HINDUSTAN UNILEVER - Business Standard

RESULT UPDATE
HINDUSTAN UNILEVER
Volume and margin recover; sustainability is the key
India Equity Research| Consumer Goods
Hindustan Unilever (HUL) pleasantly surprised with marginal beat on
Q1FY15 volume growth at 5% YoY (adjusted for transportation strike in
the base) and higher margin. Key positives were: (1) strong sales growth
of 13% YoY in soaps & detergents (6 brands of HUL grew in double digits
versus GCPL’s 2% YoY growth in soaps), 15% YoY growth in personal
products (PP; highest in past 8 quarters), and 19% YoY growth in
packaged foods (PF; highest in past 11 quarters); (2) double-digit growth
in Fair & Lovely (FAL), as highlighted by us earlier; (3) recovery in PP
margin; and (4) EBITDA margin rose ~70bp YoY post adjustment in salary
costs despite higher royalty (~50bps). Key negative was muted growth in
Axe and Pepsodent. Maintain ‘REDUCE’ on valuations.
This report also contains Q1FY15 and Q4FY14 conference call highlights.
Margins improved in S&D, PP and PF
EDELWEISS 4D RATINGS
Absolute Rating
REDUCE
Rating Relative to Sector
Underperformer
Risk Rating Relative to Sector
Low
Sector Relative to Market
Underweight
MARKET DATA (R: HLL.BO, B: HUVR IN)
CMP
: INR 687
Target Price
: INR 637
52-week range (INR)
: 692 / 536
Share in issue (mn)
: 2,163.1
M cap (INR bn/USD mn)
: 1,486 / 24,706
Avg. Daily Vol.BSE/NSE(‘000) : 1,522.3
SHARE HOLDING PATTERN (%)
Margins improved across segments barring beverages. Employee cost includes onetime credit of INR324.4mn owing to unutilised pension corpus relating to earlier years.
Other costs were down 17bps YoY despite rise in royalty payment due to savings on
better supply chain management.
Current
Q4FY14
Q3FY14
Promoters *
67.2
67.2
67.3
MF's, FI's & BK’s
4.1
4.1
3.3
FII's
14.6
14.1
14.8
Others
14.1
14.5
14.6
* Promoters pledged shares
(% of share in issue)
Key takeaways from conference call
Promotional intensity has subsided in soaps, remains high in oral care. Media intensity for
sector has reduced leading to cut in A&P spends, but HUL remains competitive across
segments. Sachets grew at higher rate, especially in shampoos. Modern trade remains
challenging, but is seeing signs of stabilisation (new store openings a key monitorable).
FAL posted strong recovery with double-digit growth, but Pepsodent, Axe and Clear were
relative laggards. Pressure on raw materials continues with PFAD up 44% YoY, ~1% QoQ.
NIL
:
PRICE PERFORMANCE (%)
EW Consumer
Goods Index
Stock
Nifty
1 month
(0.5)
(0.9)
3 months
3.4
11.6
(0.7)
12 months
4.1
29.5
(0.7)
Outlook and valuations: Cautious; maintain ‘REDUCE’
We remain positive on HUL’s longer term growth, though sustainability of volume
growth and margins remain key monitorables. Recent run up in the stock largely
factors in the Q1FY15 beat. On valuations, we maintain ‘REDUCE/SU’ on the stock.
Abneesh Roy
Financials
Pooja Lath
(INR mn)
Year to March Q1FY15 Q1FY14 % change Q4FY14 % change
FY14
FY15E
FY16E
Net rev.
77,163 68,090
13.3 70,941
8.8
292,333
EBITDA
13,165 10,856
21.3
10,776
22.2
47,417
54,811
60,845
Profit
10,569 10,193
3.7
8,721
21.2
39,456
41,670
45,915
14.9
3.8
22.3
Dil. EPS (INR)
17.1
19.1
21.2
Diluted P/E (x)
40.1
36.0
32.4
EV/EBITDA (x)
30.3
26.1
23.4
115.8
106.2
99.3
ROAE (%)
4.7
4.1
329,632 371,785
* Quarterly nos. standalone; annual nos. consolidated
Edelweiss Research is also available on www.edelresearch.com,
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
+91 22 6620 3141
[email protected]
+91 22 6620 3075
[email protected]
Tanmay Sharma
+91 22 4040 7586
[email protected]
Alankar Garude
+91 22 6623 3301
[email protected]
July 28, 2014
Edelweiss Securities Limited
(1.1)
Consumer Goods
HUL Q1FY15 concall | Key takeaways
Growth: HUL’s like-to-like volume growth (adjusted for transport strike in Q1FY14) is 5%
YoY in Q1FY15. In all its segments, HUL reported double digit growth and grew ahead of the
market. Overall demand scenario continued to remain subdued both in value and volume
terms. Discretionary categories continue to remain under pressure.
Urban and rural growth: Both rural and urban growth is coming down. However, gap
between rural and urban growth has been reducing.
Premiumisation: As premiumisation is coming off, demand for high margin packs is coming
off. Unless, premiumisation comes back, margins will remain under pressure.
Soaps & detergents: There was broad-based growth in the soaps category in Q1FY15.
Judicious pricing was done by HUL to tackle rising input prices. Surf delivered one of its
strongest quarters.
Personal products (PP): PP represents a large opportunity and will be a growth driver as
market and consumers evolve. Overall, this business appears healthy. As and when markets
look up, personal products will do well. Growth in PP category in base quarter was low,
which has helped report growth in Q1FY15. HUL’s endeavour remains to be ahead of
market at every point of time. FAL coming back has helped margins. There have been lower
A&P spends in this category in Q1FY15. These two factors have helped margin expansion in
the PP category. Post re-launch, FAL has delivered double digit growth. Ponds has also done
well. Overall, skin care delivered strong performance in Q1FY15. Volume growth has
decelerated in the past few quarters in the toothpaste segment for HUL. Close-up is doing
well. Pepsodent’s growth is still subdued and there is work left to be done to revive
Pepsodent’s growth.
Packaged foods: Performance in this category has been very decent over past several
quarters. Packaged foods is still a very nascent category in India. HUL will continue to invest
and build this market. Knorr’s performance can be improved further. Innovative campaign
helped deliver growth in Kissan. Kwality walls and Magnum performed quite well.
Standout performances in Q1FY15: Lakme, Surf and the skin cleansing portfolio delivered
standout performances.
Possible areas of improvement: Pepsodent, Clear shampoo and Axe are brands where
improvement is needed.
Modern trade: Growth rates are significantly lower than peak growth. Same store sales
growth has also come off, but seems to be stabilising. It will take at least one quarter before
the management can decide whether growth in modern trade has stabilized. New store
openings is a key monitorable for growth in modern trade. This channel plays a key role in
aiding premiumisation.
Perfect villages: There are ~9,000 villages under Perfect village. Perfect Villages have been
growing at a faster pace as compared to other villages.
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Hindustan Unilever
Sachets: In urban as well as rural areas, sachets have grown faster than pack format.
