

Other Operating Expenses 12,570 13,720 (8.4) 12,560 0.1 50,150 53,280 (5.9)

EBITDA 20,650 23,210 (11.0) 24,450 (15.5) 96,000 86,370 11.1

Adj EBITDA (IND AS 116) 19,600 23,210 (15.6) 23,324 (16.0) 91,865 86,370 6.4

Depreciation 2,550 1,340 90.3 2,320 9.9 9,380 5,236 79.1

EBIT 18,100 21,870 (17.2) 22,130 (18.2) 86,620 81,134 6.8

Other Income 2,660 1,180 125.4 1,400 90.0 7,330 6,640 10.4

Interest Cost 260 70 271.4 250 4.0 1,060 280 278.6

PBT 20,500 22,980 (10.8) 23,280 (11.9) 92,890 87,494 6.2

Exceptional (580) (710) na (990) na (1,970) (2,270) na

PBT (after exceptional) 19,920 22,270 (10.6) 22,290 (10.6) 90,920 85,224 6.7

Tax 4,730 6,890 (31.3) 6,130 (22.8) 24,094 24,860 (3.1)

RPAT 15,190 15,380 (1.2) 16,160 (6.0) 67,380 60,364 11.6

Adjustment (442) (520) na (750) na (936) (436)

APAT 15,632 15,900 (1.7) 16,910 (7.6) 68,316 60,800 12.4

EPS (Adjusted) 7.2 7.3 (1.7) 7.8 (7.6) 31.6 28.1 12.4


Quarterly Performance Analysis

As % Of Net Revenue Mar-20 Mar-19 YoY

(bps) Dec-19

QoQ

(bps) FY20 FY19 YoY (%)

Material Expenses 46.3 47.7 (142) 45.8 50 45.9 47.0 (111)

Employee Expenses 3.9 4.0 (10) 4.6 (69) 4.4 4.6 (21)

ASP Expenses 12.9 11.1 179 11.9 106 12.1 11.9 17

Other Operating Expenses 13.9 13.8 15 12.8 114 12.9 13.9 (101)

EBITDA Margin (%) 22.9 23.3 (42) 24.9 (201) 24.8 22.6 216

Adj EBITDA Margin (%) 21.8 23.3 (159) 23.8 (203) 23.7 22.6 109

Tax Rate (%) 23.7 30.9 (719) 27.5 (376) 26.5 29.2 (267)

APAT Margin (%) 17.3 16.0 136 17.2 11 17.6 15.9 171


Domestic revenue declined

9% with volume decline of

7% (est 1% decline)

Employee/A&P/Other

expenses increased by

-12/+5/-8%

GM was up 142bps to

53.7% (-27bps in 4QFY19

and +44bps in 3QFY20) vs

expectation of +119bps

Page | 4


Operational Segmental Performance (Standalone)

(Rs mn) Mar-20 Mar-19 YoY

(bps) Dec-19

QoQ

(bps) FY20 FY19

YoY

(bps)

Segmental Revenues

Home Care 33,500 35,020 (4.3) 34,560 (3.1) 1,36,420 1,28,760 5.9

Beauty & PC 38,010 43,930 (13.5) 44,120 (13.8) 1,73,450 1,76,550 (1.8)

Foods & Refreshment 17,880 19,160 (6.7) 18,650 (4.1) 74,500 71,330 4.4

Others 720 1,340 (46.3) 750 (4.0) 3,480 5,600 (37.9)

