28 April 2014
4QFY14 Results Update | Sector:
Consumer
Hindustan Unilever
BSE SENSEX
22,632
Bloomberg
Equity Shares (m)
MCap INR b/USD b
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
6,761
HUVR IN
2,162.7
1,255.7/20.7
725/458
-4/-12/7
CMP: INR581
TP: INR550
Sell
Financials & Valuation (INR Billion)
Y/E MAR
Net Sales
EBITDA
Adj PAT
AdjEPS(INR)
Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (X)
2014 2015E 2016E
274.1
45.3
36.1
16.4
7.3
26.8
61.4
83.5
35.3
21.7
311.1
51.0
38.9
18.0
9.5
31.3
57.5
80.3
32.2
18.5
354.1
58.5
44.1
20.4
13.4
36.5
55.9
79.0
28.4
15.9
Hindustan Unilever’s (HUVR) 4QFY14 performance was largely in line with our
expectations. Net revenue grew 9.7% to INR70.9b (est. INR69.8b), led by volume
growth of 3% (est. 3%), EBITDA grew 10.9% to INR10.8b (est. INR10.5b) and
recurring PAT posted a growth of 6.6% to INR8.32b (est. INR8.25b).
Key positives: a) gross margin expansion of 50bp, b) strong 200bp margin
expansion in Beverages.
Key negatives: a) single digit sales growth in Soaps and Detergents and Personal
Products division, b) subdued 5.1% EBIT growth in Personal products.
Gross margin expansion of 50bp to 47.4% (est. 47.4%) was driven by price hikes in
Soaps and curtailment of promotions.
Soaps and Detergents revenue grew 9.6% driven by pricing. EBIT grew 10.1%, with
10bp margin expansion to 12.1%.
Personal products sales grew 8.3% led by double digit growth in Hair Care. PP
margins contracted 80bp YoY to 25% on account of higher adpro spends in Oral
Care. F&L re-launch is yielding positive response, as per management.
Management call highlights:
a) slowdown is universal – across categories,
geographies, b) some downtrading witnessed – small packs finding greater
acceptance, c)
TRESemme
is on the verge of crossing INR1b brand milestone
without cannibalizing existing brands, d) water business has delivered profits for
both FY13 and FY14, e) FY15 effective tax rate to be higher by 250bp.
Valuation and view:
HUVR’s 4QFY14 performance and management commentary
does not indicate any imminent trend reversal. Valuation at 32.4x FY15E and
28.8x FY16E remains rich, in our view, given the context of subdued volume
growth. Maintain
Sell
with a one-year forward revised target price of INR550 (27x
FY16E EPS). Reversal in consumer sentiments is the key upside risk.
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +91 22 3982 5404
Manish Poddar
(Manish.Poddar@MotilalOswal.com); +91 22 3027 8029
Investors are advised to refer through disclosures made at the end of the Research Report.

Hindustan Unilever
4Q Volumes up 3%; Gross and EBITDA margins expands 50bp and 20bp YoY;
respectively
Sales grew 9.7% to INR70.9b (est. INR69.8b), led by volume growth of 3% (est.
3%). Domestic FMCG business growth at 9% was similar to 3Q14 performance,
with HPC growing at 9% and Foods reporting a growth of 9.2%.
Volume growth for the quarter came in at 3%. However adjusting for the
pipeline filling in base quarter ahead of transporter’s strike, volume growth
would have been ~4%.
Gross margin expanded of 50bp to 47.4% led by price hikes and curtailment of
promotions, in line with our expectations.
Ad-spends contracted 90bp YoY to 11.8% (lowest since 4Q12); however
advertising expenses increased while promotion intensity came off.
EBITDA increased 10.9% to INR10.8b (est. INR10.5b) as margins expanded 20bp
to 15.2% (est. 15.1%) as higher staff (50bps) and other expenses (70bps) were
offset by reduced Ad spends.
Despite 42% growth in other income, recurring PAT grew 6.6% to INR8.32b (est.
INR8.25b) as recurring tax rate expanded 540bps YoY to 28.1%. This was owing
to completion of tax holidays at certain manufacturing locations. Management
has guided for 250bps higher tax rate in FY15 vs. 26% of FY14.
3% volume growth lowest in 18 quarters
10
18.7
7
9.0
8
2
2
1
5
11
14
13
10
8
14
10
10
9 9
5
9
6
5
4
4
3
Domestic FMCG sales up 9%
24
18
12
6
0
FMCG Sales Growth (%)
21.2
9.7
-4
Source: Company, MOSL
Pricing growth picks up QoQ
Source: Company, MOSL
26
18
10
2
-6
9.6
18.9
6.0
Pricing growth %
7.0
(4.3)
6.8
6.0
Source: Company, MOSL
28 April 2014
2

