Firstcall India Equity Advisors Pvt Ltd 1
Hindustan Unilever Limited (HUL)
BUY Target Price: Rs.327.00
CMP: Rs.282.95 Market Cap. : Rs.617085.66mn.
Date: November 2, 2009
Key Ratios:
Particulars FY09
(15 m)
FY10E
(12 m)
FY11E
(12 m)
OPM (%) 16 15 15
NPM (%) 12 12 12
ROE (%) 121 51 36
ROCE (%) 122 56 40
P/BV(x) 29.93 14.64 9.39
P/E(x) 24.71 28.66 26.21
EV/EBDITA(x) 19.10 24.85 25.35
Debt equity ratio 0.20 0.11 0.08
Key Data:
Sector FMCG
Face Value Rs.1.00
52 wk. High/Low Rs. 306.00/210.00
Volume (2 wk. Avg.) 200198
BSE Code 500696
SYNOPSIS
• HUL is India's largest Fast FMCG Company, touching
the lives of two out of three Indians with over 20
distinct categories in Home & Personal Care
Products and Foods & Beverages.
• HUL has leading market shares ranging from 23%-
63% across diverse product.
• The company has announced the launch of Lipton
Clear Green. Lipton has launched its green tea
variant in four exciting flavors 'Green Tea Jasmine,
Green Tea Mint, Green Tea Citrus and Green Tea
Pure.
• Hindustan Unilever (HUL) National Long-term rating
at `AAA (Ind). The Outlook is Stable.
• Hindustan Unilever has one of the best distribution
network coverage in India, which will work as a
catalyst for the company to be a Leader in the rural
area too.
• The company’s top line and bottom line are
expected to grow at a CAGR of 13% and 10% over
FY08 to FY11E.
Share Holding Pattern:
V.S.R. Sastry
Vice President
Equity Research Desk
91-22-25276077
Dr. V.V.L.N. Sastry Ph.D.
Chief Research Officer
Firstcall India Equity Advisors Pvt Ltd 2
Table of Content
Content Page No.
1. Investment Highlights 03
2. Peer Group Comparison 07
3. Key Concerns 07
4. Financials 08
5. Charts & Graph 10
6. Outlook and Conclusion 12
7. Industry Overview 13
Firstcall India Equity Advisors Pvt Ltd 3
Investment Highlights • Result Updates (Q2FY10)
For the Second quarter, the top line of the company increased 4%YoY and stood at
Rs.42692.30mn against Rs.41109.10mn of the same period of the last year. The bottom
line of the company for the quarter stood at Rs.4285.30mn from Rs.5466.10mn of the
corresponding period of the previous year i.e. a decrease of 22%YoY.
EPS of the company for the quarter stood at Rs.1.96 for equity share of Rs.1.00 each.
Firstcall India Equity Advisors Pvt Ltd 4
Expenditure for the quarter stood at Rs.37524.50mn, which is around 9% higher than
the corresponding period of the previous year. Raw material cost of the company for
the quarter accounts for 39% of the sales of the company and stood at Rs.16539.50mn.
Employee cost stood at Rs.2357.90mn from Rs.2294.70mn. and accounts for 6% of the
revenue of the company for the quarter i.e., an increase of 3%YoY.
OPM and NPM for the quarter stood at 13% and 10% respectively from 16% and 13%
respectively of the same period of the last year.
Firstcall India Equity Advisors Pvt Ltd 5
• Segment-Wise revenue for the quarter
Segment Revenue (Rs. million)
Soaps & Detergents 20,036.90
Personal Products 11,901.80
Beverages 5,215.80
Export 2,270.00
Processed Foods 1,739.20
Ice Creams 503.6
Others 1,070.50
Total 42,737.80
Firstcall India Equity Advisors Pvt Ltd 6
• Hindustan Unilever Ltd. Sings an Amicable Settlement for Erstwhile Sewree Factory
Issue
Hindustan Unilever Ltd. and the Hindustan Lever Employee Union, the Union
representing erstwhile workers at Sewree factory have signed an amicable settlement
with regard to all the pending issues and cases pertaining to the erstwhile undertaking
at Sewree including closure of the factory. The settlement will benefit about 800
workers. The settlement was signed by the parties in the presence of Kavita Gupta, the
Labour Secretary, Government of Maharashtra.
