INSTITUTIONAL EQUITY RESEARCH Hindustan Unilever Ltd...

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA-member broker-dealer.

Hindustan Unilever Ltd (HUVR IN)

“Golden Goose” – one should not let it go

INDIA | FMCG | Company Update

23 September 2019

We have received an overwhelming response for our India Detergent: Goldilocking premiumization report from the managements of leading FMCG companies, consultants / ex-employees who belong to the consumer sector, and most importantly, from you, our clients. Thank you so much for acknowledging our effort! Your appreciation will motivate our young consumer team to work even harder and write more ground-level insight-driven research reports.

What has happened in the detergents segment after our report? (1) Focus on liquid detergent portfolio continues to remain unabated ● HUL has brought its third detergent brand Sunlight under the liquid detergent format

and launched it in its strongholds of Kerala and West Bengal. ● Reckitt Benckiser (RB) has decided that it also wants to cash in on the premiumization

bandwagon in detergents. It has forayed into the premium liquid detergent category through its brand Woolite. It has also recently re-launched its stain-removal brand Vanish and made it available in a Rs 15 sachet format.

● GCPL has renewed its aggression in its liquid detergent portfolio (Genteel and Ezee brands). (2) Incumbents have taken up the mantle of premiumization ● P&G launched a matic detergent for its Tide brand called Tide Ultra; it did not have a

product in the mid-end matic detergent segment that could compete with HUL. ● HUL introduced its fifth detergent brand Love & Care, positioned at the super-premium

consumer, with more focus on ‘fabric care’. These products are priced at a 40-65% premium to the existing liquid detergent portfolio.

(3) Retailers also don’t want to miss the bus ● Future Consumer has decided to make a foray into the liquid detergents market through

self-incubated brand Voom; however, its reach is restricted to Future Group outlets – Big Bazaar, Easy Day, and Nilgiri.

● D-Mart has extended its private label in the detergents space (Starlight brand) to many more of its own outlets.

(4) Low-unit packs continue to drive penetration towards premium products: Surf Excel’s Rs 10 pack has been at the forefront of driving a shift for this brand towards premiumization. Taking a leaf from HUL’s strategy, Jyothy Labs has upped its ante on LUPs (low-unit packs) for its Henko brand. This brand hadn’t been able to make much headway in larger packs (despite superior product formulation) due to the presence of strong incumbents in general trade (GT). LUPs have started delivering results and contribute to more than 20% of Henko’s sales now – they have also enabled the brand to make inroads into GT, which was otherwise proving difficult with large packs.

(5) We visited HUL newly commenced Suvidha Centre (Laundromat) in Malad, Mumbai, thereby balancing and achieving its CSR and premiumization objectives smartly

HUL is the Golden Goose; a bellwether in challenging times: We believe that investors should stay with the stock, even if its near-term stock performance remains subdued because of – (1) weak volume growth till 3QFY20; economic recovery is likely only towards the end of FY20, and (2) a high likelihood of GSK Plc. offloading its 5.3% stake after its merger with HUL (likely in 3QFY20) as it has to make payments for its Novartis JV acquisition.

In our view, HUL has all the right ingredients – (1) management focus on premiumization, (2) strengthening core categories, (3) focus on improving distribution productivity using digital means, and (4) foray into under-penetrated fast-growing categories to sustain mid to high-single-digit volume growth in the medium term. The GSK Consumer acquisition is a step in the right direction. We have increased our EPS estimates for FY20-22e by 4-6% to account for 1) recent tax changes and 2) better competitive positioning vs peers who are paying lower taxes in key competing categories and maintain our high-conviction BUY with a target of Rs 2,330 (50x FY22 EPS).