Total 90,110 99,450 (9.4) 98,080 (8.1) 3,87,850 3,82,240 1.5

Segmental EBIT

Home Care 6,360 6,190 2.7 6,290 1.1 25,590 21,510 19.0

Beauty & PC 9,450 12,200 (22.5) 12,520 (24.5) 48,700 47,040 3.5

Foods & Refreshment 2,250 3,460 (35.0) 3,340 (32.6) 12,320 12,230 0.7

Others 40 20 100.0 (20) (300.0) 60 (10) na

Total 18,100 21,870 (17.2) 22,130 (18.2) 86,670 80,770 7.3

(a) Interest Cost & Bank

Charges - 70 (100.0) 250 (100.0) 800 280 185.7

(b) Other Un-allocable

Expenses 40 20 100.0 (20) (300.0) 60 (10) na

PBT 18,100 22,980 (21.2) 22,290 (18.8) 89,100 86,830 2.6

Capital Employed

Home Care (3,760) (4,820) na (9,520) na (3,760) (4,820) na

Beauty & PC (2,320) (2,200) na (9,300) na (2,320) (2,200) na

Foods & Refreshment 9,550 8,680 10.0 5,470 74.6 9,550 8,680 10.0

Others 530 770 (31.2) 410 29.3 530 770 (31.2)

Total 4,000 2,430 64.6 (12,940) na 4,000 2,430 64.6


EBIT Margin

EBIT Margin Mar-20 Mar-19 YoY

(bps) Dec-19

QoQ

(bps) FY20 FY19

YoY

(bps)

Home Care 19.0 17.7 131 18.2 78 18.8 16.7 205

PC 24.9 27.8 (291) 28.4 (352) 28.1 26.6 143

Foods & Refreshment 12.6 18.1 (547) 17.9 (532) 16.5 17.1 (61)

Others 5.6 1.5 406 (2.7) 822 1.7 (0.2) na

Total 20.1 22.0 (190) 22.6 (248) 22.3 21.1 122


Page | 5


Long term performance trends

Net Revenue Growth Underlying Volume Growth



EBITDA APAT

Source: Company, HSIE Research Source: Company, HSIE Research

1

(1)

6 5

10

17 16 16

11 11 9

7 7

3

(9)(12)

(9)

(6)

(3)

-

3

6

9

12

15

18

21

Q2

FY1

7

Q3

FY1

7

Q4

FY1

7

Q1

FY1

8

Q2

FY1

8

Q3

FY1

8

Q4

FY1

8

Q1

FY1

9

Q2

FY1

9

Q3

FY1

9

Q4

FY1

9

Q1

FY2

0

Q2

FY2

0

Q3

FY2

0

Q4

FY2

0

%

(1)

(4)