Aspiration of consumers to buy branded products is being witnessed by HUL. But access to
premium products is happening via a sachet.
Raw material costs: Raw material costs continue to be high. PFAD prices are high in both
INR and USD terms.
A&P: Media intensity (as measured by GRPs) has come down; however competitive
intensity (innovations) continues to remain high. Now, the competition is more rational.
Lower media intensity points towards little or no impact of 12 minute ad cap. Ad spends are
moving from TV to other media. Promotional intensity in soaps has come off, but
promotional intensity remains high in oral segment.
Other expenses: Supply chain control costs have helped deliver efficiencies. These
efficiencies lead to higher volume, which helps in operating leverage.
Pureit: Pureit has achieved breakeven in last two years. HUL is the market leader in this
category in the retail segment. Pureit Ultima has done very well. Unilever as well as HUL are
very serious about this category.
Online retailing: Online is very small part of HUL’s business. Right now, HUL does not supply
directly to online retailing. Going ahead, the management feels that online retailing has
immense potential.
One-time credit of INR324.4mn in employee costs: HUL uses a defined contribution
scheme for calculating pension liability. Pension policy states that if an employee has
completed more than 5 years in the company, he/she is eligible for pension. This means
that there is no pension for employees who leave the company within 5 years. Hence, an
adjustment for these employees (who leave the firm within 5 years) has to be done. This
adjustment was done by HUL in Q1FY15 for prior periods as well. Hence, it can be regarded
as a one-off.
Capex: HUL is not worried about competitors’ capex plans. Usually, there has been a steady
trend of HUL’s capex.
Tax rate in FY15: 29-30%.
Dividend payout: Dividend payout will continue to remain steady.
Further increase in Unilever stake: This decision is at the discretion of Unilever
management and HUL does not have any say in this.
Unilever | Product launches that can potentially happen in India in our
view
3
1.
Compressed deodorants: Present in four European countries
2.
Regenerate enamel science toothpaste: Launched in UK
3.
Persil dual action capsules: Launched in three European countries
4.
Knorr Baking Bags: Present in 40 countries
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Compressed deodorants: Present in four European countries
•
Unilever launched compressed deodorants (innovation in deodorants in over 40 year)
in four European countries.
•
The new cans are 75ml, half the size of existing cans, but deliver the same amount of
protection and fragrance in the same spray time as the full sized can.
•
The compressed deodorants give consumers the same performance as regular variants,
but are more environmental friendly, as it requires half the amount of propellant.
•
Our View: If launched in India, the compressed deodorants could potentially help HUL to
come out with an innovation in a commoditised market.
REGENERATE Enamel Science (Launched in UK)
Unilever’s Regenerate Enamel Science Advanced Toothpaste claims to regenerate 82% of
tooth enamel after just three days of use. This oral care innovaton launched in UK is priced
at GBP10 for 100gms. It contains calcium silicate and sodium phosphate, which effectively
re-builds a new layer of white enamel on the teeth. The company is presenting the
toothpaste as a beauty product that will sit alongside expensive age-defying creams and
potions. The system helps to form a fresh supply of minerals which wrap and integrate into
the surface of the teeth. The technology appears to work much like re-plastering a wall,
filling any microscopic holes caused by fizzy drinks or sugary foods to leave a strong, smooth
finish. The company claims this has the effect of restoring teeth to their original whiteness
while making them much stronger, which means they are less likely to develop cavities.
Unilever says the technology requires the use of a ‘Boosting Serum’ treatment, which costs
another £30, once a month and is applied using two custom-fit mouth trays.
Comparison between toothpastes
•
Close-Up Diamond attraction cost is GBP7.85 for 50gms and GBP10.85 for 100gms.
•
Regenerate Enamel Science Advanced Toothpaste cost GBP10 for 75ml.
•
Sensodyne Repair and Protect toothpaste, which costs GBP4.49 for 75ml, promotes
itself on the basis it is possible to treat the pain of sensitive teeth by repairing
vulnerable areas of tooth enamel.
Our View: If enamel toothpaste (a huge innovation in toothpaste segment) is launched in
India, it will help HUL to regain market share in the toothpaste segment (Close Up had a
good quarter due to growth in small packs, while Pepsodent was impacted by the high
promotional intensity by competition in Q4FY14). Colgate is market leader with 57.1%
market share. However, in our view, as India may not be ready for such a product as yet
the launch could take some time.
Knorr baking bags contains 10 products
4
1.
Done everything
2.
Pot of vegetables broth – salt
3.
Pot of chicken broth – salt
4.
Cod herbs and lemon butter
5.
Salmon with dill sauce
6.
Rustic potatoes
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Hindustan Unilever
7.
Nuggets, chicken curry sauce
8.
Mushroom sauce
9.
Pork ribs, tomato and paprika
10. Basquaise chicken with mixed vegetables
These are ready-to-cook products.
Our View: These launches in India will not make much sense for HUL as the ready-to-cook
category size is small and Indian consumers prefer fresh food over packet foods and baking
is not popular for mainstream food.
Persil Dual Action Capsules (GBP7 for 17 capsules)
• The next generation of Persil capsules now combine the power of our stain-removing
micro-granules + boosted concentrated liquid, to offer even better tough stain removal
for outstanding first-time results.
• One wash/capsule.
• The game has been created to promote Persil's new "dual action capsule". Consumers
will be asked to drag the capsule full of stain-removing micro-granules into the hollow
centre of the capsule it sits within, which is filled with concentrated liquid.
Our View: Though the Persil Dual product is innovative, it will not work in India at
present due to its high price per wash. However, the innovative advertising used to
promote the Persil products could be used by HUL to promote its other products in
India.
Unilever: Converting operational performance into EPS
• To convert operational performance into EPS, Unilever decided to reduce long-term
pension exposure in many countries (India being one of them).
• Full impact of reducing long-term pension exposure in HUL will be understood during
Unilever Q2CY14 conference call.
Toothpaste - Peer performance
•
HUL toothpaste Closeup is doing well while Pepsodent’s growth is still subdued and
there is work left to be done to revive Pepsodent’s growth. Volume growth has
decelerated in the past few quarters in the toothpaste segment for HUL.
•
However Colgate clocked 4% YoY volume growth in Q1FY15 despite of the industry
volume declining by 4% YoY in Q1FY15. Colgate’s volume market share in toothpaste
stood at 57% (improved 110bps YoY during H1CY14).
•
Dabur oral care segment grew 8% YoY in Q1FY15 with 10.7% YoY growth in toothpaste
backed by growth in Dabur Red Toothpaste and Meswak toothpaste which registered
double digit growth and also gained market share.
CloseUp Diamond Attraction toothpaste launched
5
•
Co-created with cosmetic dentists from different countries.
•
It is a dental bleaching line that uses blue-light technology.
•
Uses exclusive blue-light technology, which with one brush coats teeth with a blue film
and creates an optical effect that makes teeth appear whiter instantly.
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•
It has three times more power teeth bleaching since first brushing.
•
Diamond Attraction also contains silica, which removes stains and progressively
whitens teeth with continued use.
