Download HINDUSTAN UNILEVER Weak demand, price rise

Quarterly Update
27 OCT 2016
HINDUSTAN UNILEVER
HOLD
FMCG
Target Price: Rs 865
Weak demand, price rise impact volumes
Below estimates:Net sales/EBITDA/adj. PAT grew 1%/5%/9% vs.
consensus est. of 6%/9%/7%.Increase in input costs (mainly palm
oil)pushed RM cost up 17 bps YoY and 195 bps QoQ at 51.5%.
To negate the impact of inflationary pressures, the company
tookpriceincreases (mainly in soaps), which in a weak demand
environment pulled the volume down by ~1% (the lowest in past six
years;below consensus estimate of 2% growth).EBITDA margin
expanded 65 bps YoY to 18.2% aided by lower media spends (-8%
YoY).
We expect slow recovery in volume growth. OPM is at its highest since
CY03; hence,meaningful upside appears difficult. We estimate
sales/EPS CAGR of 10%/12%over FY16-18. Maintain HOLD with
target price of Rs865 (Rs810 earlier), based on 33x forward P/E.
CMP
Potential Upside
: Rs 843
: 3%
MARKET DATA
No. of Shares
Free Float
Market Cap
52-week High / Low
Avg. Daily vol. (6mth)
Bloomberg Code
Promoters Holding
FII / DII
: 2,164 mn
: 33%
: Rs 1,824 bn
: Rs 954 / Rs 765
: 1.5 mn shares
: HUVR IB Equity
: 67%
: 14% / 5%
Other highlights
♦
♦
♦
♦
Home Care (Fabric Wash, Household Care, Water):Home Care sales grew 3% YoY aided by continued growth
momentum in premium laundry. Segment EBIT expanded 265 bps YoY to 11%
Personal Care (Personal Wash, Hair Care, Oral Care, Skin Care, Deodorant, and Color Cosmetics): Reported sales
declined 0.3% impacted by a slow market and volume decline in Personal Wash (due to price hikes taken in Q2).
The company has expanded Dovefranchisee to baby soaps and is looking to relaunchLux in the premium end.
Indulekhaexpanded to four new states (present in eight states now). Color cosmetics continue to see innovation-led
growth while oral care had a subdued show. EBIT margin at 24% was up196bps YoY
Foods (ketchup, jam, soup, noodles): Foods growth slowed down further to 2% YoY, as the category softened in a
challenging market, as per the management. EBIT margin in Foods declined 23bps YoYto5.8%
Refreshments (tea, coffee and ice cream): Refreshments grew 8% YoY with healthy growth in tea. Growth in tea was
led by green tea and Natural Care. EBIT margin in Refreshments was up 58bps YoY at14.2%
Financial summary (Standalone)
Y/E March
Key drivers (%)
FY15
FY16
FY17E
FY18E
5.0
5.8
8.0
8.5
Net Sales growth
10.1
4.2
8.4
11.4
24.5
RM cost to sales
51.8
48.7
48.5
48.8
20.7
23.6
EBITDA margin
17.3
18.2
18.4
18.7
5.4
9.7
14.2
48.8
44.7
40.8
35.7
RoE (%)
110.4
110.0
119.7
127.0
RoCE (%)
166.8
169.2
185.2
192.7
110
EV/E (x)
35.3
30.9
28.2
24.9
100
DPS (Rs)
15.0
16.0
17.0
18.0
90
Sales (Rs mn)
Adj PAT (Rs mn)
Con. EPS* (Rs)
EPS (Rs)
Change YOY (%)
P/E (x)
FY15
FY16
FY17E
3,01,705
3,14,253
3,40,570
3,79,367
38,662
40,776
44,732
51,119
-
-
21.3
17.9
18.8
8.4
Source: *Consensus broker estimates, Company, Axis Capital
Note: Our model has not been updated for the latest IndAS changes
FY18E
Volume growth
Price performance
120
80
Oct-15
Sensex
Jan-16
Hindustan Unilever
Apr-16
Jul-16
Oct-16
01
Quarterly Update
27 OCT 2016
HINDUSTAN UNILEVER
FMCG
Exhibit 1: Results update
(Rs mn)
Sep-16
Net sales
Other operating income
Total revenue
Raw material cost
(% of net sales)
Staff expenditure
(% of net sales)
A&P spends
(% of net sales)
Other expenses
(% of net sales)
EBITDA
EBITDA margin (%)
Other income
PBIDT
Depreciation
Interest
PBT
Tax
Adjusted PAT
Extra ordinary income/ (exp.)
