Hindustan Unilever
“ In the Pink of Health”; Accumulate
May 14, 2018
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Please refer to important disclosures and disclaimers at the end of the report
Q4FY18 REsult Update
Amnish Aggarwal [email protected] +91‐22‐66322233
Nishita Doshi [email protected] +91‐22‐66322381
Rating Accumulate
Price Rs1,505
Target Price Rs1,555
Implied Upside 3.3%
Sensex 35,557
Nifty 10,807
(Prices as on May 14, 2018)
Trading data
Market Cap. (Rs bn) 3,250.7
Shares o/s (m) 2,160.0
3M Avg. Daily value (Rs m) 1466.3
Major shareholders
Promoters 67.19%
Foreign 12.56%
Domestic Inst. 6.85%
Public & Other 13.39%
Stock Performance
(%) 1M 6M 12M
Absolute 6.8 17.3 53.6
Relative 2.8 9.3 35.8
How we differ from Consensus
EPS (Rs) PL Cons. % Diff.
2019 28.0 28.3 ‐1.0
2020 33.4 33.5 ‐0.1
Price Performance (RIC: HLL.BO, BB: HUVR IN)
Source: Bloomberg
0200400600800
1,0001,2001,4001,600
May‐17
Jul‐17
Sep‐17
Nov‐17
Jan‐18
Mar‐18
(Rs)
HUVR has reported a robust 11% volume growth and 240bps margin expansion as benefits of cost efficiency programs and improved product mix have boosted profitability. Medium term outlook looks encouraging given 1) gradual pick up in
rural demand 2) sustained benefits from GST 3) normalisation of trade channels 4) low base for 1Q and 2Q19 and 5) success of new launches in naturals segment. Although HUL expects increase in competitive activity and higher input costs,
sustained benefits of Premiumisation in Home Care, success in naturals with Lever Ayush, Citra, Indulekha etc. and strong growth in emerging categories (premium laundry, hand wash, Liquid dish wash, Hair conditioner, Face‐wash and Green tea)
will enable steady margin expansion. We slightly tweak our numbers and increase EPS estimates by 2% for FY19 and 1% for FY20. We remain positive on the long term structural story; however, expect back ended returns post 53% returns in past
1 year. We retain Accumulate with a target price of Rs1555 at 43xSept20 EPS (Rs1387, 42xMarch 20EPS earlier).
Concall Takeaways:1) Trade Channels have normalised, however No GST led
transition from unorganised sector to organised sector is visible so far 2) E‐way bill implementation can led to some trade disruption in the short term 3)
Demand has seen improvement in both urban and rural India, however rural has grown faster in certain pockets. 4) Input costs pressures would remain on rising crude oil prices which has increased ~20% 1Q19 5) There will be continued
pressure from currency as it has already declined 6% in 1Q19. However, strong savings program led by control on the COGS would help ease pressure 6) HUL has launched Pure Derm Shampoo in the anti‐dandruff segment, however it is
retaining CLEAR brand as of now 7) Innovations and activations shall increase adspends in FY19 8) HUL has made provision of Rs640mn for variable payable for Indulekha acquisition as the performance has been far better than
expectations 9) The Categories of future and the naturals portfolio are growing at an 2x and 2.5x of the HUL average 10) HUL has seen higher growth in popular and the premium segments, economy segment has been tepid.
Key financials (Y/e March) 2017 2018 2019E 2020E
Revenues (Rs m) 344,870 352,180 386,876 431,531
Growth (%) 3.0 2.1 9.9 11.5
EBITDA (Rs m) 60,470 72,760 86,036 102,409
PAT (Rs m) 42,490 51,359 60,706 72,542
EPS (Rs) 19.7 23.8 28.0 33.4
Growth (%) 1.9 20.9 17.7 19.5