•
It is targeted towards the youth that lay strong emphasis on cosmetic care of teeth.
•
Available in two variants in the Middle East – Power White (for instant whitening) and
Fresh White (for everyday whiteness).
•
Unilever, Brazil launched Close Up Diamond Attraction in May 2013 in three variants –
Power White, Fresh White and Delicate White (for sensitive teeth).
•
Under Diamond Attraction, Unilever in Brazil launched mouthwashes in three variants
(priced at USD13 for 250ml) in January 2014.
Q4FY14 conference call | Key takeaways
Revenue growth: HUL’s total sales rose 9% YoY to INR69.36bn with 3% YoY volume growth
(4% YoY in Q3FY14) versus 6% YoY in Q4FY13. Sluggish market growth in Q4FY14 translated
into lower volume growth for the company as well. Especially, growth in premium and
discretionary segments was challenging as LUPs saw better growth.
Modern trade: All channels clocked slower growth, but growth in modern trade was slower
than in other channels.
Downtrading: HUL did not face significant downtrading as was the case in 2009, though a
bit of downtrading was noticed.
Soaps & detergents: S&D grew 9.6% YoY with EBIT margin improving 6bps YoY to 12.1% (as
a percentage of sales) led by strong performance in Dove, Pears, Lifebuoy and Breeze. Skin
cleansing portfolio grew riding robust liquid portfolio. It was also aided by price growth as
cost inflation was managed by taking judicious price actions. Lifebuoy handwash also
delivered strong performance in liquid segment.
Laundry portfolio surged due to strong performance in Surf (premium segment product)
which maintained its double digit growth momentum. Rin clocked good growth in bar
segment. Wheel, re-launched last quarter, delivered growth as well. While Comfort Fabric
Conditioners continued to perform well, Vim led the performance in household care
segment.
Personal Products: HUL’s personal products delivered good growth of 8.3% YoY versus
~12.1% YoY in Q4FY13 (12.4% YoY in Q3FY14). Margins declined 76bps YoY to 25%.
Skin care segment, though a soft market, is yielding positive results due to the re-launch of
Fair & Lovely with the new ‘Best Activation Formula’ backed by a focused activation plan.
For the first time, INR5 pack was introduced. In the premium segment, Ponds performed
well while Lakme and Dove continued to do well driven by innovations due to introduction
of 9 to 5 super sunscreens. The facial cleansing portfolio registered broad-based growth.
Hair care maintained growth trajectory with double-digit volume growth, which was driven
by Dove and Clinic Plus. TRESemmé (INR1bn brand) introduced last year continued its good
performance due to the addition of a new Split Remedy variant. Sachet format is growing
faster in hair care category.
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Hindustan Unilever
Significant investments made in oral care segment will sustain the competitiveness in the
industry. Close Up had a good quarter due to growth in small packs while Pepsodent was
impacted by the high promotional intensity by competition. Management is taking actions
to improve performance in this sector.
Colour cosmetics witnessed strong innovation-led growth backed by Lakme and Elle 18. HUL
has strengthened its position in the premium segment by offering exciting and
contemporary products.
Beverages: The beverages portfolio grew 7.5% YoY to INR8,690mn (7.2% YoY growth in
Q3FY14 and 18.3% YoY in Q4FY13), while margins increases 191bps YoY in Q4FY14. In the
tea portfolio, which sustained double digit growth, brands like Taj Mahal, Red Label and 3
Roses grew in double digits due to better mix and focused in market activities. Sale of
flavoured and green tea bags more than doubled in Q4FY14. Bru Gold performed well in the
coffee segment.
Packaged foods: This business grew 12.7% YoY, while margin surged 172bps YoY. Segment
growth was driven by Kissan (both ketchups and jams) due to impactful activation. Instant
soups saw strong growth in the Knorr portfolio with volumes more than doubling in
Q4FY14. “Expe rience Model” trials are being rolled out in modern trade to drive results. Ice
cream segment registered strong growth due to extension of selling Magnum now to total 5
cities (commenced in Chennai). Kwality Walls also posted robust performance due to
focused in market activities.
Water business: Though a challenging segment, HUL’s innovation led products continued to
perform well. Pureit Ultima (RO + UV) was launched in the premium category and through
stepped up in-store execution. The company has also come out with an ‘exchange old for
new’ offer which is promising. This segment is now been profitable for the past two years.
Innovations: HUL made some activations, market executions and series of innovations in
Q4FY14. Innovations were seen in brands like Pureit, Wheel, etc., Activation programmes
were carried out in brands like Close up and Lifebuoy and in the food portfolio in brands like
Bru Gold and Knorr.
Gross margins: In Q4FY14, gross margins increased 12bps YoY helped by good pricing
strategy and low promotions. Input costs inched up owing to INR depreciation. PFAD price
increased from INR32.3/kg in Q4FY13 to INR48.8/kg in Q4FY14. Price of brent crude
remained flat QoQ, but increased YoY in INR terms due to INR depreciation.
A&P spend: For the quarter, A&P spend increased 2.3% YoY to INR8,403mn and decreased
78bps YoY to 12.1% as a percentage of sales.
Tax rate: In Q4FY14, effective tax rate for HUL was 26%. The company expects FY15 tax rate
to be 250-300bps higher YoY.
Media intensity: Uncertainty remains in the media environment with ad cap regulation
coming into play. HUL has also started witnessing the impact of the ad cap regulation by
way of media inflation.
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Other expenses: In Q4FY14, gross margin jumped 81bps YoY (net of sales) and increased by
15% YoY to INR10.7bn after Aquagel was made its subsidiary on April 1, 2013. This led to
increase in conversion cost. Freight cost also surged due to diesel price increase.
Hindustan Unilever FY14 annual report | Key highlights
Volume growth
•
The domestic consumer business grew 9% with 4% underlying volume growth
surpassing market.
Innovation
Most of the company’s product portfolio was innovated/re-innovated. HUL launched a host
of innovations across businesses by leveraging Unilever’s global portfolio of brands,
research and technology.
•
Surf Excel launched the first main-wash liquid detergent in May 2014.
•
Domex Zero Stain was launched reinstating the cleaning properties of Domex.
•
Best Ever’ Fair & Lovely
•
Pond’s BB+ cream
•
Lakmé CC cream
•
Vaseline Healthy White
•
Hair care and skin care brands were premiumised with Lakmé Pro-Stylist, TRESemmé
and Toni&Guy
•
Green tea was added to the Lipton and Taj Mahal range
•
Magnum ice cream
•
Pureit Ultima RO + UV
Distribution
•
Extended Perfect Stores programme to one million stores by end 2013.
•
Added 17,000 plus Shaktiammas in FY14, taking the total count to 65,000. In addition,
there are also 50,000 Shaktimaans.
Home & personal care (HPC)
•
Rural continued to be a key focus area in HPC - demonstrated benefits and usage of
new and emerging categories, such as facewash, hair conditioners and fabric
conditioners.