Reported PAT
76,976
1,451
78,427
39,620
51.5
3,960
5.1
8,514
11.1
12,287
16.0
14,046
18.2
2,528
16,575
945
49
15,580
4,762
10,818
138
10,956
Quarter ended
Sep-15
% Chg
75,956
1,358
77,314
38,965
51.3
3,754
4.9
9,210
12.1
12,018
15.8
13,366
17.6
1,944
15,310
761
45
14,503
4,601
9,902
-81
9,822
1.3
6.9
1.4
1.7
17 bps
5.5
20 bps
(7.6)
-107 bps
2.2
14 bps
5.1
65 bps
30.1
8.3
24.1
9.1
7.4
3.5
9.3
11.5
Jun-16
% Chg
79,877
1,404
81,282
39,555
49.5
4,265
5.3
8,798
11.0
12,306
15.4
16,359
(3.6)
3.3
(3.5)
0.2
195 bps
(7.2)
-20 bps
(3.2)
5 bps
(0.2)
56 bps
(14.1)
-223 bps
135.0
(4.9)
1.3
(17.0)
(5.2)
(7.8)
(4.1)
(6.7)
20.5
1,076
17,435
933
60
16,442
5,165
11,277
462
11,739
Source: Company, Axis Capital
Exhibit 2: Segmental financials
(Rs mn)
Net sales
Q2FY17
Q2FY16
Home care
Personal care
Foods
Refreshment
Others
Total segment
YoY (%)
Q2FY17
PBIT
Q2FY16
27,770
40,280
2,778
11,692
2,181
26,908
40,413
2,712
10,789
2,571
3.2
(0.3)
2.4
8.4
(15.2)
2,800
9,226
137
1,726
91
2,246
8,906
164
1,469
43
24.7
3.6
(16.2)
17.5
112.1
10.1
22.9
4.9
14.8
4.2
8.3
22.0
6.0
13.6
1.7
174
87
(110)
114
251
84,700
83,393
1.6
13,981
12,828
9.0
16.5
15.4
112
YoY (%)
PBIT margin (%)
Q2FY17
Q2FY16
YoY (bps)
Source: Company, Axis Capital
Exhibit 3: Net sales growth
7.9
4
5.3 4.7
6
5
3.2
4.4
5
3
6
7
6
4
3
4
2
3.6
3
4
6
1.3
0
(1)
Q1FY17
Q4FY16
Q3FY16
Q2FY16
Q1FY16
Q4FY15
Q3FY15
Q2FY15
Q2FY17
Q1FY17
Q4FY16
Q3FY16
Q2FY16
Q1FY16
Q4FY15
Q3FY15
Q2FY15
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Source: Company, Axis Capital
Q1FY15
-2
0
Q2FY17
7.7
6
6
Q4FY14
9
8
10.6
9.69.4 8.9
(%)
Q3FY14
12
10
13.2
(%)
Q2FY14
15
Exhibit 4: Volume growth
Source: Company, Axis Capital
02
Quarterly Update
27 OCT 2016
HINDUSTAN UNILEVER
FMCG
Exhibit 5: Personal care growth (YoY %)
Exhibit 6: Home care growth (YoY %)
Personal care
3.2
Source: Company, Axis CapitalNote: Under IndAS
Source: Company, Axis CapitalNote: Under IndAS
Exhibit 7: Foods growth (YoY %)
Exhibit 8: Refreshment growth (YoY %)
Foods
13.1
Refreshment
13.1
12
9.9
10
10.0
9.2
7.0
8
8.4
7.7
5.4
6
4.7
4
2.4
2
Source: Company, Axis CapitalNote: Under IndAS
Q2FY17
Q1FY17
Q4FY16
Q3FY16
Q2FY16
Q1FY16
Q2FY17
Q1FY17
Q4FY16
Q3FY16
Q2FY16
0
Q1FY16
14
12
10
8
6
4
2
0
13.3
Q1FY17
2.4
Q2FY17
2.5
Q1FY16
Q2FY17
-0.3