Hindustan Unilever
Gross and EBITDA margins expand 50bps and 20bps, respectively
Gross Margins (%)
EBITDA Margins (%)
ASP down 90bps YoY; lowest in eight quarters
15.4
14.3
13.6
Advertising & Promotion
14.5
12.5
11.6
11.3
11.7
11.6
12.8
12.2
12.7
12.4
13.1
13.8
12.9
11.8
49.7 49.3 47.4
46.5 44.9 46.5 48.3 45.8 47.2 48.2 48.6 46.9 48.9
13.0 13.5 14.7 16.3 14.5 15.2 15.5 16.4 15.0 15.9 15.7 17.0 15.2
Source: MOSL, Company
Source: MOSL, Company
Soaps and
Detergents
S&D posted high single digit sales growth
Soaps and Detergent: S&D sales grew 9.6% YoY with Soaps performance led by
pricing while Detergents saw mix improvement with Surf delivering double digit
growth.
Skin cleansing witnessed double digit growth driven by pricing action to offset
palm oil inflation. The liquids portfolio registered accelerated growth.
Detergents performance was driven by Surf & Rin while Wheel is seeing good
traction after the re-launch in 3Q14.
Margins expanded marginally (10bp) YoY to 12.1% driven by pricing actions and
promotions withdrawal in Detergents.
For FY14, S&D volumes and sales grew 5% and 8%, respectively.
S&D EBIT margins flat YoY
S&D EBIT Margin (%)
12.4
9.6%
13.4
11.3
14.3
12.2
12.4 12.0 12.9
14.0
13.3
12.1
30%
20%
10%
0%
-10%
25%
S&D revenue growth (%)
28.4%
6.3%
-2.4%
9.2
7.5
Source: MOSL, Company
Source: MOSL, Company
Personal Products
Personal Products: Sales grew 8.3%, led by double digit growth in Hair Care. As
per management, TRESemme is on the verge of becoming an INR1 bn brand.
However, sachets and small packs outperformed bottles in Hair Care.
F&L was re-launched towards the end of 2Q14 with changed packaging and
formulation. As per management, it is yielding positive response and consumers
who deserted the brand are coming back.
Oral Care performance was mixed. Pepsodent was impacted by high competitive
intensity in the category while Close Up delivered positive growth.
3
28 April 2014

Hindustan Unilever
EBIT margins contracted 80bps YoY to 25.0% owing to higher adspends in Oral
Care & higher investments in moulds.
While PP EBIT margins contracted 80bps YoY
PP sales up 8.3%
PP revenue growth (%)
24 18.6
18
12
6
0
1.9
20.2
15.5
9.6
13.0
11.8
2.0
8.3
PP EBIT margin (%)
32.8
31.9
28.8
24.7
22.0
21.8
27.9
28.3
28.6
22.8
25.0
Source: MOSL, Company
EBIT contribution of key HPC categories
64.9
49.9
55.9 54.1
47.0
47.2 49.8
S&D
53.0
48.7
PP
53.0
43.0
46.2
36.6 37.5
23.0
25.4
30.9
38.4 36.4 37.3 39.5
36.1
47.8
Source: MOSL, Company
54.0
43.3 41.3
43.9
46.0
38.8 40.6
36.9 39.1
Source: MOSL, Company
Volume growth has decelerated across categories over the last three years
HUL
Category
Soaps and Detergents
Personal Products
Beverages
Processed Foods
Company
Volume growth
FY12
FY13
5.9
8.0
17.0
6.0
5.6
5.0
11.9
3.0
9.0
7.0
FY14
5.0
4.0
3.0
3.0
4.0
FY12
20.8
17.3
11.6
15.5
18.0
Sales growth
FY13
19.0
13.0
13.0
10.0
16.0
FY14
8.0
9.0
12.0
10.0
9.0
Source: MOSL, Company
Beverages & Processed Foods
Beverages:
Sales were up 7.5% YoY (higher base) driven by volumes as pricing
component has fade off further. Tea posted double digit growth driven by
volumes while Tea bags more than doubled sales in 4Q. Tea growth was led by
Taj Mahal, Red Label and 3 Roses which grew in double digits as per
management.
Margins expanded 190bps YoY to 18.8%. EBIT grew 19.7% YoY.
Processed Foods:
Sales growth of 12.7% was led by Kissan, Knorr Soups (more
than doubled volumes YoY) and Ice Creams (extension of Magnum to 4 more
cities and strong market execution of Kwality Walls before the season). EBIT
posted solid 64.4% growth with 170bps YoY margin expansion to 5.5%.
4
28 April 2014