As per the settlement agreed, the workers of the erstwhile Sewri factory will receive the
VRS offered at the time of closure of the factory. The VRS included last drawn salary till
the due date of retirement. The Sewree factory was closed on July 26, 2006 in line with
the order passed by the Labour Commissioner of Maharashtra.
• Hindustan Unilever Ltd. Announces the Launch of Lipton Clear Green
The company has announced the launch of Lipton Clear Green. Lipton has launched its
green tea variant in four exciting flavors 'Green Tea Jasmine, Green Tea Mint, Green Tea
Citrus and Green Tea Pure. Encased in an attractive green color packaging, the all-new
Lipton Clear Green tea is a natural source of anti-oxidants. These will be available in
teabags across India in leading supermarkets. Lipton Clear Green combines the
goodness of the green tea's flavonoid antioxidants (AOX) with the purifying effect of
water to help cleanse your body naturally.
• Rating
Credit rating agency, Fitch Ratings has affirmed India-based Hindustan Unilever (HUL)
National Long-term rating at `AAA (Ind). The Outlook is Stable. The ratings affirmation is
underpinned by HUL`s low business risk and strong financial risk profile. The ratings also
factor in the company`s consistently zero net debt status, positive free cash flows, and
status as the largest Indian FMCG company. HUL has leading market shares ranging from
23%-63% across diverse product.
• HUL postpones Capgemini stake sale by a year
The company has decided to defer its plan of divesting 49% stake in its BPO unit to
Capgemini SA by March 2010. The company had earlier scheduled to acquire the stake
by March 2009. It is learnt that the maker of Lifebuoy soaps and Surf detergent has
amended the shareholder's agreement with Capgemini SA allowing it to exit a year later
than originally planned.
Firstcall India Equity Advisors Pvt Ltd 7
Peer Group Comparison
Name of the
company
CMP(Rs.)
(As on
November
2,2009)
Market Cap.
(Rs. Mn.)
EPS
(Rs.)
P/E (x) P/BV
(x)
Dividend
(%)
(FY08)
HUL 282.95 617085.66 9.63 29.38 29.94 750.00
Marico Ltd 97.60 59454.40 2.82 34.61 16.16 65.50
P & G 1440.00 46743.50 55.82 25.80 10.62 225.00
Dabur India 151.85 131466.20 4.58 33.16 17.80 175.00
Key Concerns
• Highly competition
• The economy slowdown
• Steady loss in market share
• High initial launch of cost
• Limited mass media option
Firstcall India Equity Advisors Pvt Ltd 8
Financials
Results Update
12 months ended Profit and Loss A/C (Standalone):
Value(Rs. in million) CY07A *FY09A FY10E FY11E
Description 12m 15m 12m 12m
Net Sales 137,177.50 206,015.60 181074.30 199181.73
Other Income 4,626.80 2,055.50 2096.61 2138.54
Total Income 141,804.30 208,071.10 183170.91 201320.27
Expenditure -118,320.50 -175,776.70 -155361.75 -170897.92
Operating Profit 23,483.80 32,294.40 27809.16 30422.35
Interest -255 -253.2 -167.09 -183.80
Gross Profit 23,228.80 32,041.20 27642.07 30238.55
Depreciation -1,383.60 -1,953.00 -1701.83 -1872.01
Profit before Tax 21,845.20 30,088.20 25940.24 28366.54
Tax -4,154.60 -5,035.60 -4409.84 -4822.31
Profit after Tax 17,690.60 25,052.60 21530.40 23544.22
Extraordinary items 1,564.10 -88.1 - -