4.3
3.4
Q4FY16
2.1
Q1FY17
Q4FY16
1.5
Q3FY16
Q2FY16
Q1FY16
2.0
6.8
Q3FY16
8
7
6
5
4
3
2
1
0
4.7
Q2FY16
5.4
6
5
4
3
2
1
0
(1)
Home care
Source: Company, Axis CapitalNote: Under IndAS
Exhibit 9: 1-year fwd PE (on consensus earnings)
PE (x)
45
10 yr median
36.3x
35
Median 29.0x
25
Oct-16
Oct-15
Oct-14
Oct-13
Oct-12
Oct-11
Oct-10
Oct-09
Oct-08
Oct-07
Oct-06
15
Source: Bloomberg, Axis Capital
03
Quarterly Update
27 OCT 2016
HINDUSTAN UNILEVER
FMCG
Financial summary Standalone
Profit &loss (Rs mn)
Y/E March
Net sales
Other operating income
Total operating income
Cost of goods sold
Gross profit
Gross margin (%)
Total operating expenses
EBITDA
EBITDA margin (%)
Cash flow (Rs mn)
FY15
FY16
FY17E
FY18E
3,01,705
3,14,253
3,40,570
3,79,367
6,351
5,619
6,061
6,538
3,08,056
3,19,872
3,46,631
3,85,906
(1,56,236) (1,53,130) (1,65,296) (1,85,301)
1,51,821
1,66,742
1,81,335
2,00,605
50.3
53.1
53.2
52.9
(99,738) (1,09,443) (1,18,534) (1,29,798)
52,083
57,299
62,801
70,806
17.3
18.2
18.4
18.7
Y/E March
FY15
FY16
FY17E
FY18E
Profit before tax
55,232
59,096
64,829
73,028
Depreciation & Amortisation
(2,867)
(3,208)
(3,454)
(3,685)
Chg in working capital
2,816
3,464
2,885
2,310
Cash flow from operations
35,271
41,325
45,488
51,108
Capital expenditure
(4,377)
(5,643)
(4,750)
(5,000)
(32)
2,477
(2,168)
(1,994)
1
-
1
1
Cash flow from investing
Equity raised/ (repaid)
Debt raised/ (repaid)
-
-
-
-
Dividend paid
(38,812)
(41,395)
(43,996)
(46,599)
(32,073)
(41,589)
(43,751)
(46,319)
3,166
2,213
(430)
2,796
FY15
FY16
FY17E
FY18E
FDEPS (Rs)
17.9
18.8
20.7
23.6
CEPS (Rs)
21.3
20.1
22.3
25.3
15.0
16.0
17.0
18.0
75.2
85.7
82.3
76.2
Net sales (%)
10.1
4.2
8.4
11.4
EBITDA (%)
Depreciation
(2,867)
(3,208)
(3,454)
(3,685)
Cash flow from financing
EBIT
49,216
54,092
59,347
67,121
Net chg in cash
(168)
(2)
(100)
(100)
Net interest
6,184
5,006
5,582
6,006
Key ratios
55,232
59,096
64,829
73,028
Y/E March
Total taxation
(18,722)
(17,882)
(20,097)
(21,908)
Tax rate (%)
33.9
30.3
31.0
30.0
Profit after tax
36,510
41,214
44,732
51,119
Other income
Profit before tax
OPERATIONAL
Minorities
-
-
-
-
DPS (Rs)
Profit/ Loss associate co(s)
-
-
-
-
Dividend payout ratio (%)
38,662
40,776
44,732
51,119
12.8
13.0
13.1
13.5
4,491
(390)
-
-
Adjusted net profit