Hindustan Unilever
Beverages EBIT margins up 190bps
Beverages EBIT margins (%)
16.8
12.9
17.7
15.7
14.4
13.4
12.4
18.3
18.8
16.2
Processed foods margins continue to remain volatile
Processed Foods EBIT margins (%)
4.7 5.0
(1.9) (1.1)
5.7
3.8
0.2
(0.8)
(3.6)
8.4
5.5
3.3
Source: MOSL, Company
Source: MOSL, Company
Segmental snapshot
Segmental
Net Sales (INR m)
Soaps and Detergents
Personal Products
Beverages
Processed Foods
Others
EBIT (INR m)
Soaps and Detergents
Personal Products
Beverages
Others
EBIT Margin %
Soaps and Detergents
Personal Products
Beverages
Processed Foods
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14
31,631 31,762 31,712 31,914 34,077 33,808 33,979 34,971
18,471 17,445 20,489 18,311 18,834 19,503 23,039 19,833
6,541 7,196 7,929 8,081 7,574 8,354 8,500 8,690
4,370 3,663 3,301 3,723 4,579 3,980 3,728 4,197
2,640 2,884 2,902 2,502 2,791 3,049 2,766 2,958
3,852
4,757
950
-43
12.2
25.8
14.5
5.7
4,536
4,226
1,031
21
14.3
24.2
14.3
0.2
3,937
5,789
1,404
-186
12.4
28.3
17.7
-0.8
3,830
4,717
1,362
-181
12.0
25.8
16.9
3.8
4,393
4,682
1,387
-31
12.9
24.9
18.3
8.4
4,739
4,449
1,417
46
14.0
22.8
17.0
3.3
4,509
6,592
1,373
-135
13.3
28.6
16.2
-3.6
4,217
4,958
1,630
-251
12.1
25.0
18.8
5.5
Chg. %
9.6
8.3
7.5
12.7
18.2
10.1
5.1
19.7
38.6
Source: Company, MOSL
Key raw material prices up; price hikes neutralize impact
Average PFAD and LAB prices were up 54% and 11% YoY, respectively.
HUL however implemented price hikes/cut in promotions to neutralize the RM
inflation impact and delivered 50bps gross margin improvement.
LAB prices up 11% YoY
LAB Prices (INR/Kg)
116
32,159
36,402
112
48,148
79
95
90 85 86
82
109
114
119
121
138
132
Average PFAD prices up 54% YOY and 5% QoQ
PFAD prices (INR/MT)
40,732
45,660
30,671
Source: MOSL, Company
Source: MOSL, Company
28 April 2014
5

Hindustan Unilever
Concall highlights:
Macro
Slowdown in growth across categories persists (both in volume and value
terms).
Slowdown is broad based across channels and geographies. Though sharper in
Modern Trade.
Premium segments under pressure – higher growth price point packs/small
SKU’s.
Pricing actions going ahead will be implemented in judicious/measured manner.
Lead indicators to look for recovery: inflation, economic growth, disposable
income and consumer confidence.
Downtrading: not as severe as 2009 but some downtrading is witnessed.
Soaps & Detergents
Soaps – driven by pricing action. Dove, Pears, Lifebuoy and Breeze
outperformed.
Detergents – premium segments drove growth (Surf).
Wheel showing traction after re-launch of last quarter. Rin powders re-launched
in 4Q14.
Vim is now an INR 10bn brand.
Personal Care
Skin Care – Fair & Lovely re-launch showing positive results. Regaining
consumers who had moved away from the brand.
Hair Care – Shampoos deliver strong performance led by Dove, Clinic Plus and
TRESemme (on the verge of becoming INR 1bn brand). TRESemme is not
cannibalizing from existing Shampoo brands.
Sachets outgrowing bottles.
Oral Care – Close up doing well (small packs driving performance) but Pepsodent
impacted by competitive intensity.
Other divisions
Tea – double digit growth in Taj Mahal, Red Label and 3 Roses. Value growth
moderating due to fading off pricing component.
Packaged Foods – only category to deliver double digit growth in 4Q14. Knorr
Soups doubled volumes.
Ice-cream: extended Magnum to four more cities – now present in total five
markets.
Water – Pureit Ultima (premium variant) launched during 4Q14. Premium
innovations doing well in challenging environment.
Water business has been positive on bottom-line for both FY13 and FY14.
Competition & Ad-spends
Competitive intensity high across HPC categories.
Higher advertising offset by lower promotional activity.
28 April 2014
6