Soaps and detergents
8
•
Segment delivered healthy volume, led by 8% YoY growth; segment profit increased
10.5% YoY owing to mix of cost saving, supply chain efficiencies and judicious pricing.
•
Overall, category saw volume decline, but HUL clocked strong volume growth driven by
prompt and decisive pricing action on Lifebuoy, Lux, Breeze and Dove, which gained
consumer franchise.
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Hindustan Unilever
•
Despite slowing down of category growth rate and rate of premiumisation, HUL’s
performance continued to be led by the premium-end of the portfolio.
•
Surf continued to lead category premiumisation with double-digit growth.
•
Rin’s performance was led by the bars portfolio, while powders were re-launched
towards year end.
•
HUL initiated creation of the detergent liquid market in India with the launch of Surf
Excel Detergent Liquid.
Household care
•
The category delivered double-digit YoY growth on robust volumes.
•
Vim crossed the INR10bn revenue mark.
•
Strengthened its presence across key price points in dish-wash bars which helped reach
new consumers in rural India.
Personal products
•
The segment clocked 9.2% YoY sales growth with 6.1% YoY growth in profit.
•
Skincare
•
•
o
The category registered good growth in a slowing market.
o
Fair & Lovely (FAL) was re-launched with a new mix - the ‘Best Ever’ Fair & Lovely
o
Post re-launch, FAL witnessed step-up in growth trajectory.
o
Vaseline Healthy White posted double-digit growth.
Hair care
o
Segment delivered volume-led double digit growth.
o
TRESemmé is close to becoming an INR1bn brand in the first full year post launch.
o
HUL launched Toni&Guy through e-commerce (first launch via this route).
Oral care
o
•
Deodorant
o
•
9
There was significant step up in investments in oral care due to dramatic rise in
competitive intensity.
The company currently imports large portion of deodorants in aerosol form.
Unilever is in the process of implementing a project to set up a world class
deodorants manufacturing facility in India, which will supply high-quality
deodorant products and service markets across the world, including India.
Colour cosmetics
o
Lakmé Colours posted high double-digit growth.
o
This premium segment’s contribution to makeup has grown particularly well in the
past two years.
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Food & beverages (F&B)
•
The F&B business delivered strong double-digit growth amidst tough environment.
•
Beverages
•
•
o
Segment delivered 12.4% YoY growth well ahead of market on strong double-digit
performance in tea.
o
Segmental profits increased by 22.4%.
o
At the onset of the year, the Packet Tea market witnessed steep commodity
inflation which drove market volume decline.
o
However, HULs’ double-digit growth across brands was driven by a strengthened
mix and focused in-market activities.
o
All five tea brands recorded healthy volume growth.
o
Taj Mahal and 3 Roses continued to drive premiumisation.
o
Red Label and Taaza offered unbranded tea users a good mix of superior, great
tasting tea and value.
o
Taj Mahal and Lipton continued to grow the tea bags market through market
development.
Packaged foods
o
Segment delivered 10% YoY growth with 65.5% YoY growth in profit.
o
Kissan registered strong double-digit growth.
o
Knorr’s performance was led by soups with the convenient instant soups single
serve format doing particularly well.
o
HUL has invested in ‘cup-a-soup’ range, re-staged Knorr Soupy Noodles and relaunched Knorr Meal Maker.
o
Modern Foods delivered strong double-digit growth with improved profitability led
by step-up in the distribution network.
Frozen desserts
o
Business faced a challenging external environment with slowing discretionary
spend and a shorter season.
o
Cornetto grew ahead of market on distribution and strong communication.
o
Modern Trade’s performance was very good in ice creams as HUL strengthened its
position in this key channel.
Exports
•
10
FMCG exports:
o
HPC witnessed a stable year, driven primarily by soaps and hair care.
o
Brands like Pears registered healthy growth in the UK market.
o
For Unilever sourcing countries, Lifebuoy delivered double-digit growth post its
launch across Asian markets.
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Hindustan Unilever
o
FAL and Vaseline Jelly continued stable growth in the key geographies of the
Middle East.
o
The F&B segment witnessed modest growth.
o
Instant tea/packet tea and premix witnessed strong double-digit growth, whereas
coffee sales remained steady.
•
Non-FMCG exports: Rice maintained flat performance.
•
Leather business: Performed well with improved operating profitability and robust
double-digit sales growth.
HUL analyst meet | Key takeaways
11
•
Rural India presents huge growth opportunity, as despite having 2x population that in
urban areas per capita, GDP is one-third that in urban areas
•
Central India with 40% of population holds huge growth potential (can grow 1.75x
GDP).
•
HUL currently has 65,000 Shaktiammas and 50,000 Shaktimaans.
•
11 brands are INR10bn plus and eight are INR5bn plus in terms of sales.
•
60% of the portfolio innovated in FY14.
•
HUL has increased its direct coverage from 0.9mn in FY09 to 3.2mn in FY14 (2mn in
FY13).
•
Its total coverage is 10.2mn.
•
Next two year target is to increase throughputs in rural areas rather than further
increase penetration (as cost increases as penetration rises).
•
Non-TV media
o
It is becoming increasingly important, currently forming 25% of the pie.
o
Digital share has increased from single-digit to double-digit now.
o
Mobile has 86% penetration; 200mn mobile users do not have access to TV thus
increasing importance of non-TV media.
o
HUL started Kankhajura Tesan (KKT) channel (mobile entertainment medium for
rural folk mainly relevant in Bihar and Jharkhand) in Hindi-speaking regions,
whereby HUL is promoting newer categories like hair conditioner, face wash, etc.
There are 12mn unique users of KKT in Bihar and Jharkhand. Bihar has TV reach of
23mn, while mobile reach is 54mn.
o
KKT has penetration of 60%.
o
Cost per contact is less than 4cents for KKT (in line with other non-TV media).
o
For metro-centric brands, non-TV media is more effective.
o
Sampling is a very effective medium – Kissan tied up with Spice Jet, PVR and
passport seva kendras.
o
Digital is the key focus area in urban areas.
Edelweiss Securities Limited
Consumer Goods
•
•
•
Perfect villages
o
Currently there are 8,500 villages (constituting 17% of GDP).
o
Perfect villages are aimed at creating awareness of new categories.
Personal care
o
HUL is focused on scaling up in the deodorants space.
o
TRESemmé achieved INR1bn sales in first year of launch.
o
Lakme is fastest growing personal care brand (37% in FY14) with market share of
30% plus.
o
Hair conditioner consumption in Philippines is 40x of that in India.
o
Margins in personal care to benefit from mix improvement, pricing and cost saving.
o
Male grooming is a big opportunity with facial cleansing as current focus.
Foods
o
HUL does not want to compete in commodities business in foods, which despite
having high turnover lacks sustainability.
o
Kissan ketchup has 21% market share; posted double-digit growth in FY14, growing
at 20% plus in H2FY14. Potential for ketchup is still huge, given that per capita
consumption per household is still only 1.3kg.
o
Magnum has been launched in five cities. It is available at 10% of the Kwality Walls
outlets (30,000) and some premium bakeries, etc. HUL will launch mini-Magnum
targeting in-house consumption.
o
HUL will likely launch a mix of margarine and butter, which is a hit globally.
o
Ice cream per capita consumption is less than 200ml (globally 20L), presenting
huge growth opportunity.