Adj. PAT margin (%)
Net non-recurring items
Reported net profit
43,153
40,386
44,732
51,119
Balance sheet (Rs mn)
Y/E March
Paid-up capital
GROWTH
16.4
10.0
9.6
12.7
Adj net profit (%)
8.4
5.5
9.7
14.3
FDEPS (%)
8.4
5.4
9.7
14.2
RoE (%)
110.4
110.0
119.7
127.0
RoCE (%)
166.8
169.2
185.2
192.7
(21.3)
(22.4)
(23.5)
(24.0)
PERFORMANCE
FY15
FY16
FY17E
FY18E
2,164
2,164
2,165
2,165
Reserves & surplus
35,084
34,709
35,690
40,490
EFFICIENCY
Net worth
37,248
36,873
37,854
42,655
Asset turnover (x)
Borrowing
-
-
-
-
(1,960)
(2,309)
(2,309)
(2,309)
Other non-current liabilities
Total liabilities
Sales/ total assets (x)
Working capital/ sales (x)
2.3
2.3
2.4
2.4
(0.2)
(0.2)
(0.2)
(0.2)
1,34,381
1,39,362
1,48,505
1,62,830
9.5
12.4
10.5
11.0
Gross fixed assets
47,214
53,787
58,537
63,537
Inventory days
37.1
35.1
39.0
39.7
Less: Depreciation
(22,638)
(24,640)
(28,094)
(31,779)
Payable days
75.4
76.4
78.0
78.3
24,575
29,147
30,444
31,758
4,790
3,860
3,860
3,860
-
-
-
-
Total fixed assets
29,365
33,007
34,303
35,618
Net debt/ equity (x)
(1.5)
(1.4)
(1.4)
(1.5)
Total Investment
32,779
29,666
32,666
35,666
Current ratio (x)
0.7
0.7
0.7
0.7
Inventory
26,027
25,284
30,325
34,299
Interest cover (x)
292.6
30,050.9
593.5
671.2
Net fixed assets
Add: Capital WIP
Debtors
Receivable days
FINANCIAL STABILITY
Total debt/ equity (x)
7,829
10,645
9,797
11,433
VALUATION
Cash & bank
25,376
27,588
27,158
29,954
PE (x)
48.8
44.7
40.8
35.7
Loans & advances
12,407
12,546
13,506
15,061
EV/ EBITDA (x)
35.3
30.9
28.2
24.9
Current liabilities
99,093
1,04,798
1,12,959
1,22,484
6.1
5.6
5.2
4.7
Net current assets
(26,857)
(28,108)
(31,423)
(30,937)
50.7
49.5
48.2
42.8
Dividend yield (%)
1.7
1.9
2.0
2.1
Free cash flow yield (%)
1.6
1.9
2.2
2.5
Other non-current assets
Total assets
Source: Company, Axis Capital
-
-
-
-
1,34,381
1,39,362
1,48,505
1,62,830
EV/ Net sales (x)
PB (x)
Source: Company, Axis Capital
04
27 OCT 2016
Quarterly Update
HINDUSTAN UNILEVER
FMCG
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05
27 OCT 2016
Quarterly Update
HINDUSTAN UNILEVER
FMCG
DEFINITION OF RATINGS
Ratings
Expected absolute returns over 12-18 months
BUY
More than 10%
HOLD
Between 10% and -10%
SELL
Less than -10%
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