BUY (Maintain) CMP RS 1,970 TARGET RS 2,330 (18%) COMPANY DATA

O/S SHARES (MN) : 2165

MARKET CAP (RSBN) : 3951

MARKET CAP (USDBN) : 55.6

52 - WK HI/LO (RS) : 1889 / 1478

LIQUIDITY 3M (USDMN) : 33.7

PAR VALUE (RS) : 1

SHARE HOLDING PATTERN, %

Jun 19 Mar 19 Dec 18

PROMOTERS : 67.2 67.2 67.2

FII / NRI : 11.9 12.0 12.1

FI / MF : 7.0 7.4 7.3

NON PRO : 1.1 1.0 1.0

PUBLIC & OTHERS : 12.9 12.4 12.4

PRICE PERFORMANCE, %

1MTH 3MTH 1YR

ABS -0.9 1.1 10.7

REL TO BSE 2.2 9.7 13.2

KEY FINANCIALS

Rs mn FY20E FY21E FY22E

Net Sales 4,01,361 5,04,135 5,61,617

EBIDTA 97,871 1,27,982 1,45,119

Net Profit 71,173 95,644 1,09,216

EPS, Rs 33.0 40.8 46.6

PER, x 59.8 48.3 42.3

EV/EBIDTA, x 42.6 34.8 30.6

P/BV, x 51.4 11.2 10.9 ROE, % 86.0 23.2 25.8

PRICE VS. SENSEX

Source: Phillip Capital India Research Vishal Gutka, Research Analyst (+ 9122 6246 4118) [email protected] Preeyam Tolia, Research Associate (+ 9122 6246 4129) [email protected]

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110

140

170

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230

Apr-16 Jan-17 Oct-17 Jul-18 Apr-19

HUL BSE Sensex

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Page | 2 | PHILLIPCAPITAL INDIA RESEARCH

HINDUSTAN UNILEVER LTD COMPANY UPDATE

CPG companies are focusing on liquid portfolios. WHY? CPG companies have started to realize there is a “Right to Win” in their liquid detergent portfolios, which may not be easily available for powders and bars. Consumers are showing an increased tendency towards adopting liquids after understanding its benefits over other formats. These include better wash quality and them being less harmful to washing machines, since they do not leave residues. Liquids have a ‘Right to Win’ due to following factors ● Manufacturing of Liquids involves some amount of science/ technology. As they

are in the concentrated format, all their ingredients have to be settled properly – not an easy process to achieve.

● Products can be differentiated vs. competition: CPG companies can create lots of differentiation via adding fragrance, softeners, and additives that help in retaining colour and design of the fabric – this is difficult to achieve in commoditized segments of bars and powders.

● Capex requirements for setting up a liquid plant are far higher than setting up a detergent powder plant, thereby limiting the number of manufacturers.

Margin analysis brand-wise Segment Popular Mid-end Premium Super-premium

Brands Wheel Rin Easy wash Quick wash Top load Front load Top load Front load

Price Per Kg 53 77 118 118 180 225 209 235

COGS 40 50 58 65 90 105 105 115

Gross Profit 13 27 60 53 90 120 104 120

% margin 25% 35% 51% 45% 50% 53% 50% 51%

% Contribution to HUL detergent sales 33% 23% 42% 2%

Blended Detergent Gross margin 39%

Source: PhillipCapital India estimates

HUL has kept prices of matic powder and liquid portfolio at similar levels, despite the latter being a more superior and premium product. This is because the company wants more customers to switch from matic or normal detergent powders to liquids – given its Right to Win. HUL will leave no stone unturned to make its liquid portfolio a ‘meaningful one’ HUL will try its utmost to ensure that its liquid portfolio becomes meaningful from current levels of Rs 2.0-2.5bn. The liquid detergent segment, at the industry level, has been growing 2-3x of regular detergents. In order to achieve its objective, HUL has brought Sunlight brand under the liquid detergent format, which has a strong brand equity in the Kerala and West Bengal market.

HUL’s Liquid detergent portfolio

Rin** Sunlight** Surf Excel Easy Wash** Surf Excel - Top Load Surf Excel - Front Load

Rs/litre 151 151 150 209 235

**These liquid detergents can be used for machines as well as for bucket wash

Source: Bigbasket, PhillipCapital India

Hindustan Foods, one of the largest contract manufacturers for HUL in the detergent space, has set up a separate liquid detergent facility in Hyderabad with a capex of Rs 1.5bn, which it expects to commission in 3QFY20. Our checks with experts suggest that such type of plants would have an asset turnover of at least 5-6x when they are run at optimum levels. Reckitt Benckiser trying to wedge a foot in the door Reckitt Benckiser has achieved significant success over the past few years in its Harpic (toiler cleaner), Dettol (soap) and Lizol (floor cleaner) helped by the government blitzkrieg campaign of Swachh Bharat and its own efforts towards improving its value proposition. Reckitt has also decided to step on its laundry segment offerings by



entering the super-premium liquid detergent market through the “Woolite” brand. As of now, the product will be imported and mainly sold through the e-commerce channel.