Hindustan Unilever
Miscellaneous
Tax rate higher (28.1% vs. 22.4%) due to lower profits from tax incentive sites.
Tax rate for FY15- to be higher by 250-300bps.
Other expenses higher on the back of higher mould costs (for personal care
products), rising fuel costs and shift in certain sourcing methods.
50bps increase in royalty for FY15 as part of royalty arrangement approved in
FY13.
Higher employee costs (up 21% in 4Q14) – offsets with higher other operating
income
Valuation and view: Expensive valuations + weak volume growth backdrop;
Maintain Sell
HUL’s 4QFY14 performance largely met our expectations on key parameters.
Though 3% volume growth is competitive, it does not justify the premium
valuations it commands, in our view.
Continued softening in PP margins has long term profitability implications in we
believe. Recovery in F&L holds the key for margins, going ahead, in our view.
Valuations (32.2x FY15E and 28.8x FY16E) still remain rich despite recent
underperformance. Maintain SELL with TP of INR 550 (27x FY16 EPS).
Reversal in consumer sentiment is a key upside risk.
Relative valuations have corrected a bit
P/E multiple still rich
45.0
35.0
26.6
25.0
15.0
25.8
18.7
PE (x)
Median(x)
Peak(x)
Min(x)
Avg(x)
39.3
31.9
200
150
100
50
0
-50
Hind. Unilever PE Relative to Sensex PE (%)
LPA (%)
79.0
120.9
Source: Company, MOSL
Source: Company, MOSL
28 April 2014
7

Hindustan Unilever
Story in Charts
Sales growth moderated to high single digits in FY14
Sales (INR m)
16.0
10.6
12.1
13.5
Sales gr (%)
13.8
..led by softness in broad based portfolio volume growth
Volume gr (%)
13.0
9.3
6.8
4.8
4.0
8.7
3.3
FY11
FY12
FY13
FY14
FY15E
FY16E
FY09
FY10
FY11
FY12
FY13
FY14
Source: Company, MOSL
Source: Company, MOSL
EBITDA margins were up 50bos YoY
Gross Margin (%)
49.9
48.9
46.9
47.7
EBITDA Margin (%)
48.8
49.0
49.3
Driven by 100bps increase in S&D EBIT margins
PP (%)
27.1
25.7
14.3
9.5
25.6
S&D (%)
25.5
26.1
25.5
15.3
15.5
13.6
14.9
15.5
16.0
16.1
16.2
11.6
12.1
13.1
FY10
FY11
FY12
FY13
FY14
FY15E
FY16E
FY09
FY10
FY11
FY12
FY13
FY14
Source: Company, MOSL
Source: Company, MOSL
Increasing tax rate owing to completion of tax holidays
Tax Rate (%)
23.8
25.9
28.0
29.0
PAT growth down to mid single digits in FY14
PAT (INR m)
23.5
27.8
7.3
-0.2
9.5
13.4
PAT gr (%)
23.1
22.6
FY11
FY12
FY13
FY14
FY15E
FY16E
FY11
FY12
FY13
FY14
FY15E
FY16E
Source: Company, MOSL
Source: Company, MOSL
28 April 2014
8

Hindustan Unilever
Hindustan Unilever: an investment profile
Company description
HUL is the largest company in the FMCG industry, with
market leadership in soaps, detergents and personal
care categories. It has a wide distribution network with
direct reach of over 1m retail outlets. The company is a
subsidiary of Anglo Dutch FMCG giant Unilever.
Recent developments
Relaunched Pears and Wheel.
Introduced Lakme Winter Moisturizer.
Valuation and view
We are maintaining our
Sell
rating owing to
expensive valuations and subdued demand outlook.
HUVR’s valuations (32x FY15E and 28x FY16E) does
not leave any margin for error given the market
context of slowing consumption growth.
Key investment argument
Market leader in most of the categories and has
strong brands.
Wide product range across categories, with
presence at all price points.
Decline in raw material prices would result in
margins improvement.
Sector view
have a cautious view on the sector on back of
inflationary pressure in the economy.
Companies with competitive position would be
better placed to withstand any slowdown in a
particular segment.
Longer term prospects bright, given rising incomes
and low penetration.
We prefer companies with earnings visibility in an
environment where consumption is moderating.