Net DPS (Rs) 16.5 18.0 22.0 24.0
Profitability & Valuation 2017 2018 2019E 2020E
EBITDA margin (%) 17.5 20.7 22.2 23.7
RoE (%) 66.6 75.7 83.1 89.5
RoCE (%) 62.1 69.6 76.0 82.0
EV / sales (x) 9.4 9.1 8.4 7.5
EV / EBITDA (x) 53.6 44.2 37.6 31.5
PE (x) 76.5 63.3 53.8 45.0
P / BV (x) 50.1 45.9 43.3 37.7
Net dividend yield (%) 1.1 1.2 1.5 1.6
Source: Company Data; PL Research
May 14, 2018 2
Hindustan Unilever
Exhibit 1: Q4FY18 Results (Rs m): Volumes up 11%, Adj. margins up 240bps, Adj. PAT up 19%
Y/e March Q4FY18 Q4FY17 YoY gr. (%) Q3FY18 FY18 FY17 YoY gr. (%)
Net Sales 90,970 82,130 10.8 85,900 3,45,250 3,18,899 8.3
Gross Profit 47,830 41,910 14.1 46,850 1,82,930 1,62,057 12.9
% of NS 52.6 51.0 54.5 53.0 50.8
Advertising & Prom Exp. 10,700 8,530 25.4 11,070 41,050 34,693 18.3
% of NS 11.8 10.4 12.9 11.9 10.9
Total Expenses 70,490 65,620 7.4 69,100 2,72,490 2,58,429 5.4
EBITDA 20,480 16,510 24.0 16,800 72,760 60,470 20.3
Margins (%) 22.5 20.1 2.4 19.6 21.1 19.0
Depreciation 1,280 1,080 18.5 1,210 4,780 3,960 20.7
EBIT 19,200 15,430 24.4 15,590 67,980 56,510 20.3
Interest 40 60 (33.3) 50 200 215 (6.8)
Other Income 1,000 830 20.5 1,520 5,690 5,259 8.2
PBT 20,160 16,200 24.4 17,060 73,470 61,554 19.4
Tax 6,070 4,360 39.2 5,080 22,110 18,419 20.0
Effective tax rate (%) 30.1 26.9 29.8 30.1 29.9
Adjusted PAT 14,090 11,840 19.0 11,980 51,360 43,134 19.1
Extraordinary (100) (190) 1,280 (1,010) (1,766)
Reported Profit 13,990 11,650 20.1 13,260 50,350 41,369 21.7
Source: Company Data, PL Research
Net Sales up 10.8% to Rs90.97bn, volumes up 11%, consumer sales up 16%
Gross margin up 150bps and EBIDTA margin up 240bps as staff costs and other
expenses declined by 30bps and 190bps, ad spend increased by 25.4% (140bps)
Adj. EBIDTA at Rs20.48b up 24% YoY
Adj Pat Rs14.1b up 19% as other income increased 20% and tax rate also
increased by 320bps.
Home Care had double digit volume growth with sales up 3.5% and EBIT up
30.8% on 350bps margin expansion
Personal care sales up 0.5%, EBIT up 8.3% on 180bps margin expansion and
strong growth in FAL, hair Care and Colour Cosmetics
Refreshments sales up 8.4%, EBIT up 16.9% on 130bps higher margins. Tea had
double digit growth, Ice cream had double digit growth led by geographical
expansion.
Packaged food sales were up 1.4% and EBIT was up 10.7% to Rs.310mn on
90bps expansion.
Rural demand is picking up and has grown at a rate faster than urban demand in
pockets. Lower prices post GST rate reduction has also boosted demand.
May 14, 2018 3
Hindustan Unilever
Exhibit 2: Exhibit 2: Adjusted consumer sales up 16%, reported sales impacted by GST led adjustments
Source: Company Data
Exhibit 3: HUVR’s innovation focus continues in core categories
Source: Company Data
May 14, 2018 4
Hindustan Unilever
Exhibit 4: HUVR is progressively building the naturals portfolio
Source: Company Data
Exhibit 5: HUVR’s strong savings program aids margins
Source: Company Data
May 14, 2018 5
Hindustan Unilever
Exhibit 6: Comparable FMCG sales up 16%
4.0 4.0 2.0
0.0
8.0 6.0
10.0
17.0 16.0
0.02.04.06.08.0
10.012.014.016.018.0
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
(%)
Source: Company Data, PL Research
Exhibit 7: Volumes up 11% on a low base
4.0 4.0
(1.0)
(4.0)
4.0
0.0
4.0
11.0 11.0
(6.0)
(4.0)
(2.0)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
(%)
Source: Company Data, PL Research
Exhibit 8: Ad spend up 140bps on increased brand building