Comparing Woolite with HUL’s major brand

Company Rs / lt Description

Woolite Darks RB 375 Protects dark clothes from fading and repairs

damaged fibres, works with all fabrics including

wool, silk, and satin.

Woolite Pro care RB 375 Brightens clothes and repairs damaged fibres, work

with all fabrics including wool, silk, and satin.

Surf Excel Matic - Top Load HUL 209

Surf Excel Matic - Front Load HUL 235

Source: Amazon, PhillipCapital India

The buck does not stop here… ● Reckitt Benckiser is also making a fresh attempt to drive growth in detergent

additives. Vanish has not made much headway after its launch in 2005 in powder format. The segment of detergent additives requires companies to make considerable investments to change the habits of Indian customers and create awareness about their effectiveness.

● It has re-launched Vanish stain remover with a better formulation (10x more active oxygen vs. premium detergents) in July 2019, to enhance its effectiveness.

● The company has roped in film actors Aparshakti Khurrana (younger brother of actor Ayushmann Khurrana) and Shine Shetty (Kannada actor) as brand ambassadors. It also re-launched Vanish in a sachet format (Rs 15) in order to increase penetration among target households.

Incumbents have taken up the premiumisation agenda P&G – is the sleeping giant finally waking up? Tide, P&G’s flagship detergent brand, which was available only for bucket wash so far, has been extended to matic (detergents exclusively meant for washing machines). It has priced this product at a considerable premium to existing brands. We believe P&G is likely to adopt a more balanced approach, rather than going for ruthless price wars, to garner market share – its global mandate has been to improve profitability across all geographies. If the P&G management takes an aggressive stance, it would be tempting fate and could harm its own business in the long run. This is because HUL is almost 3-4x P&G’s detergent business, has the ability to match discounts, and HUL’s long-term aim is gaining market share in the laundry market. HUL: A step forward into the ‘ultra-premium’ detergent ● Taking its premiumization agenda further, HUL has introduced a new detergent

brand (Love & Care) after a gap of almost three decades. It last introduced its Wheel brand in 1988 in order to compete with Nirma, who was mainly competing on a price-discounting strategy.

● Love and Care will target the consumers that have a wide variety of special fabrics in their wardrobes like silk, chiffons, wool, and fine cottons with embroidery – which requires specialized washing techniques and careful handling.

● It has been launched in three variants – Shining Silks, Fine cottons and Soft Woollens and has been priced at Rs 300-350 for 950 ML. Its presence will be restricted to E-commerce and Modern Trade in selected cities. Depending upon the initial traction that this brand garners, management will think of tweaking its pricing strategy.

Rs130/kg Rs160/kg



HUL Love & Care features and price comparison

Brands Rs /ltr Descriptions

Love & Care - Silk 368 Designed for silk - maintains shine, protects embellishments

Love & Care - Fine Cottons 316 Designed for cotton - maintains colour, cares for fabric and

embroidery

Love & Care - Woollens 316 Designed for wool - retains softness

Ezee Liquid detergent (GCPL) 175 HUL has priced these products at considerable premium to

GCPL’s products. Ezee Liquid Gently cleans and softens winter

wear, chiffons, and silks.

* We have converted Love & Care 950 ml SKU to 1 Ltr

Source: Amazon, PhillipCapital India

We will wait and watch before calling it a success or failure We remain circumspect, given that Indian women are a bit hesitant about washing high-end clothes at home and generally outsource this to dry cleaners. We have observed that ‘special’ or ‘occasion wear’ clothes are worn only a few times in a year and since their usage is limited, consumers are unlikely to stock up three different variants of detergents for their care. Since HUL has decided to enter the ultra-premium detergent segment through an altogether different brand, we believe that they have a long-term strategy for making further in-roads in the detergent segment – i.e. on pricing and product formulation fronts. Retailers don’t want to miss the bus FMCG company Future Consumer (FCL) gets 75% of its revenue from Future Group outlets. FCL was largely restricted to staples and packaged foods items earlier, but in the past few months, it has begun to focus on high-margin home and personal categories. Realizing the premiumization potential in detergents – the liquids category is growing 2-3x the powder category since the past one year – FCL entered the liquid detergents market with its Voom brand at a disruptive price point.