4

0

4

11 1112

10 10

7

5 5 5

(7)-8

-6

-4

-2

0

2

4

6

8

10

12

14

Q2

FY1

7

Q3

FY1

7

Q4

FY1

7

Q1

FY1

8

Q2

FY1

8

Q3

FY1

8

Q4

FY1

8

Q1

FY1

9

Q2

FY1

9

Q3

FY1

9

Q4

FY1

9

Q1

FY2

0

Q2

FY2

0

Q3

FY2

0

Q4

FY2

0

%

10.0

13.0

16.0

19.0

22.0

25.0

28.0

-

4,000

8,000

12,000

16,000

20,000

24,000

28,000

Q2

FY1

7

Q3

FY1

7

Q4

FY1

7

Q1

FY1

8

Q2

FY1

8

Q3

FY1

8

Q4

FY1

8

Q1

FY1

9

Q2

FY1

9

Q3

FY1

9

Q4

FY1

9

Q1

FY2

0

Q2

FY2

0

Q3

FY2

0

Q4

FY2

0

EBITDA EBITDA Margin (%) - RHS

%Rs mn

8.0

10.0

12.0

14.0

16.0

18.0

20.0

6,000

8,000

10,000

12,000

14,000

16,000

Q2

FY1

7

Q3

FY1

7

Q4

FY1

7

Q1

FY1

8

Q2

FY1

8

Q3

FY1

8

Q4

FY1

8

Q1

FY1

9

Q2

FY1

9

Q3

FY1

9

Q4

FY1

9

Q1

FY2

0

Q2

FY2

0

Q3

FY2

0

Q4

FY2

0

APAT NPM (%) - RHS%

Rs mn

Page | 6


A&P Personal Care Performance


Home Care Performance Food & Refreshment Performance


10.00

11.00

12.00

13.00

14.00

6,500

8,500

10,500

12,500

Q2

FY

17

Q3

FY

17

Q4

FY

17

Q1

FY

18

Q2

FY

18

Q3

FY

18

Q4

FY

18

Q1

FY

19

Q2

FY

19

Q3

FY

19

Q4

FY

19

Q1

FY

20

Q2

FY

20

Q3

FY

20

Q4

FY

20

A&P A&P (%) of sales - RHS

%Rs mn

20.0

22.0

24.0

26.0

28.0

30.0

34,000

36,000

38,000

40,000

42,000

44,000

46,000

Q2

FY1

7

Q3

FY1

7

Q4

FY1

7

Q1

FY1

8

Q2

FY1

8

Q3

FY1

8

Q4

FY1

8

Q1

FY1

9

Q2

FY1

9

Q3

FY1

9

Q4

FY1

9

Q1

FY2

0

Q2

FY2

0

Q3

FY2

0

Q4

FY2

0

Revenue EBIT Margin - RHS%Rs mn

6.0

10.0

14.0

18.0

22.0

20,000

24,000

28,000

32,000

36,000

Q2

FY

17

Q3

FY

17

Q4

FY

17

Q1

FY

18

Q2

FY

18

Q3

FY

18

Q4

FY

18

Q1

FY

19

Q2

FY

19

Q3

FY

19

Q4

FY

19

Q1

FY

20

Q2

FY

20

Q3

FY

20

Q4

FY

20

Revenue EBIT Margin - RHS

%Rs mn

-

4.0

8.0

12.0

16.0

20.0

24.0

8,000

10,000

12,000

14,000

16,000

18,000 Q

2FY1

7

Q3F

Y17

Q4F

Y17

Q1F

Y18

Q2F

Y18

Q3F

Y18

Q4F

Y18

Q1F

Y19

Q2F

Y19

Q3F

Y19

Q4F

Y19

Q1F

Y20

Q2F

Y20

Q3F

Y20

Q4F

Y20

Revenue EBIT Margin - RHS%

Rs mn

Page | 7


Beauty & Personal Care Performance Particulars

(Rs mn) Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20

Revenue 40,900 40,960 44,070 43,160 45,390 43,930 45,890 45,430 44,120 38,010

YoY Gr.

(%) 20.0% 13.0% 14.0% 10.4% 11.0% 7.3% 4.1% 5.3% -2.8% -13.5%

Revenue

Mix (%) 47.6% 45.0% 46.5% 46.7% 47.5% 44.2% 45.4% 46.1% 45.0% 42.2%

EBIT 10,070 10,660 12,040 11,150 11,650 12,200 13,580 13,150 12,520 9,450

YoY Gr.

(%) 9.4% 8.3% 11.6% 17.6% 15.7% 14.4% 12.8% 17.9% 7.5% -22.5%

EBIT

Margin (%) 24.6% 26.0% 27.3% 25.8% 25.7% 27.8% 29.6% 28.9% 28.4% 24.9%

EBIT Mix

(%) 65.8% 57.2% 56.7% 58.8% 62.3% 55.8% 55.7% 59.6% 56.6% 52.2%

Home Care Performance Particulars


Revenue 27,410 31,020 31,460 30,800 31,480 35,020 34,650 33,710 34,560 33,500

YoY Gr.

(%) 17.0% 21.0% 20.0% 12.4% 14.8% 12.9% 10.1% 9.4% 9.8% -4.3%

Revenue

Mix (%) 31.9% 34.1% 33.2% 33.4% 32.9% 35.2% 34.3% 34.2% 35.2% 37.2%

EBIT 3,540 5,090 5,940 4,920 4,460 6,190 6,990 5,950 6,290 6,360

YoY Gr.