•
HUL is focusing on market development and not increasing its market share in slowgrowing categories.
•
Material savings have improved 26% from 2011 to 2013, while other costs have
reduced 9% over the period.
•
HUL can consider acquisitions if it is a strategic fit in core categories (will help build
portfolio or scale up in the category).
•
The company is focusing on driving growth by engaging more users, creating more
usage (Lifebuoy, FAL – encouraging thrice a week use from twice a week now, eg., the
iconic kajal range in Lakme) and delivering more benefits.
Harish Manwani | Unilever
12
•
Unilever has 14 brands of Euro1bn size
•
From 2008 to 2013 Unilever invested ~Euro2bn towards A&P.
•
India and Brazil are two focus markets for Unilever.
•
Total number of stores has grown from 4mn to 8mn from 2008 to 2013 led by India
(mainly rural).
Edelweiss Securities Limited
Hindustan Unilever
•
Total number of perfect stores has increased from zero in 2009 to 7mn now.
•
On-shelf availability of products has improved 900bps from 2008 to 2013.
•
100% palm oil and 48% agri produce is sourced sustainably.
•
Lifebouy sales doubled over the past few years; success conveys Unilever Sustainable
Living Plan (USLP) most effectively.
•
Unilever continues to focus on premium products – acquired luxury skin care brand,
IOMA (Paris), Maille mustard (salad dressings) and Regenerate Enamel Science
Advanced Toothpaste (oral care).
•
Unilever’s key pillars include:
o
Innovation – from earlier less-than 10 projects going global, now 70-80 projects are
taken global.
o
New growth opportunity – Africa (per capita consumption is Euro1 against
Unilever’s average Euro6 and Euro20 for Brazil) and Myanmar (Unilever was the
first one to get in and also to get out of the 20mn population market due to
political issues) are two areas holding humungous growth potential; looking at
expanding chemist channel and out of home consumption (ice-cream and tea)
meaningfully; exploring e-commerce in a big way.
o
Simplification and agility: Targets 30 SKU reduction, marketing fit to win,
enterprise technological solution to save Euro500mn.
o
Fuel for growth: Focusing on water (acquired Chinuan in China).
•
Developing and emerging market growth still intact with 1.3bn new consumers to enter
by 2020, led by developing markets.
•
Personal care per capita consumption is very low in developing markets, providing huge
growth potential. For instance, per capita ice-cream consumption in Russia is 15x that
of Indonesia, and Thailand’s per capita consumption of body lotion is 13x that of India.
•
Unilever intends to: (i) deepen penetration; (ii) straddle the price pyramid; and (iii)
leverage global presence with local relevance.
ITC overtook HUL in the deodorant market
•
ITC, in its first success in the personal care space, beat HUL’s Axe in terms of volume
market share.
•
ITC has already exhibited its metal in the foods space (ITC beat HUL in food sales in
FY13 and now the gap has further widened; details below).
•
ITC’s FMCG business grew 16% YoY in FY14 with first year of profit (EBIT of INR220mn).
Table 1: Market share in deodorant segment
Brand
Company
Volume Market share
Fogg
Vini cosmetics
12.5
Engage
ITC
8.1
Wildstone
McNROE
6.9
Axe
HUL
6.9
Value market share
17.8
6.6
6.7
6.5
Source: Industry, Edelweiss research
13
Edelweiss Securities Limited
Consumer Goods
TRESemmé crosses INR1bn sales mark
HUL’s brand TRESemmé crossed INR1bn sales mark within a year of launch. The company
used actor and model, Diana Penty along with international hair stylist, Marcus Francis, in
the ads to drive home the brand's association with style and fashion. It was also backed up
with an aggressive digital marketing push, in a bid to tap the urban consumer.
Outlook and valuations: Cautious; maintain ‘REDUCE’
We remain positive on HUL from longer term perspective as volumes and margins exhibit
improvement due to initiatives in distribution expansion and product innovations in spite of
intense competitive landscape in most of the segments. Margins have seen improvement
despite higher royalty (up by 50 bps) due to (i) lower media intensity and (ii) cost savings on
supply chain front. In our view, sustainability of volume growth and margins remain key
monitorables and re-rating of HUL from these levels will depend on these two factors.
With an anticipated recovery in urban demand and a strong innovation pipeline benefitted
by strong back-up from the parent entity, we expect HUL to potentially benefit. Hence we
marginally increase target P/E multiple to 30x FY16E EPS arriving at a target price of INR637.
Recent run up in the stock largely factors in the Q1FY15 beat. On valuations we maintain
‘REDUCE’ on the stock and rate it ‘Sector Underperformer’ on a relative return basis.
Chart 1: Overall volume growth at 6% YoY
17.0
13.6
(%)
10.2
6.8
0.0
Q1FY10
Q2FY10
Q3FY10
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
3.4
Source: Company, Edelweiss research
14
Edelweiss Securities Limited
Hindustan Unilever
Chart 2: Media intensity has come off though competitive pressure continues
17.5
(% of sales)
14.0
10.5
7.0
3.5
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Q4FY12
Q3FY12
Q2FY12
Q1FY12
Q4FY11
Q3FY11
Q2FY11
Q1FY11
Q4FY10
Q3FY10
Q2FY10
Q1FY10
0.0
Chart 3: Category-wise contribution—Sales
Q1FY15 revenues
Packaged
Food
7%
Others
(includes
Chemicals,
Water etc)
4%
Q1FY14revenues
Packaged
Food
7%
Others
(includes
Chemicals,
Water etc)
4%
Beverages
11%
Beverages
11%
Soaps and
Detergents
50%
Soaps and
Detergents
50%
Personal
Products
28%
Personal
Products
28%
Chart 4: Category-wise contribution—EBIT
Q1FY15 - EBIT contribution
Packaged
Food
4%
Beverages
10%
Others
(includes
Chemicals,
Water etc)
-1%
Soaps and
Detergents
40%
Personal
Products
45%
Q1FY14 - EBIT contribution
Packaged
Food
4%
Others
(includes
Chemicals,
Water etc)
0%
Beverages
13%
Soaps and
Detergents
40%
Personal
Products
43%
Source: Company, Edelweiss research
15
Edelweiss Securities Limited
16.0
12.0
8.0
4.0