Liquid detergent comparison Brand Rs / lt %Discount

Voom - Bucket Wash 119 -21%

Surf Excel Easy - Bucket Wash 150

Voom - Top load 139 -33%

Surf Excel - Top load 209

Voom - Front load 149 -37%

Surf Excel - Front load 235

Source: Company, PhillipCapital India

Extract from an Economic Times article in which Keshav Biyani explains the rationale behind entering liquid detergent category Keshav Biyani, head – home and personal care, Future Consumer, says, “We gathered that the young buyers of laundry-related products have different needs and their top on mind worries include factors such as colour protection and anti-shrinkage.” To solve these problems, the company decided it was time to move their R&D team from the labs to the design rooms. They collaborated with fashion brands of the group’s stores to study fabric needs, which led to the realization that the new product should become a fashion-first fabric wash brand.

FCL plans to garner 20-30% market share in detergent sales within Future Group outlets through its own brand. Detergent sales within Future group outlets amounts to Rs 10-12bn. It also plans to extend this brand to the powder format. We remain in a “wait and watch” mode to see if this initiative will have an impact on HUL’s sales, especially because Voom will be made by Jyothy Labs, which hasn’t manufactured a liquid product so far.



DMart is taking its Starlight brand to new pastures DMart, one of the largest grocery retailers, is gradually expanding the reach of its private labels to more outlets. Starlight – a detergent private label – which has been there since the last two years is now being extended to more and more DMart outlets.

Detergent bar comparison Brand Rs 1kg

Star light Bar 47

Ghadi Bar 53

Wheel Active Bar 42

Rin Bar 66


The above table clearly highlights that margins in the hyper competitive detergent-bar segment are pretty low, as even deep-discount stores such as DMart are not able to give any meaningful discount over mainstream brands. With positive consumer response, we believe it is matter of time before DMart decides to make a full-fledged entry into the powders and liquid portfolios. Challenges that private labels face for scaling up Neville, the CEO of DMart, succinctly summarised in a recent interaction with analysts the challenges in scaling up private labels beyond a particular point – under the following three heads. 1) Availability of a proper vendor ecosystem that can, in turn, assure consistency in

product quality. 2) The market leader in a respective category will be far ahead in judging the

changing consumer tastes and preferences, and will always have the first-mover advantage.

3) DMart would have limited scale of operations beyond its own outlets, since incumbents can sell across India.

Availability of premium products in access packs is driving premiumization The Surf Excel portfolio with its Easy Wash brand has seen tremendous growth after the launch of a Rs-10 LUP two years ago. Most FMCG companies are adopting similar strategies amidst a slowdown – this is because while growth in urban sectors continues to remain steady, rural business has been a pain point. Taking a leaf from HUL’s strategy, RSPL and Jyothy Labs has upped the ante on LUPs for Ghadi Machine Wash and Henko by launching Rs 10 SKU. RSPL (Ghadi brand) volume growth was significantly impacted over the past two years post launch of Surf Excel Rs 10 SKU. Kindly note a signification part of RSPL revenue came from Rs 10 SKU.



RSPL volume growth deteriorated post the launch of Surf LUP

Source: ICRA, PhillipCapital India * Kindly note we have assumed volume growth for 9MFY19 to be for entire FY19

Henko, so far hasn’t made much headway in larger packs, despite better product formulation, due to presence of strong incumbents, however after the launch of LUPs it has worked wonders for the Jyothy Labs and contributes to more than 20% of Henko sales, enabling the Henko brand to make inroads into General Trade outlets, which have otherwise been a tough nut to crack for the company.

Excerpt of Jyothy Labs' commentary on Henko Quarter Comment

Q1FY20 Henko has been a great story; it has grown by 23.3% YoY.

We have done extremely well in the Henko part of our portfolio, which is at the premium end. There is some up gradation happening thanks to

the Rs 10 pack.

Rs 10 Henko is now 20% of our total Henko portfolio.

Q3FY19 We are up 17.5% YoY in the third quarter

We incorporated a significant amount in technology to give you better clothes care and a better fragrance feels over time

Q2FY19 Henko is up 21% YoY

Rs. 10 is an important part; as I said it contributes 10%.

Q1FY19 Launched Rs 10 LUP for Henko

In case of the Henko franchise, we have grown 11%, but it has been on the back of a volume growth of 18%, which has been largely led by the Rs

10 pack.