(%) 51.1% 30.8% 32.6% 28.5% 26.0% 21.6% 17.7% 20.9% 41.0% 2.7%

EBIT

Margin (%) 12.9% 16.4% 18.9% 16.0% 14.2% 17.7% 20.2% 17.7% 18.2% 19.0%

EBIT Mix

(%) 23.1% 27.3% 28.0% 25.9% 23.9% 28.3% 28.7% 27.0% 28.4% 35.1%

Food & Refreshment Performance Particulars


Revenue 15,720 17,350 17,850 17,040 17,280 19,160 19,500 18,470 18,650 17,880

YoY Gr.

(%) 15.5% 12.0% 14.0% 11.7% 9.9% 10.4% 9.2% 8.4% 7.9% -6.7%

Revenue

Mix (%) 18.3% 19.1% 18.8% 18.5% 18.1% 19.3% 19.3% 18.7% 19.0% 19.8%

EBIT 1,720 2,870 3,280 2,880 2,610 3,460 3,790 2,940 3,340 2,250

YoY Gr.

(%) -12.9% 16.2% 11.2% 24.7% 51.7% 20.6% 15.5% 2.1% 28.0% -35.0%

EBIT

Margin (%) 10.9% 16.5% 18.4% 16.9% 15.1% 18.1% 19.4% 15.9% 17.9% 12.6%

EBIT Mix

(%) 11.2% 15.4% 15.4% 15.2% 14.0% 15.8% 15.5% 13.3% 15.1% 12.4%

Page | 8


Assumptions (Including GSK Consumer Acquisition)

Particulars FY17 FY18 FY19 FY20E FY21E FY22E

Revenue (Rs

mn)

Home Care 113,460 116,260 128,740 136,400 148,096 161,326

Beauty & PC 164,320 165,880 178,000 174,880 177,613 187,128

Foods 11,240 11,650 12,543 12,695 69,335 77,121

- HUL 11,240 11,650 12,543 12,695 13,816 14,939

- GSK na na na - 55,519 62,181

Refreshment 48,480 53,110 58,767 61,805 62,653 67,889

Others (export,

infant &

feminine care)

19,600 15,330 15,050 12,050 11,448 13,165

Total 357,100 362,230 393,100 397,830 469,145 506,628

YoY Growth

Home Care 5% 14% 15% 6% 9% 9%

Beauty & PC 2% 11% 11% -2% 2% 5%

Foods 3% 4% 12% 1% 446% 11%

- HUL 3% 4% 12% 1% 9% 8%

- GSK

(underlying

growth)

na na na 8% 8% 12%

Refreshment 8% 10% 12% 5% 1% 8%

Others -5% -22% -6% -20% -5% 15%

Total 3% 6% 12% 1% 18% 8%

Total (Ex-GSK) 3% 6% 12% 1% 4% 7%

EBIT Margin

Home Care 11.2% 14.6% 16.7% 18.8% 19.8% 20.3%

Beauty & PC 23.7% 25.3% 26.7% 28.0% 27.2% 28.0%

Foods 7.7% 8.5% 10.0% 9.7% 31.4% 33.9%

- HUL 7.7% 8.5% 10.0% 9.7% 9.7% 10.5%

- GSK na na na 0.0% 36.8% 39.5%

Refreshment 15.7% 16.9% 18.8% 17.9% 17.4% 18.5%

Others 10.2% 9.5% 11.8% 14.3% 13.5% 14.5%

Total 17.4% 19.5% 21.2% 22.3% 23.8% 24.8%

Gross Margin

(%) 50.8 52.9 53.0 54.1 57.1 57.7

Employee (% of

sales) 5.3 5.2 4.8 4.6 4.6 4.5

ASP (% of sales) 10.7 11.7 11.7 11.8 10.7 10.7

Distribution (%

of sales) 4.6 4.4 4.1 3.9 4.0 4.0

Other Expenses

(% of sales) 11.2 10.6 9.9 9.0 11.4 11.2

EBITDA Margin

(%) 19.1 21.1 22.6 24.8 26.4 27.3

Tax Rate (%) 30.1 28.1 29.2 26.3 26.0 26.0

HUL (Ex GSK)