Net Profit 19,254.70 24,964.50 21530.40 23544.22
Equity Capital 2,177.50 2,179.90 2180.90 2180.90
Reserves 12,208.20 18,428.50 39958.90 63503.12
EPS 8.84 11.45 9.87 10.80
Firstcall India Equity Advisors Pvt Ltd 9
Quarterly ended Profit and Loss A/C (Standalone):
Value(Rs.in million) 31-Mar-09 30-Jun-09 30-Sep-09 31-Dec-09 E
Description 3m 3m 3m 3m
Net Sales 40,353.70 45026.30 42692.30 45253.84
Other Income 202.6 335.40 472.80 496.44
Total Income 40,556.30 45361.70 43165.10 45750.28
Expenditure -35,461.40 -37848.40 -37524.50 -39370.84
Operating Profit 5,094.90 7513.30 5640.60 6379.44
Interest -22.1 -51.70 -14.80 -15.24
Gross Profit 5,072.80 7461.60 5625.80 6364.19
Depreciation -412.5 -424.90 -462.40 -476.27
Profit before Tax 4,660.30 7036.70 5163.40 5887.92
Tax -710.4 -1642.50 -878.10 -942.07
Profit after Tax 3,949.90 5394.20 4285.30 4945.86
Extraordinary items - 37.70 - -
Net Profit 3,949.90 5431.90 4285.30 4945.86
Equity Capital 2,179.90 2180.50 2180.90 2180.90
EPS 1.81 2.49 1.96 2.27
*NOTE: Change in Accounting Period
Till December 2007, the company was following its Financial Year end from January to
December. Going forward, the Company has changed it Financial Year end from December to
March. The Financial Statement for March 2009, reflect the figure for 15 months.
Firstcall India Equity Advisors Pvt Ltd 12
1 Year Comparative Graph
Outlook and Conclusion
• At the market price of Rs.282.95, the stock is trading at 28.66 x and 26.21 x for FY10E and
FY11E respectively.
• On the basis of EV/EBDITA, the stock trades at 24.85 x for FY10E and 25.35 x for FY11E.
• Price to book value of the company is expected to be at 14.64 x for FY10E and 9.39 x for
FY11E respectively.
• EPS of the company is expected to be at Rs.9.87 and Rs.10.80 for the earnings of FY10E and
FY11E respectively.
• The company’s top line and bottom line is expected to grow at a CAGR of 13% and 10% over
FY08 to FY11E.
• Hindustan Unilever Ltd. Sings an Amicable Settlement for Erstwhile Sewree Factory Issue.
HIND.UNILEVER BSE SENSEX
Firstcall India Equity Advisors Pvt Ltd 13
• The company has announced the launch of Lipton Clear Green. Lipton has launched its
green tea variant in four exciting flavors 'Green Tea Jasmine, Green Tea Mint, Green Tea
Citrus and Green Tea Pure.
• Credit rating agency, Fitch Ratings has affirmed India-based Hindustan Unilever (HUL)
National Long-term rating at `AAA (Ind). The Outlook is Stable.
• The company has decided to defer its plan of divesting 49% stake in its BPO unit to
Capgemini SA by March 2010.
• We recommend ‘BUY’ this stock with a target price of Rs.327.00 for long term perspective.
Industry Overview
Fast Moving Consumer Goods (FMCG) goods are popularly named as consumer packaged
goods. Items in this category include all consumables (other than groceries/pulses) people buy
at regular intervals. The most common in the list are toilet soaps, detergents, shampoos,
toothpaste, shaving products, shoe polish, packaged foodstuff, and household accessories and
extends to certain electronic goods. These items are meant for daily of frequent consumption
and have a high return.