HUL’s premiumization pyramid

Source: Company

2.9

0.6

0

1

2

3

4

FY18 FY19

RSPL Volume gr (%)

Priya Nair of HUL in a recently concluded investor meet highlighted that customers are shifting directly from Wheel to Surf – as visible from the growth of premium and mass-end segments



HUL in partnership with HSBC opened one more Suvidha Center (Laundromat) in Mumbai, balancing and achieving its CSR and premiumization objectives smartly After our visit to HUL’s Ghatkopar Suvidha Centre, we visited a recently started Suvidha centre in the Malwani area, Malad (Mumbai’s northern suburb) to see how it is operating. Our channel checks suggest that HUL plans to open two more such centres – one in Andheri, a Western suburb, and another in Govandi a central suburbs very close to the famed Dharavi slum. We believe that opening more such Suvidha Centres (Laundromats) is the need of the hour in high-density slum areas across India because of intense water shortages (both quantity and time available), space limitations for washing clothes, and to maintain overall hygiene and sanitation. It is significant that these centres function on a self-sustainable basis and operate on the pay-and-use model through a monthly pass or one-time usage charges. HUL will bear the initial cost of setting up these centres in partnership with NGOs and other corporate houses.

Malad Centre

Our Scuttlebutt champion (Preeyam Tolia) making rounds of Malad centre

Ghatkopar Centre – which we had visited 6 months ago



Interesting tit bits about the Malad centre

The Malad centre started in August 2019 and serves 800 families (approximately +2,000 people) in the Malwani Slums.

Like Ghatkopar, this centre also has a L+2 building structure. The ground floor comprises of washing clothes and drinking water facilities while the other two floors are being allocated for personal hygiene purposes (one floor each for men and women).

For washing clothes, customers can choose a monthly or daily pass. Both centres charge a similar amount – Rs 600 per month for 15 washes or Rs 55 per bucket for a one-time wash. For comfort conditioner, the centre charges an additional Rs 3 per wash. On an average, the centre washes 30 buckets daily.

It is managed by a Mumbai-based NGO – Pratha Samajik Sanstha.

The Malad centre has a dry-waste collection facility under the guidance of UNDP (United Nations Development Programme), which act as a collection point for recycling of garbage.

HUL is a Golden Goose: Don’t let it go HUL’s management is making the right strides across categories, particularly in detergents and soaps, in order to rev up growth via up gradation and premiumization. This is because in most of its mainstream categories, it may have reached maximum penetration levels possible. It also realizes that being a dominant player in terms of market share and distribution, the responsibility of market development lies upon its shoulders.

We believe HUL has taken a lot of initiatives to sustain premiumization in detergent, such as: 1. Launching LUPs. 2. Mainly passing on the benefits of GST rate reduction (to 18% from 28%) to the

premium segment, thereby accelerating premiumization. 3. WIMI approach (Winning in Many India) + CCBT (Cross Country Business Team)

enabled it to become more agile and combat effectively in categories where local/regional players held sway.

Structural factors are in place for the detergent premiumization story to zoom Washing machine penetration: In our view, increasing penetration of new-age washing machine will keep driving a shift towards high-margin and premium (matics and liquids) portfolio, as the ingredients in these products dissolve easily. If clothes are washed in machines using non-matic detergents, there is a high possibility of the steel plates inside the washing machines corroding, reducing the life of the machines.

Hard water: With 80% of India being cursed with hard water (that contains high amounts of potassium and magnesium), the role of premium detergents becomes important in providing a superior quality of wash. Premium detergents (as per HUL, products priced above Rs 120/kg) contain 20-25% active ingredients – that help in converting hard water into soft water, which aids in generating extra foam, which in turn helps ensuring lower quantity of detergent needs to be used and no residues are left inside the washing machine.

Water shortages. This problem is likely to aggravate, across the metros and tier-1 cities if adequate steps are not taken to develop ground water and make adequate water-storage facilities. Creating this mammoth infrastructure will take years though. The best short-term solution is to develop products that consume less water (Rin, based on smart foam technology, and liquids) and those that are environment friendly.

Who is likely to win? Detergent companies (such as HUL) that work closely with washing machine companies, manufacture products that require less water, and ensure that products are environmentally compliant



Short-term pain, long-term gain We believe that long-term investors should stay the course even when near-term stock performance could remain subdued due to: (1) weak volume growth till 3QFY20; economic recovery is likely only towards the end of FY20, (2) a high likelihood of GSK Plc offloading its stake (5.7%) after its merger with HUL (likely in 3QFY20) as it has to make payments for its Novartis acquisition.