11.2 10.8 10.9
11.5
10.4 10.6
12.3
12.9
11.8
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
13.0
13.5
Q4FY1
6
Q1FY1
7
Q2FY1
7
Q3FY1
7
Q4FY1
7
Q1FY1
8
Q2FY1
8
Q3FY1
8
Q4FY1
8
(%)
Source: Company Data, PL Research
Exhibit 9: GM up 150bps; EBITDA margins up 240bps
51.2
51.0
52.6
19.1 20.1 22.5
12.0
14.0
16.0
18.0
20.0
22.0
24.0
42.044.046.048.050.052.054.056.0
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Gross Margins (%) EBITDA Margins (%) (RHS)
Source: Company Data, PL Research
Exhibit 10: PFAD prices down 15.3% YoY and 2.2% QoQ
‐18.9‐21.9‐27.8‐28.9
‐4.4
6.7
28.7
69.7
30.3
3.1 2.7
‐6.9‐15.3
‐40.0
‐20.0
0.0
20.0
40.0
60.0
80.0
Mar‐15
Jun‐15
Sep
‐15
Dec‐15
Mar‐16
Jun‐16
Sep
‐16
Dec‐16
Mar‐17
Jun‐17
Sep
‐17
Dec‐17
Mar‐18
(%)
YoY QoQ
Source: Company Data, PL Research
Exhibit 11: LAB prices are up 3.9% QoQ and up 7% YoY
125.1
103.189.1
104
106
60
70
80
90
100
110
120
130
140
Dec‐12
Mar‐13
Jun‐13
Sep
‐13
Dec‐13
Mar‐14
Jun‐14
Sep
‐14
Dec‐14
Mar‐15
Jun‐15
Sep
‐15
Dec‐15
Mar‐16
Jun‐16
Sep
‐16
Dec‐16
Mar‐17
Jun‐17
Sep
‐17
Dec‐17
Mar‐18
(Rs/Kg)
Source :PL Research
May 14, 2018 6
Hindustan Unilever
Exhibit 12: Sales not comparable due to GST, Home care, Personal care and Refreshments see margin expansion
Quarterly Segmental 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18
Net Sales (Rs m) 83,210 87,886 84,700 83,073 88,750 92,130 83,030 85,900 90,970
Home Care 27,980 28,760 27,770 26,891 30,040 30,470 27,390 27,410 31,020
Personal Care 37,700 42,216 40,280 39,802 40,750 43,680 39,100 40,900 40,960
Foods 2,880 2,722 2,778 2,785 2,950 2,840 2,820 3,000 2,990
Refreshments 11,760 12,149 11,692 11,641 13,000 13,460 12,220 12,480 14,090
Others 2,890 2,038 2,181 1,954 2,010 1,680 1,500 2,110 1,910
Sales Growth % 4.4 1.6 (0.8) 6.7 4.8 (2.0) 3.4 2.5
Home Care 8.0 3.2 1.0 7.4 5.9 (1.4) 1.9 3.3
Personal Care 2.7 (0.3) (2.7) 8.1 3.5 (2.9) 2.8 0.5
Foods 5.0 2.4 0.5 2.4 4.3 1.5 7.7 1.4
Refreshments 5.6 8.4 8.1 10.5 10.8 4.5 7.2 8.4
Others (14.3) (15.2) (27.3) (30.4) (17.6) (31.2) 8.0 (5.0)
EBIT (Rs m) 14,514 15,768 13,981 13,359 16,160 18,170 15,560 15,300 18,640
Home Care 3,023 3,559 2,800 2,342 3,890 4,480 3,830 3,540 5,090
Personal Care 9,027 10,214 9,226 9,208 9,840 10,790 9,480 10,070 10,660
Foods 381 170 137 261 280 410 170 110 310
Refreshments 1,943 1,921 1,726 1,713 2,190 2,550 2,140 1,690 2,560
Others 140 ‐95 91 ‐166 ‐40 ‐60 ‐60 ‐110 20
EBIT Growth % 4.7 9.0 (5.5) 11.3 15.2 11.3 14.5 15.3
Home Care 22.7 24.7 (0.6) 28.7 25.9 36.8 51.1 30.8
Personal Care 0.3 3.6 (7.1) 9.0 5.6 2.8 9.4 8.3
Foods (20.7) (16.2) (25.1) (26.5) 141.6 24.0 (57.9) 10.7
Refreshments 7.5 17.5 7.4 12.7 32.8 24.0 (1.3) 16.9
Others 340.5 112.1 159.0 (128.6) (36.6) (165.6) (33.5) (150.0)
EBIT Margin %
Home Care 10.8 12.4 10.1 8.7 12.9 14.7 14.0 12.9 16.4
Personal Care 23.9 24.2 22.9 23.1 24.1 24.7 24.2 24.6 26.0
Foods 13.2 6.2 4.9 9.4 9.5 14.4 6.0 3.7 10.4
Refreshments 16.5 15.8 14.8 14.7 16.8 18.9 17.5 13.5 18.2
Source: Company Data, PL Research
May 14, 2018 7
Hindustan Unilever
Income Statement (Rs m)
Y/e March 2017 2018 2019E 2020E
Net Revenue 344,870 352,180 386,876 431,531
Raw Material Expenses 182,820 169,250 181,167 200,453
Gross Profit 162,050 182,930 205,709 231,078
Employee Cost 16,200 17,450 19,893 22,027
Other Expenses 85,380 92,720 99,780 106,642
EBITDA 60,470 72,760 86,036 102,409
Depr. & Amortization 3,960 4,781 5,095 5,440
Net Interest 220 200 220 220