A major portion of the monthly budget of each household is reserved for FMCG products. The
volume of money circulated in the economy against FMCG products is very high, as the number
of products the consumer use is very high. Competition in the FMCG sector is very high
resulting in high pressure on margins.
FMCG companies maintain intense distribution network. Companies spend a large portion of
their budget on maintaining distribution networks. New entrants who wish to bring their
products in the national level need to invest huge sums of money on promoting brands.
Manufacturing can be outsourced. A recent phenomenon in the sector was entry of
multinationals and cheaper imports. Also the market is more pressurized with presence of local
players in rural areas and state brands.
Scope of the Sector
The Indian FMCG sector with a market size of US$13.1 billion is the fourth largest sector in the
economy. A well-established distribution network, intense competition between the organized
and unorganized segments characterizes the sector. FMCG Sector is expected to grow by over
60% by 2010. That will translate into an annual growth of 10% over a 5-year period. It has been
estimated that FMCG sector will rise from around Rs 56,500 crores in 2005 to Rs 92,100 crores
Firstcall India Equity Advisors Pvt Ltd 14
in 2010. Hair care, household care, male grooming, female hygiene, and the chocolates and
confectionery categories are estimated to be the fastest growing segments, says an HSBC
report. Though the sector witnessed a slower growth in 2002-2004, it has been able to make a
fine recovery since then.
For example, Hindustan Levers Limited (HUL) has shown a healthy growth in the last quarter.
An estimated double-digit growth over the next few years shows that the good times are likely
to continue.
Growth Prospects
With the presence of 12.2% of the world population in the villages of India, the Indian rural
FMCG market is something no one can overlook. Increased focus on farm sector will boost rural
incomes, hence providing better growth prospects to the FMCG companies. Better
infrastructure facilities will improve their supply chain. FMCG sector is also likely to benefit
from growing demand in the market. Because of the low per capita consumption for almost all
the products in the country, FMCG companies have immense possibilities for growth. And if the
companies are able to change the mindset of the consumers, i.e. if they are able to take the
consumers to branded products and offer new generation products, they would be able to
generate higher growth in the near future. It is expected that the rural income will rise in 2007,
boosting purchasing power in the countryside. However, the demand in urban areas would be
the key growth driver over the long term. Also, increase in the urban population, along with
increase in income levels and the availability of new categories, would help the urban areas
maintain their position in terms of consumption. At present, urban India accounts for 66% of
total FMCG consumption, with rural India accounting for the remaining 34%. However, rural
India accounts for more than 40% consumption in major FMCG categories such as personal
care, fabric care, and hot beverages. In urban areas, home and personal care category,
including skin care, household care and feminine hygiene, will keep growing at relatively
attractive rates. Within the foods segment, it is estimated that processed foods, bakery, and
dairy are long-term growth categories in both rural and urban areas.
Indian Competitiveness and Comparison with the World Markets
The following factors make India a competitive player in FMCG sector:
• Availability of raw materials
Because of the diverse agro-climatic conditions in India, there is a large raw material base
suitable for food processing industries. India is the largest producer of livestock, milk,
sugarcane, coconut, spices and cashew and is the second largest producer of rice, wheat and
fruits &vegetables. India also produces caustic soda and soda ash, which are required for the
production of soaps and detergents. The availability of these raw materials gives India the
location advantage.
Firstcall India Equity Advisors Pvt Ltd 15
• Labor cost comparison
Low cost labor gives India a competitive advantage. India's labor cost is amongst the lowest in
the world, after China & Indonesia. Low labor costs give the advantage of low cost of
production. Many MNC's have established their plants in India to outsource for domestic and
export markets.
• resence across value chain
Indian companies have their presence across the value chain of FMCG sector, right from the
supply of raw materials to packaged goods in the food-processing sector. This brings India a
more cost competitive advantage. For example, Amul supplies milk as well as dairy products
like cheese, butter, etc.
_________________________________________________________
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but we do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
Firstcall India Equity Advisors Pvt Ltd 16
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