FY21E FY22E

Revenue 413,626 444,447

YoY Gr (%) 4.0% 7.5%

EBITDA 107,713 118,601

YoY Gr (%) 9.2% 10.1%

Page | 9


Change in Estimates

FY20E FY21E FY22E

OLD NEW Chg (%) OLD NEW Chg (%) OLD NEW Chg (%)

Net Sales 407,525 397,830 -2.4% 473,884 469,145 -1.0% 509,174 506,628 -0.5%

EBITDA 103,868 98,610 -5.1% 122,588 123,814 1.0% 137,810 138,499 0.5%

APAT 72,095 68,604 -4.8% 94,213 87,149 -7.5% 105,602 98,364 -6.9%

EPS 33.3 31.7 -4.8% 40.1 37.1 -7.5% 45.0 41.9 -6.9%

Peer Set Comparison

Company Mcap

(Rs bn)

CMP

(Rs/sh) Reco TP

EPS (Rs) P/E (x) EV/EBITDA (x) Core RoCE (%)

FY20E/

CY19P

FY21E/

CY20E

FY22E/

CY21E

FY20E/

CY19P

FY21E/

CY20E

FY22E/

CY21E

FY20E/

CY19P

FY21E/

CY20E

FY22E/

CY21E

FY20E/

CY19P

FY21E/

CY20E

FY22E/

CY21E

HUL 5,155 2,196 REDUCE 1,969 31.7 37.1 41.9 69.3 59.2 52.4 47.5 40.8 36.3 230.7 46.5 28.8

ITC 2,219 181 BUY 221 12.5 11.9 13.0 14.4 15.2 13.9 9.8 10.1 9.0 44.5 43.4 48.0

Nestle 1,726 17,899 REDUCE 14,042 206.2 237.7 279.0 86.8 75.3 64.2 57.9 51.9 45.3 74.9 70.3 68.7

Dabur 863 490 REDUCE 447 9.0 10.0 11.2 54.4 48.9 43.8 43.7 40.5 36.0 51.4 52.7 55.9

Britannia 759 3,161 REDUCE 2,711 56.4 61.9 71.4 56.0 51.0 44.3 40.8 36.7 32.3 41.1 43.4 47.2

GCPL 555 543 REDUCE 529 14.5 15.9 17.6 37.4 34.2 30.8 26.7 25.7 23.7 18.5 20.0 22.1

Marico 372 288 REDUCE 287 8.1 8.5 9.6 35.8 33.7 30.1 25.2 24.2 22.0 43.9 45.8 50.5

United

Spirits 389 536 ADD 585 11.9 13.7 16.1 46.8 39.2 33.3 26.8 24.4 21.2 17.9 19.1 20.8

Colgate 398 1,464 ADD 1,372 29.8 32.0 36.1 49.1 45.8 40.5 31.2 29.1 26.0 69.6 72.7 80.5

Jubilant 213 1,617 ADD 1,502 30.1 21.9 37.5 53.7 74.0 43.1 32.7 40.8 25.5 31.4 12.0 22.6

Emami 88 195 REDUCE 221 11.7 11.6 13.0 16.6 16.7 15.0 11.9 11.8 10.6 23.2 24.1 29.9

Radico

Khaitan 39 296 BUY 371 16.1 19.6 23.2 18.3 15.1 12.8 11.1 9.5 7.9 14.9 14.3 15.8


Page | 10


Financials Consolidated Income Statement (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