In our view, HUL has all the right ingredients – (1) management focus on premiumization, (2) strengthening core categories, (3) focus on improving distribution productivity using digital means, and (4) foray into under-penetrated fast-growing categories to sustain mid to high-single-digit volume growth in the medium term. The GSK Consumer acquisition is a step in the right direction. We have increased our EPS estimates for FY20-22e by 4-6% to account for 1) recent tax changes and 2) better competitive positioning vs peers who are paying lower taxes in key competing categories and maintain our high-conviction BUY with a target of Rs 2,330 (50x FY22 EPS).

Change in estimates as per new tax rate:

Old New Change (%)

Rs (mn) FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E

PBT 97,518 1,29,228 1,50,139 95,112 1,27,815 1,45,952 (2.5) (1.1) (2.8)

Tax provided (29,255) (38,768) (45,042) (23,940) (32,171) (36,736) (18.2) (17.0) (18.4)

Tax rate (%) 30% 30% 30% 25% 25% 25% -500bps -500bps -500bps

PAT 68,262 90,460 1,05,097 71,173 95,644 1,09,216 4.3 5.7 3.9

EPS (Rs) 31.6 38.6 44.8 33.0 40.8 46.6 4.3 5.7 3.9

Source: PhillipCapital Estimates



Financials Income Statement Y/E Mar, Rs mn FY19 FY20E FY21E FY22E

Net sales 3,76,600 4,01,361 5,04,135 5,61,617

Growth, % 11 7 26 11

Other operating income 5,640 6,204 9,774 10,752

Total income 3,82,240 4,07,565 5,13,909 5,72,369

Raw material expenses -1,79,600 -1,90,376 -2,35,114 -2,58,626

Employee expenses -17,470 -18,344 -23,480 -26,415

Other Operating expenses -94,800 -1,00,975 -1,27,334 -1,42,209

EBITDA (Core) 90,370 97,871 1,27,982 1,45,119

Growth, % 24.2 8.3 30.8 13.4

Margin, % 24.0 24.4 25.4 25.8

Depreciation -8,690 -9,227 -11,372 -12,107

EBIT 81,680 88,643 1,16,610 1,33,012

Growth, % 20.2 8.5 31.5 14.1

Margin, % 21.7 22.1 23.1 23.7

Interest paid -880 -968 -1,065 -1,171

Other Income 6,640 7,437 12,271 14,111

Non-recurring Items -2,220 0 0 0

Pre-tax profit 85,220 95,112 1,27,815 1,45,952

Tax provided -24,860 -23,940 -32,171 -36,736

Profit after tax 60,360 71,173 95,644 1,09,216

Growth, % 18.1 13.7 34.4 14.2

Net Profit (adjusted) 60,360 71,173 95,644 1,09,216

Unadj. shares (m) 2,160 2,160 2,345 2,345

Wtd avg shares (m) 2,160 2,160 2,345 2,345

Balance Sheet Y/E Mar, Rs mn FY19 FY20E FY21E FY22E

Cash & bank 36,880 54,534 1,32,305 1,53,287

Marketable securities at cost 26,930 26,930 26,930 26,930

Debtors 16,730 17,830 22,396 24,949

Inventory 24,220 26,391 33,149 36,928

Other current assets 8,980 8,980 8,980 8,980

Total current assets 1,13,740 1,34,665 2,23,760 2,51,075

Investments 20 20 20 20

Gross fixed assets 66,340 76,340 3,48,010 3,48,010

Less: Depreciation -16,160 -25,387 -36,760 -48,867

Add: Capital WIP 3,730 3,730 3,730 3,730

Net fixed assets 53,910 54,683 3,14,980 3,02,873

Non-current assets 5,610 5,610 5,610 5,610

Total assets 1,85,400 2,07,098 5,56,490 5,71,698

Current liabilities 83,530 97,830 1,18,022 1,20,200

Provisions 10,490 11,180 14,042 15,644

Total current liabilities 94,020 1,09,010 1,32,064 1,35,844

Non-current liabilities 15,290 15,290 12,803 12,803

Total liabilities 1,09,310 1,24,300 1,44,867 1,48,647

Paid-up capital 2,160 2,160 2,345 2,529

Reserves & surplus 73,930 80,638 4,09,278 4,20,521

Shareholders’ equity 76,090 82,798 4,11,623 4,23,050

Total equity & liabilities 1,85,400 2,07,098 5,56,490 5,71,698

Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY19 FY20E FY21E FY22E

Pre-tax profit 85,220 95,112 1,27,815 1,45,952

Depreciation 8,690 9,227 11,372 12,107

Chg in working capital 5,220 11,719 9,244 -2,554

Total tax paid -25,700 -23,940 -32,171 -36,736

Other operating activities -12,150 0 9,487 11,185

Cash flow from operating activities 61,280 92,119 1,25,748 1,29,954

Capital expenditure -16,880 -10,000 -2,71,670 0

Chg in marketable securities 1,620 0 0 0

Other investing activities 12,620 0 2,60,670 -11,000

Cash flow from investing activities -2,640 -10,000 -11,000 -11,000

Free cash flow 58,640 82,119 1,14,748 1,18,954

Equity raised/(repaid) -21,800 0 3,17,157 185

Dividend (incl. tax) -56,729 -64,465 -83,977 -97,973

Other financing activities 19,909 0 -3,17,157 -185

Cash flow from financing activities -58,620 -64,465 -83,977 -97,973

Net chg in cash 20 17,654 30,771 20,982

Valuation Ratios

FY19 FY20E FY21E FY22E

Per Share data

EPS (INR) 27.9 33.0 40.8 46.6

Growth, % 18.1 13.7 23.8 14.2

Book NAV/share (INR) 35.2 38.3 175.5 180.4

FDEPS (INR) 29.0 33.0 40.8 46.6

CEPS (INR) 34.0 37.2 45.6 51.7

CFPS (INR) 31.3 39.2 44.3 44.6

DPS (INR) 22.0 25.0 30.0 35.0

Return ratios

Return on assets (%) 34.3 36.8 25.3 19.6

Return on equity (%) 82.2 86.0 23.2 25.8

Return on capital employed (%) 65.5 68.3 35.3 24.8

Turnover ratios

Asset turnover (x) 43.3 66.0 3.9 2.2

Sales/Total assets (x) 2.1 2.0 1.3 1.0

Sales/Net FA (x) 7.6 7.4 2.7 1.8

Working capital/Sales (x) (0.1) (0.1) (0.1) (0.1)

Receivable days 16.2 16.2 16.2 16.2

Inventory days 23.5 24.0 24.0 24.0

Payable days 88.4 99.8 104.5 105.2

Working capital days (32.6) (40.6) (38.7) (32.1)

Liquidity ratios

Current ratio (x) 1.4 1.4 1.9 2.1

Quick ratio (x) 1.1 1.1 1.6 1.8

Interest cover (x) 92.8 91.6 109.5 113.6

Net debt/Equity (%) (48.5) (65.9) (32.1) (36.2)

Valuation

PER (x) 68.0 59.8 48.3 42.3

PEG (x) - y-o-y growth 3.8 4.4 2.0 3.0

Price/Book (x) 55.9 51.4 11.2 10.9

EV/Net sales (x) 11.1 10.4 8.8 7.9

EV/EBITDA (x) 46.4 42.6 34.8 30.6

EV/EBIT (x) 51.3 47.1 38.2 33.4



Stock Price, Price Target and Rating History

Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year.

Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%

SELL <= -15% Target price is less than or equal to -15%.

N (TP 870) N (TP 870)

N (TP 1070)

N (TP 1070) N (TP 1215)

N (TP 1300)

B (TP 1585)

B (TP 1670)

B (TP 1650)

N (TP 1720)

N (TP 1760)

B (TP 2160)

B (TP 2160)

B (TP 2160)

B (TP 2170) B (TP 2000)

700

800

900

1000

1100

1200

1300

1400

1500

1600

1700

1800

1900

2000

O-16 N-16 J-17 F-17 A-17 M-17 J-17 A-17 O-17 N-17 J-18 M-18 A-18 J-18 J-18 S-18 O-18 D-18 J-19 M-19 M-19 J-19 A-19



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any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co-managed in the previous twelve months, a private or public offering of securities for

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connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report:

Sr. no. Particulars Yes/No

1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No

4 PCIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the company(ies) covered in the Research report

No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

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