We
Key investment risk
Slowdown in GDP is showing lagged impact on
consumption. This poses biggest risk to HUL’s
volumes.
Competitive pressure has intensified with more
companies entering personal care and toilet soap
and detergents, which account for 80% of HUL'
profits.
Comparative valuations
P/E (x)
FY15E
FY16E
EV/EBITDA (x) FY15E
FY16E
EV/Sales (x)
FY15E
FY16E
P/BV (x)
FY15E
FY16E
HUVR
32.3
28.5
23.1
19.9
3.8
3.3
18.5
15.9
ITC
26.6
23.1
17.6
15.3
6.6
5.7
10.8
9.9
Nestle
34.4
29.7
19.9
17.2
4.3
3.7
17.3
15.4
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY15
FY16
18.0
20.4
Consensus
Forecast
18.3
20.6
Variation
(%)
-1.9
-0.8
Target price and recommendation
Current
Price (INR)
581
Target
Price (INR)
550
Upside
(%)
-5.3
Reco.
Sell
Shareholding pattern (%)
Mar-14
Promoter
Domestic Inst
Foreign
Others
67.3
4.1
14.4
14.2
Dec-13
67.3
3.4
15.2
14.2
Mar-13
52.5
8.1
22.5
17.0
Stock performance (1-year)
28 April 2014
9

Hindustan Unilever
Financials and valuation
Income statement
Y/E March
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
PBT
Tax
Tax Rate (%)
Profit After Taxes
Non-rec. (Exp)/Income
Reported PAT
Change (%)
2013
252.1
16.0
40.0
15.5
2.4
37.7
0.3
6.1
43.5
10.4
23.8
33.1
4.5
37.7
40.0
2014
274.1
8.7
45.3
16.2
2.6
42.7
0.4
6.2
48.6
12.4
25.6
36.1
3.1
39.3
4.2
(INR Billion)
2015E
311.1
13.5
51.0
16.1
2.9
48.1
0.3
6.3
54.1
15.1
28.0
38.9
0.0
38.9
-0.9
2016E
354.1
13.8
58.5
16.2
3.1
55.4
0.3
7.1
62.2
18.0
29.0
44.1
0.0
44.1
13.4
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Leverage Ratios (%)
Debt/Equity (x)
2013
15.3
16.3
21.5
8.5
55.4
37.9
35.7
27.0
4.8
30.1
1.5
2014
16.4
17.6
26.8
9.5
57.8
35.3
32.9
21.7
4.3
26.6
1.6
2015E
18.0
19.3
31.3
11.5
63.9
32.2
30.0
18.5
3.8
23.1
2.0
2016E
20.4
21.9
36.5
13.0
63.7
28.4
26.6
15.9
3.3
19.9
2.2
71.4
94.2
61.4
83.5
57.5
80.3
55.9
79.0
Balance sheet
Y/E March
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2013
2.2
44.3
46.4
0.0
-2.3
44.1
42.4
-16.5
25.9
2.5
40.4
67.2
34.6
12.4
11.0
9.3
91.9
82.2
9.7
-24.7
44.1
2014
2.2
55.7
57.9
0.0
-2.5
55.4
45.9
-19.2
26.8
2.5
51.3
74.5
37.7
13.5
13.9
9.4
99.6
88.8
10.8
-25.2
55.4
(INR Billion)
2015E
2016E
2.2
2.2
65.6
76.8
67.7
79.0
0.0
0.0
-2.6
-2.8
65.1
76.2
49.9
53.9
-22.0
-25.1
27.9
28.8
2.5
2.5
61.4
67.4
83.4
99.1
42.9
48.8
15.3
17.5
16.2
23.9
9.0
8.9
110.1
121.6
97.2
108.7
13.0
13.0
-26.7
-22.5
65.1
76.2
E: MOSL Estimates
5.4
17.9
0.0
4.7
17.9
0.0
4.6
18.0
0.0
4.5
18.0
0.0
Cash flow statement
Y/E March
OP/(Loss) before Tax
Interest
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
Others
Extraordinary items (net)
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Other Financing
Activities
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2013
40.0
5.8
10.4
7.1
-0.2
4.5
47.0
-3.4
-15.9
-19.3
-4.9
0.0
0.0
-21.5
-26.4
1.3
9.8
11.0
2014
44.8
5.9
12.4
3.3
-0.2
3.1
44.4
-3.5
-10.9
-14.4
-3.2
0.0
0.0
-24.0
-27.2
2.8
11.0
13.9
(INR Billion)
2015E
51.0
6.0
14.6
3.9
-0.2
0.0
46.0
-4.0
-10.1
-14.1
0.0
0.0
-0.5
-29.1
-29.6
2.3
13.9
16.2
2016E
58.5
6.8
17.4
3.5
-0.2
0.0
51.2
-4.0
-6.0
-10.0
0.0
0.0
-0.6
-32.9
-33.5
7.7
16.2
23.9
28 April 2014
10

Hindustan Unilever
NOTES
28 April 2014
11

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