Net Revenues 319,722 321,860 331,620 355,450 393,100 397,830 469,145 506,628

Growth (%) 9.4 3.8 3.0 12.0 12.0 1.2 17.9 8.0

Material Expenses 161,761 158,723 163,130 167,300 184,740 182,590 201,263 214,304

Employee Expense 17,239 16,800 17,430 18,600 18,750 18,200 21,524 22,815

ASP Expense 39,436 36,560 35,420 41,530 46,070 47,130 50,199 54,209

Distribution Expenses 14,604 14,500 15,160 15,470 15,990 15,515 18,766 20,265

Other expenses 32,545 35,146 37,080 37,560 38,750 35,785 53,580 56,535

EBITDA 54,138 60,131 63,400 74,990 88,800 98,610 123,814 138,499

EBITDA Growth (%) 14.2 11.1 5.4 18.3 18.4 11.0 25.6 11.9

EBITDA Margin (%) 16.9 18.7 19.1 21.1 22.6 24.8 26.4 27.3

Depreciation 3,224 3,530 4,320 5,200 5,650 10,020 11,308 11,925

EBIT 50,914 56,601 59,080 69,790 83,150 88,590 112,506 126,574

Other Income 5,666 4,230 4,660 4,810 6,550 6,320 6,323 7,093

EO Items, Others 6,792 (310) 2,370 (330) (2,270) (1,990) - -

Interest 177 170 350 260 330 1,180 1,060 742

PBT 63,196 60,351 65,760 74,010 87,100 91,740 117,769 132,925

Tax 19,440 18,830 19,770 20,790 25,440 24,090 30,620 34,560

RPAT 43,631 41,451 45,870 53,240 61,660 67,650 87,149 98,364

adjustment 4,703 (213) (3,390) (1,890) (436) (954) - -

Adjusted PAT 38,928 41,664 42,480 51,350 60,800 68,604 87,149 98,364

APAT Growth (%) 3.7 7.0 2.0 20.9 18.4 12.8 27.0 12.9

Adjusted EPS (Rs) 18.0 19.3 19.7 23.7 28.1 31.7 37.1 41.9

EPS Growth (%) 3.6 7.0 2.1 20.6 18.4 12.8 17.1 12.9


Consolidated Balance Sheet (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

SOURCES OF FUNDS

Share Capital - Equity 2,164 2,164 2,160 2,164 2,165 2,165 2,349 2,349

Reserves 38,111 63,570 65,280 70,650 76,510 83,894 417,655 437,325

Total Shareholders Funds 40,275 65,734 67,440 72,814 78,675 86,058 420,004 439,674

Minority Interest 252 200 220 200 180 180 180 180

Long Term Debt 70 - - - 990 - - -

Short Term Debt 360 1,770 2,770 - - - - -

Total Debt 430 1,770 2,770 - 990 - - -

Net Deferred Taxes (1,998) (2,333) (1,700) (3,020) (3,730) (3,730) (3,730) (3,730)

Long Term Provisions & Others 11,686 13,347 7,940 11,160 12,990 14,466 15,625 16,497

TOTAL SOURCES OF FUNDS 50,645 78,718 76,670 81,154 89,105 96,974 432,079 452,621

APPLICATION OF FUNDS

Net Block 28,210 32,580 44,190 45,280 47,150 54,790 56,782 52,857

CWIP 5,163 4,080 2,290 4,610 4,060 5,970 2,985 1,493

Other Non-current Assets 5,872 6,362 2,770 3,500 6,180 5,800 6,444 7,161

Total Non-current Assets 39,246 43,022 49,250 53,390 57,390 66,560 66,211 61,510

Goodwill - - - - - - 308,700 308,700

Inventories 28,488 27,260 25,410 25,130 25,740 27,670 31,447 33,717

Debtors 10,103 12,640 10,850 13,100 18,160 11,490 13,550 14,632

Other Current Assets 7,319 12,159 9,300 14,820 10,530 10,292 12,128 13,093

Cash & Equivalents 57,146 53,096 56,230 63,584 64,735 71,822 106,296 135,342

Total Current Assets 103,055 105,155 101,790 116,634 119,165 121,274 163,420 196,784