Other Income 5,260 5,690 6,002 6,882
Profit before Tax 61,550 73,469 86,722 103,631
Total Tax 19,060 22,110 26,017 31,089
Profit after Tax 42,490 51,359 60,706 72,542
Ex‐Od items / Min. Int. 4,820 2,023 1,000 1,000
Adj. PAT 42,490 51,359 60,706 72,542
Avg. Shares O/S (m) 2,160.0 2,160.0 2,170.0 2,170.0
EPS (Rs.) 19.7 23.8 28.0 33.4
Cash Flow Abstract (Rs m)
Y/e March 2017 2018 2019E 2020E
C/F from Operations 54,340 65,260 61,233 82,929
C/F from Investing (13,460) (14,440) (4,231) (20,733)
C/F from Financing (42,630) (45,739) (56,166) (61,271)
Inc. / Dec. in Cash (1,750) 5,081 836 924
Opening Cash 2,400 650 5,730 6,566
Closing Cash 650 5,730 6,566 7,490
FCFF 36,680 57,230 55,517 77,252
FCFE 36,680 57,230 55,517 77,252
Key Financial Metrics
Y/e March 2017 2018 2019E 2020E
Growth
Revenue (%) 3.0 2.1 9.9 11.5
EBITDA (%) 5.2 20.3 18.2 19.0
PAT (%) 1.9 20.9 18.2 19.5
EPS (%) 1.9 20.9 17.7 19.5
Profitability
EBITDA Margin (%) 17.5 20.7 22.2 23.7
PAT Margin (%) 12.3 14.6 15.7 16.8
RoCE (%) 62.1 69.6 76.0 82.0
RoE (%) 66.6 75.7 83.1 89.5
Balance Sheet
Net Debt : Equity (0.2) (0.5) (0.4) (0.5)
Net Wrkng Cap. (days) (63) (88) (83) (83)
Valuation
PER (x) 76.5 63.3 53.8 45.0
P / B (x) 50.1 45.9 43.3 37.7
EV / EBITDA (x) 53.6 44.2 37.6 31.5
EV / Sales (x) 9.4 9.1 8.4 7.5
Earnings Quality
Eff. Tax Rate 31.0 30.1 30.0 30.0
Other Inc / PBT 8.5 7.7 6.9 6.6
Eff. Depr. Rate (%) 5.8 6.5 6.5 6.5
FCFE / PAT 86.3 111.4 91.5 106.5
Source: Company Data, PL Research.
Balance Sheet Abstract (Rs m)
Y/e March 2017 2018 2019E 2020E
Shareholder's Funds 64,900 70,751 75,418 86,734
Total Debt — — — —
Other Liabilities 5,740 6,660 7,248 7,880
Total Liabilities 70,640 77,411 82,666 94,613
Net Fixed Assets 42,270 45,720 43,675 43,384
Goodwill — — — —
Investments 42,860 31,110 33,210 43,510
Net Current Assets (14,490) 580 5,781 7,719
Cash & Equivalents 11,640 33,730 33,647 39,855
Other Current Assets 50,740 60,930 64,573 70,861
Current Liabilities 76,870 94,080 92,439 102,997
Other Assets — — — —
Total Assets 70,640 77,410 82,665 94,613
Quarterly Financials (Rs m)
Y/e March Q1FY18 Q2FY18 Q3FY18 Q4FY18
Net Revenue 85,290 83,090 85,900 90,970
EBITDA 18,660 16,820 16,800 20,480
% of revenue 21.9 20.2 19.6 22.5
Depr. & Amortization 1,140 1,150 1,210 1,280
Net Interest 60 60 50 40
Other Income 1,130 2,040 1,520 1,000
Profit before Tax 18,590 17,650 17,060 20,160
Total Tax 5,670 5,290 5,080 6,070
Profit after Tax 12,920 12,360 11,970 13,990
Adj. PAT 12,920 12,360 11,980 14,090
Key Operating Metrics
Y/e March 2017 2018 2019E 2020E
Volume Growth % (1.5) 4.0 7.3 7.1
Source: Company Data, PL Research.
May 14, 2018 8
Hindustan Unilever
Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage PL’s Recommendation Nomenclature
43.4% 44.2%
12.4%
0.0%0%
10%
20%
30%
40%
50%
BUY Accumulate Reduce Sell
% of Total Coverage
BUY : Over 15% Outperformance to Sensex over 12‐months
Accumulate : Outperformance to Sensex over 12‐months
Reduce : Underperformance to Sensex over 12‐months
Sell : Over 15% underperformance to Sensex over 12‐months
Trading Buy : Over 10% absolute upside in 1‐month
Trading Sell : Over 10% absolute decline in 1‐month
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
DISCLAIMER/DISCLOSURES
ANALYST CERTIFICATION
We/I, Mr. Amnish Aggarwal (MBA, CFA), Ms. Nishita Doshi (CA, CFA Level 1, B.Com), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
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