(Beverages margins %)
13.2
8.8
(PP margins %)
12.0
(S&D margins %)
18.0
6.0
3.0
0.0
0.0
Chart 7: PP revenue growth YoY highest in past 8 quarters
22.0
Chart 9: Beverages sales robust
20.0
0.0
16
Sep-10
Dec-10
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-10
Dec-10
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
(S&D sales growth %)
30.0
Sep-10
Dec-10
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-10
Dec-10
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
(PP sales growth %)
Chart 5: S&D YoY revenue growth robust
24.0
17.6
4.4
7.0
0.0
0.0
Sep-10
Dec-10
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-10
Dec-10
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
(Beverages sales growth %)
Consumer Goods
Chart 6: S&D margin expanded 93bps YoY
15.0
12.0
9.0
6.0
Chart 8: PP margin expanded 277bps YoY
35.0
28.0
21.0
14.0
Chart 10: Beverages margin contracted 202bps YoY
20.0
16.0
12.0
8.0
4.0
0.0
Source: Company, Edelweiss research
Edelweiss Securities Limited
17
Edelweiss Securities Limited
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
0.0
Jul-11
6.0
Sep-10
Dec-10
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
12.0
Jan-11
18.0
(PPackaged Food margins %)
24.0
Jul-10
Jan-10
Jul-09
(MYR/MT)
Sep-10
Dec-10
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
Chart 11: PF sales growth highest in past 11 quarters
30.0
(Packaged Food sales growth %)
Hindustan Unilever
Chart 12: Packaged food expanded 247bps YoY
12.0
8.0
4.0
0.0
(4.0)
(8.0)
Source: Company, Edelweiss research
Chart 13: Palm oil prices trend
4,000
3,500
3,000
2,500
2,000
1,500
Source: Company, Edelweiss research
Consumer Goods
Table 2: Segmental performance
Year to March - Revenues (INR mn)
Soaps and Detergents
Personal products
Beverages
Packaged food
Others (includes chemicals, water etc)
Segment results (Profit/(Loss) before tax and interest)
Soaps and Detergents
Personal products
Beverages
Packaged food
Others (includes chemicals, water etc)
Segment margins
Q1FY15
Q1FY14
Q4FY14
34,077
YoY growth
12.9
34,971
QoQ growth
10.0
38,476
21,596
18,834
14.7
19,833
8.9
8,366
7,574
10.5
8,690
(3.7)
5,438
18.8
4,197
29.6
3,029
4,579
2,791
8.5
2,958
2.4
5,318
4,393
21.1
4,217
26.1
5,967
4,682
27.4
4,958
20.3
1,363
1,387
(1.8)
1,630
591
384
(155)
(31)
53.8
(16.4)
157.2
230
NM
(251)
NM
Margin (%)
Soaps and Detergents
13.8
12.9
93
12.1
176
Personal products
27.6
24.9
277
25.0
263
Beverages
16.3
18.3
(202)
18.8
(247)
Packaged food
10.9
8.4
247
5.5
539
Others (includes chemicals, water etc)
(5.1)
(1.1)
(8.5)
NM
NM
Source: Company, Edelweiss research
Chart 15: One year forward P/E chart
750
40x
35x
600
(INR)
30x
450
25x
20x
300
15x
150
Jun-14
Dec-13
Jun-13
Dec-12
Jun-12
Dec-11
Jun-11
Dec-10
Jun-10
Dec-09
Jun-09
Dec-08
Jun-08
Dec-07
Jun-07
0
Source: Company, Edelweiss research
18
Edelweiss Securities Limited
Hindustan Unilever
Financial snapshot
Year to March
Net revenues
Cost of goods sold
Gross profit
Staff costs
Advt. sales & promotions
Other expenses
EBITDA
Depreciation & amortization
EBIT
Interest
Other income
Profit before tax
Provision for taxes
Core profit
Extraordinary items
Net profit
Adj. EPS (INR)
As % of net revenues
COGS
Employee cost
Adv. & sales promotions
Other expenditure
EBITDA
EBIT
PBT
Reported net profit
Tax rate
Q1FY15
77,163
39,896
37,267
3,357
9,449
11,296
13,165
667
12,498
63
2,021
14,457
4,285
10,172
396
10,569
4.7
Q1FY14
68,090
34,828
33,262
3,417
8,898
10,092
10,856
664
10,192
62
1,768
11,897
3,046
8,851
1,342
10,193
4.1
52.7
4.4
12.5
14.9
17.4
16.5
19.1
14.0
29.6
52.1
5.1
13.3
15.1
16.2
15.2
17.8
15.2
25.6
19
% change
13.3
14.6
12.0
(1.8)
6.2
11.9
21.3
0.4
22.6
0.5
14.3
21.5
40.7
14.9
(70.5)
3.7
Q4FY14
70,941
37,308
33,633
3,783
8,403
10,671
10,776
658
10,118
53
1,506
11,571
3,251
8,320
401
8,721
3.8
53.8
5.5
12.1
15.4
15.5
14.6
16.7
12.6
28.1
% change
8.8
6.9
10.8
(11.3)
12.4
5.9
22.2
1.4
23.5
17.3
34.2
24.9
31.8
22.3
(1.2)
21.2
FY14
292,333
148,691
143,641
15,758
36,747
43,720
47,417
2,955
44,461
407
5,710
49,764
12,594
37,170
2,387
39,456
17.1
FY15E
329,632
168,680
160,952
17,470
40,545
48,126
54,811
3,029
51,781
435
6,960
58,307
16,909
41,398
396
41,670
19.1
(INR mn)
FY16E
371,785
190,482
181,303
19,705
45,730
55,024
60,845
3,120
57,725
385
7,506
64,846
18,805
46,040
45,915
21.2
52.1
5.5
12.9
15.3
16.6
15.6
17.4
13.8
25.3
52.4
5.4
12.6
15.0
17.0
16.1
18.1
12.9
29.0
52.5
5.4
12.6
15.2
16.8
15.9
17.9
12.6
29.0
Edelweiss Securities Limited
Consumer Goods
Company Description
HUL, the largest FMCG Company in India, was formed by merging three subsidiaries of
Unilever in 1956. At present, Unilever Plc holds a 67.3% stake in the company. HUL’s
portfolio of products covers a wide spectrum including soaps, detergents, skin creams,
shampoos, toothpastes, tea, coffee, packaged foods and branded atta.
Powerful brands and an envious distribution network are HUL’s primary strengths. The
company operates through segments—soaps & detergents, personal products, beverages,
foods, exports, and other operations.
Investment Theme
HUL is a play on consumption growth in India. The company has displayed its ability to effect
price hikes and avoid impact of inflation in vegetable oils, which, combined with improved
outlook for S&D and personal care, and strong growth in processed foods and beverages,
boosts our positive outlook on the company. We like its revenue growth from a medium to
long term perspective, however increase in royalty, steep hike in tax rate and slowdown in
discretionary segments remains an overhang and thus limit near term upside. Post partial
success of Unilever’s open offer to raise its stake in HUL the parent’s stake stands at 67.3%
of the total shareholding.
Key Risks
Depreciation in rupee impacts price of imported raw materials.
A rise in crude oil prices can impact packaging costs and indirectly / directly impact palm oil
and LAB prices which are used in soaps and detergents respectively.
The price war in HUL’s popular segments with new entrants entering the fray could hit the
company hard.