Creditors 55,063 56,850 61,860 71,700 72,060 75,300 88,798 95,893

Other Current Liabilities & Provns 36,593 12,609 12,510 17,170 15,390 15,559 17,454 18,480

Total Current Liabilities 91,656 69,459 74,370 88,870 87,450 90,859 106,252 114,373

Net Current Assets 11,399 35,696 27,420 27,764 31,715 30,415 57,168 82,411

TOTAL APPLICATION OF FUNDS 50,645 78,718 76,670 81,154 89,105 96,974 432,079 452,621


Page | 11


Consolidated Cash Flow (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

Reported PBT 56,403 59,851 62,420 73,040 86,040 91,740 117,769 132,925

Non-operating & EO Items (2,488) (947) 290 (1,030) 140 - - -

Interest Expenses (2,183) (2,481) (2,250) (2,340) (2,740) 1,180 1,060 742

Depreciation 3,224 3,573 4,320 5,200 5,650 10,020 11,308 11,925

Working Capital Change (3,421) (1,079) 5,660 8,360 (3,420) 10,244 8,235 3,958

Tax Paid (18,616) (17,663) (18,590) (22,640) (27,670) (24,090) (30,620) (34,560)

OPERATING CASH FLOW ( a ) 32,919 41,253 51,850 60,590 58,000 89,094 107,752 114,990

Capex (5,726) (7,914) (14,520) (8,780) (7,540) (19,570) (2,015) (6,508)

Free Cash Flow (FCF) 27,193 33,340 37,330 51,810 50,460 69,524 105,737 108,483

Investments & Acquisition (907) 689 (1,420) (5,700) 390 (302,390) (5,000) (5,000)

Non-operating Income 8,012 4,542 4,210 3,850 2,770 - - -

INVESTING CASH FLOW ( b ) 1,379 (2,682) (11,730) (10,630) (4,380) (321,960) (7,015) (11,508)

Debt Issuance/(Repaid) (25) 2,117 4,600 - 990 (990) - -

Interest Expenses (177) (45) (140) (60) (70) (1,180) (1,060) (742)

FCFE 26,991 35,412 41,790 51,750 51,380 67,354 104,677 107,741

Share Capital Issuance (50) (110) - - - 317,000 - -

Dividend (29,118) (33,417) (35,720) (39,110) (45,540) (51,948) (59,667) (78,695)

Others (5,255) (6,735) (10,880) (10,580) (8,290) (9,272) (10,537) -

FINANCING CASH FLOW ( c ) (34,624) (38,190) (42,140) (49,750) (52,910) 253,610 (71,263) (79,437)

NET CASH FLOW (a+b+c) (326) 382 (2,020) 210 710 20,744 29,474 24,046

EO Items, Others 1,735 3,434 7,136 (16,354) (2,020) - - -

Closing Cash & Equivalents 26,895 27,436 18,280 34,844 37,575 59,272 88,746 112,792

Key Ratios

FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

PROFITABILITY (%)

GPM 49.4 50.7 50.8 52.9 53.0 54.1 57.1 57.7

EBITDA Margin 16.9 18.7 19.1 21.1 22.6 24.8 26.4 27.3

EBIT Margin 15.9 17.6 17.8 19.6 21.2 22.3 24.0 25.0

APAT Margin 12.2 12.9 12.8 14.4 15.5 17.2 18.6 19.4

RoE 102.9 78.6 63.8 73.2 80.3 83.3 34.4 22.9

RoIC (or Core RoCE) na 344.6 169.5 248.5 249.8 230.7 46.5 28.8

RoCE 79.6 62.6 53.6 64.0 69.2 70.7 32.4 22.0

EFFICIENCY

Tax Rate (%) 30.8 31.2 30.1 28.1 29.2 26.3 26.0 26.0

Fixed Asset Turnover (x) 5.9 5.3 4.3 4.3 4.3 3.7 4.1 4.2

Inventory (days) 32.5 30.9 28.0 25.8 23.9 25.4 24.5 24.3

Debtors (days) 11.5 14.3 11.9 13.5 16.9 10.5 10.5 10.5

Other Current Assets (days) 8.4 13.8 10.2 15.2 9.8 9.4 9.4 9.4

Payables (days) 62.9 64.5 68.1 73.6 66.9 69.1 69.1 69.1

Other Current Liab & Provns (days) 41.8 14.3 13.8 17.6 14.3 14.3 13.6 13.3

Cash Conversion Cycle (days) (52.2) (19.7) (31.7) (36.8) (30.7) (38.0) (38.2) (38.1)

Net D/E (x) (1.4) (0.8) (0.8) (0.9) (0.8) (0.8) (0.3) (0.3)

PER SHARE DATA (Rs)

EPS 18.0 19.3 19.7 23.7 28.1 31.7 37.1 41.9

CEPS 19.5 20.9 21.7 26.1 30.7 36.3 41.9 46.9

Dividend 15.0 16.0 17.0 20.0 22.0 25.0 32.0 38.0

Book Value 18.6 30.4 31.2 33.6 36.3 39.8 178.8 187.2

VALUATION

P/E (x) 122.0 114.0 111.6 92.5 78.1 69.3 59.2 52.4

P/BV (x) 117.9 72.3 70.3 65.2 60.4 55.2 12.3 11.7

EV/EBITDA (x) 86.7 78.1 73.9 62.5 52.8 47.5 40.8 36.3

EV/Revenues (x) 14.7 14.6 14.1 13.2 11.9 11.8 10.8 9.9

OCF/EV (%) 0.7 0.9 1.1 1.3 1.2 1.9 2.1 2.3

FCF/EV (%) 0.6 0.7 0.8 1.1 1.1 1.5 2.1 2.2

FCFE/Mkt Cap (%) 0.6 0.7 0.9 1.1 1.1 1.4 2.0 2.1

Dividend Yield (%) 0.7 0.7 0.8 0.9 1.0 1.1 1.5 1.7


Page | 12


Rating Criteria

BUY: >+15% return potential

ADD: +5% to +15% return potential

REDUCE: -10% to +5% return potential

SELL: >10% Downside return potential

Date CMP Reco Target

10-Apr-19 1,681 NEU 1,844

4-May-19 1,693 NEU 1,804

9-Jul-19 1,740 NEU 1,817

24-Jul-19 1,693 NEU 1,804

22-Sep-19 1,969 NEU 1,960

11-Oct-19 1,969 NEU 2,036

15-Oct-19 2,015 NEU 2,017

9-Jan-20 1,935 NEU 2,021

1-Feb-20 2,034 NEU 1,988

2-Mar-20 2,175 REDUCE 2,140

13-Apr-20 2,373 REDUCE 2,113

14-Apr-20 2,350 REDUCE 2,113

1-May-20 2,196 REDUCE 1,969

From 2nd March 2020, we have moved to new rating system

RECOMMENDATION HISTORY

1,400

1,600

1,800

2,000

2,200

2,400

2,600

Ap

r-19

May

-19

Jun

-19

Jul-

19

Au

g-1

9

Sep

-19

Oct

-19

No

v-1

9

Dec

-19

Jan

-20

Feb

-20

Mar

-20

Ap

r-20

HUVR TP

Page | 13


HDFC securities

Institutional Equities

Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,

Senapati Bapat Marg, Lower Parel, Mumbai - 400 013

Board: +91-22-6171-7330 www.hdfcsec.com

Disclosure:

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date of publication of this report. 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.

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conflict of interest.

Any holding in stock –NO

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