20
Edelweiss Securities Limited
Hindustan Unilever
Financial Statements
Key Assumptions
Year to March
Income statement
FY13
FY14 FY15E FY16E
Macro
GDP(Y-o-Y %)
Inflation (Avg)
5.0
7.4
4.8
6.2
5.4
5.5
6.3
6.0
Repo rate (exit rate)
7.5
8.0
7.8
7.3
54.5
60.5
58.0
56.0
USD/INR (Avg)
Company
Year to March
(INR mn)
FY13
FY14
FY15E
FY16E
Net revenue
Other Operating Income
263,172
6,868
285,390
6,943
321,786
7,846
363,155
8,630
Total operating income
270,040
292,333
329,632
371,785
Materials costs
140,871
148,691
168,680
190,482
Gross profit
129,169
143,641
160,952
181,303
Employee costs
14,127
15,758
17,470
19,705
Volume gr. (overall)
7.0
4.0
7.0
7.0
Other Expenses
40,089
43,720
48,126
55,024
Pricing gr. (overall)
7.5
4.4
5.8
5.9
Advertisement & sales costs
32,900
36,747
40,545
45,730
Growth in Soaps
24.6
6.2
8.0
10.0
EBITDA
42,053
47,417
54,811
60,845
Growth in Detergents
13.1
7.6
12.0
13.0
Depreciation & Amortization
2,513
2,955
3,029
3,120
7.3
8.9
12.0
14.0
EBIT
39,540
44,461
51,781
57,725
Growth in beverages
13.6
11.3
10.0
12.0
Other income
5,320
5,710
6,960
7,506
Growth in packaged foods
10.8
9.5
15.0
17.0
Interest expenses
257
407
435
385
EBITDA margin (%)
16.0
16.6
17.0
16.8
Profit before tax
44,603
49,764
58,307
64,846
Provision for tax
12,267
12,594
16,909
18,805
Oils, fats and resins as % of COGS
11.5
11.5
11.5
11.3
Net profit
32,337
37,170
41,398
46,040
Chemicals and perfumes as % of COGS
32.7
32.9
30.2
30.0
Prior period adjustments (net)
6,057
2,387
396
-
8.4
9.0
6.8
6.8
Minority interest
(104)
(102)
(124)
(125)
Selling and distribution costs
14.8
15.0
14.6
14.8
Profit after minority interest
38,290
39,456
41,670
45,915
A&P as % of sales
12.5
12.9
12.6
12.6
Diluted EPS (INR)
14.9
17.1
19.1
21.2
5.4
5.5
5.4
5.4
Dividend per share (INR)
18.5
13.0
13.7
15.1
104.5
71.3
71.3
71.3
Growth in PP
EBITDA margin assumptions
Tea and Green leaf as % of COGS
Employee cost as % of sales
Financial assumptions
Tax rate (%)
Capex (INR mn)
Dividend payout (%)
27.5
25.3
29.0
29.0
3,566 5,800
Common size metrics
3,424
4,500
Debtor days
13
13
14
14
Year to March
FY13
FY14
FY15E
FY16E
Inventory days
70
69
75
75
Payable days
132
139
140
140
Materials costs
Employee expenses
53.5
5.4
52.1
5.5
52.4
5.4
52.5
5.4
Cash conversion cycle (days)
(50)
(57)
(51)
(51)
Advertising & sales costs
12.5
12.9
12.6
12.6
5.9
6.3
5.8
5.5
0.1
0.1
0.1
0.1
12.8
10.7
13.0
13.0
EBITDA margins
16.0
16.6
17.0
16.8
Net profit margins
12.3
13.0
12.9
12.7
Year to March
FY13
FY14
FY15E
FY16E
Revenues
EBITDA
14.5
20.7
8.4
12.8
12.8
15.6
12.9
11.0
Net profit
20.4
14.9
11.4
11.2
EPS
20.4
15.0
11.3
11.2
Depreciation as % of gross block
Yield on cash
Interest expenditure
Growth ratios (%)
21
Edelweiss Securities Limited
Consumer Goods
Balance sheet
(INR mn)
As on 31st March
Cash flow metrics
FY13
FY14
FY15E
FY16E
FY13
FY14
FY15E
FY16E
Equity capital
Reserves & surplus
2,163
26,485
2,163
33,210
2,163
40,223
2,163
47,950
Operating cash flow
Investing cash flow
34,948
631
37,644
(4,750)
42,318
(3,424)
51,811
(4,500)
Shareholders funds
Financing cash flow
(38,573)
Year to March
28,648
35,373
42,386
50,113
(41,474)
(29,603)
(34,696)
Minority interest (BS)
209
223
346
472
Net cash flow
(5,896)
3,291
4,197
8,738
Borrowings
247
456
456
456
Capex
(3,566)
(5,800)
(3,424)
(4,500)
Deferred tax liability
(2,085)
(1,796)
(1,796)
(1,796)
(46,654)
(32,816)
(34,657)
(38,188)
Sources of funds
27,019
34,256
41,392
49,245
Tangible assets
Intangible assets
23,953
361
26,409
241
27,880
241
29,260
241
FY13
FY14
FY15E
FY16E
CWIP (incl. intangible)
2,224
3,726
2,650
2,650
Total net fixed assets
26,539
30,377
30,771
32,151
98.5
489.1
115.8
857.5
106.2
548.4
99.3
340.8
75
Goodwill on consolidation
Dividends paid
Profitability & efficiency ratios
Year to March
ROAE (%)
ROACE (%)
-
812
812
812
Inventory day
70
69
75
3,953
3,802
3,802
3,802
Debtors days
13
13
14
14
Current Investments
18,570
24,580
24,580
24,580
Payable days
132
139
140
140
Cash and equivalents
19,007
25,160
29,358
38,096
Cash conversion cycle (days)
(50)
(57)
(51)
(51)
Inventories
27,060
29,398
34,660
39,140
Current ratio
1.0
1.0
1.1
1.1
9,965
10,311
12,643
14,260
Debt/EBITDA
-
-
-
-
Loans and advances
10,036
10,650
10,650
10,650
Debt/Equity
-
-
-
-
Other current assets
3,703
808
808
808
153.7
109.3
119.0
149.9
Total current assets (ex cash)
50,764
51,168
58,762
64,859
Trade payable
53,417
59,649
64,699
73,062
Operating ratios
Others current liabilities
38,397
41,993
41,993
41,993
Year to March
FY13
FY14
FY15E
FY16E
Total current liabilities &
91,815
101,642
106,692
115,054
(41,051)
(50,474)
(47,930)
(50,196)
Total asset turnover
Fixed asset turnover
8.5
11.2
9.3
11.2
8.5
11.8
8.0
12.6
27,019
34,256
41,392
49,245
8.0
8.9
8.3
7.9
12.5
15.8
19.1
22.8
Year to March
FY13
FY14
FY15E
FY16E
Diluted EPS (INR)
Y-o-Y growth (%)
14.9
20.4
17.1
15.0
19.1
11.3
21.2
11.2
Non current investments
Sundry debtors
Net current assets (ex cash)
Uses of funds
Book value per share (INR)
Interest coverage
Equity turnover
Valuation parameters
Free cash flow
(INR mn)
Year to March
FY13
FY14
FY15E
FY16E
Net profit
Add : Non cash charge
38,290
(6,537)
39,456
(5,359)
41,670
3,192
45,915
3,630
CEPS (INR)
16.1
18.6
20.5
22.7
Gross cash flow
31,753
34,097
44,862
49,545
Diluted PE (x)
46.1
40.1
36.0
32.4
Less: Changes in WC
(3,195)
(3,547)
2,544
(2,266)
Price/BV (x)
55.0
43.4
35.9
30.2
Operating cash flow
34,948
37,644
42,318
51,811
EV/Sales (x)
5.5
5.0
4.4
3.9
3,566
5,800
3,424
4,500
31,382
31,845
38,894
47,311
34.4
2.7
30.3
1.9
26.1
2.0
23.4
2.2
Less: Capex
Free cash flow
EV/EBITDA (x)
Dividend yield (%)
Peer comparison valuation
Market cap
Name
Diluted PE (X)
EV/EBITDA (X)
ROAE (%)
(USD mn)
FY15E
FY16E
FY15E
FY16E
FY15E
FY16E
Hindustan Unilever
24,706
36.0
32.4
26.1
23.4
106.2
99.3
ITC
47,293
28.2
24.8
18.3
15.9
35.0
35.9
Colgate
3,597
39.1
33.6
27.0
23.2
87.3
91.1
Dabur
5,781
32.7
27.6
25.0
20.8
35.4
34.1
Emami
2,053
28.3
24.5
24.7
20.9
40.0
36.9
GlaxoSmithKline Consumer Healthcare
3,393
33.4
28.4
22.2
18.6
30.9
30.8
Godrej Consumer
4,918
32.4
26.4
22.4
18.6
22.3
23.5
Marico
2,684
27.5
22.7
17.5
14.3
22.0
21.9
Nestle Ltd
8,316
39.2
33.4
22.6
19.3
47.3
44.0
AVERAGE
-
31.9
27.3
22.1
18.8
45.4
44.6
Source: Edelweiss research
22
Edelweiss Securities Limited
Hindustan Unilever
Additional Data
Directors Data
Mr. Harish Manwani
Mr. Sridhar Ramamurthy
Mr. A. Narayan
Mr. R. A. Mashelkar
Dr. Sanjiv Misra
Chairman
Executive Director, Finance & IT and Chief Financial Officer
Independent Director
Independent Director
Independent Director
Mr. Sanjiv Mehta
Mr. Pradeep Banerjee
Mr. S. Ramadorai
Mr. O. P. Bhatt
Managing Director and Chief Executive Officer
Executive Director, Supply Chain
Independent Director
Independent Director
Auditors - M/s. Lovelock & Lewes
*
Holding – Top10
Perc. Holding
Perc. Holding
Aberdeen Asset Management Plc
3.1
Harris Trust & Savings Bank
0.9
Vanguard Group Inc
0.9
Vontobel Asset Management Ag
0.7
Blackrock Fund Advisors
0.6
Oppenheimerfunds Incorporated
0.4
Sbi Life Insurance Co Ltd
0.2
Fidelity International
0.2
Emerging Global Shares
0.2
Blackstone Asia Advisors Llc
0.2
*as per last available data
Bulk Deals
Data
Acquired / Seller
B/S
Qty Traded
Price
No Data Available
*in last one year
Insider Trades
Reporting Data
Acquired / Seller
B/S
Qty Traded
No Data Available
*in last one year
23
Edelweiss Securities Limited
RATING & INTERPRETATION
Company
Absolute
Relative
Relative
reco
reco
risk
BUY
SO
M
Bajaj Corp
Colgate
HOLD
SP
M
Dabur
Emami
BUY
SP
H
GlaxoSmithKline Consumer
Asian Paints
Company
Absolute
Relative
Relative
reco
reco
Risk
HOLD
SU
H
BUY
SO
M
HOLD
SP
M
Healthcare
Godrej Consumer
BUY
SP
H
Hindustan Unilever
REDUCE
SU
L
ITC
BUY
SO
L
Marico
BUY
SO
M
HOLD
SU
L
Pidilite Industries
BUY
SO
M
BUY
SP
H
Nestle Ltd
United Spirits
ABSOLUTE RATING
Ratings
Expected absolute returns over 12 months
Buy
More than 15%
Hold
Between 15% and - 5%
Reduce
Less than -5%
RELATIVE RETURNS RATING
Ratings
Criteria
Sector Outperformer (SO)
Stock return > 1.25 x Sector return
Sector Performer (SP)
Stock return > 0.75 x Sector return
Stock return < 1.25 x Sector return
Sector Underperformer (SU)
Stock return < 0.75 x Sector return
Sector return is market cap weighted average return for the coverage universe
within the sector
RELATIVE RISK RATING
Ratings
Criteria
Low (L)
Bottom 1/3rd percentile in the sector
Medium (M)
Middle 1/3rd percentile in the sector
High (H)
Top 1/3rd percentile in the sector
Risk ratings are based on Edelweiss risk model
SECTOR RATING
Ratings
Criteria
Overweight (OW)
Sector return > 1.25 x Nifty return
Equalweight (EW)
Sector return > 0.75 x Nifty return
Sector return < 1.25 x Nifty return
Underweight (UW)
Sector return < 0.75 x Nifty return
24
Edelweiss Securities Limited
Hindustan Unilever
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.
Board: (91-22) 4009 4400, Email: [email protected]
Vikas Khemani
Head Institutional Equities
[email protected]
+91 22 2286 4206
Nischal Maheshwari
Co-Head Institutional Equities & Head Research
[email protected]
+91 22 4063 5476
Nirav Sheth
Head Sales
[email protected]
+91 22 4040 7499
Coverage group(s) of stocks by primary analyst(s): Consumer Goods
Asian Paints, Bajaj Corp, Colgate, Dabur, Godrej Consumer , Emami, Hindustan Unilever, ITC, Marico, Nestle Ltd, Pidilite Industries, GlaxoSmithKline
Consumer Healthcare, United Spirits
Recent Research
Date
Company
29-Jul-14
Title
Dabur Inida Volume growth resilient
despite slowdown;
Result Update
25-Jul-14
Colgate
Palmolive
23-Jul-14
Asian
Paints
Position unchallenged;
Result Update
Line by line beat;
Result Update
Price (INR)
Recos
198
Buy
1,637
Hold
604
Buy
Distribution of Ratings / Market Cap
Rating Interpretation
Edelweiss Research Coverage Universe
Rating Distribution*
* 1 stocks under review
> 50bn
Market Cap (INR)
144
Buy
Hold
151
44
Reduce
Total
9
205
Between 10bn and 50 bn
< 10bn
56
5
25
Rating
Expected to
Buy
appreciate more than 15% over a 12-month period
Hold
appreciate up to 15% over a 12-month period
Reduce
depreciate more than 5% over a 12-month period
Edelweiss Securities Limited
Consumer Goods
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Edelweiss Securities Limited
Hindustan Unilever
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