Research Paper for 6 th BFISCM RoundTable Meeting on June 18, 2016

Analysis of FMCG Sector & Hindustan Unilever Limited – Case Study

Prepared by: CA Anupam Petkar

Chief Mentor: CA Manoj Alimchandani

FMCG Sector - Wealth Creating Businesses

Fast moving consumer goods sector is one of the promising sectors in India from an

investment point of view.

The FMCG Industry has shown steady growth over last few years and continues to

deliver superior returns over most sectors. The Industry is undergoing a fundamental

transformation. The combined effects of changing population composition, emergence

of new digitally connected consumer and growing preference for “natural” products

will have a profound impact over next decade. Against this backdrop, companies will

have to reimagine and reengineer the ways they operate to capture this opportunity.

As an industry, FMCG has consistently delivered superior shareholder returns vs most

other sectors. However there is a wide variation in performance across companies. An

analysis of shareholder return suggests high performance companies have been able

to sustainably create long term growth.

The overall FMCG Market is estimated to be approx. 180 billion USD of which branded

market will be around 65 billion as per a Study conducted by Boston Consulting

Group along with CII in Dec’15. The market has grown at 12% between 2005 to 2015.

It is expected that industry growth to accelerate 14 % CAGR between 2015 to 2025. By

2025, the size of branded market is expected to be three times of its current size which

is approx. 220 to 240 billion USD. This growth would be driven by significant

demographic shifts, increase in income levels, 100 million youth entering the

workforce, increasing nuclear families & shifting of population from rural to urban

areas or in other words rapid urbanization.

The growth opportunity is clearly massive. However shape of demand will be different.

By 2025,

Affluent and elite households (> 10 lacs annual household income ) will account

48 % of consumption. This would result in growth in niche areas .

Premiumisation will accelerate shift or preference of consumers from

unbranded to branded at the bottom end of population and towards luxury at

the premium rates at the middle level of population . companies need to invest

in building premium brands , delivering superior products through packaging ,

design and experiences .

Tier II & III cities ( aprox 600 cities with a population of 1 million) will grow by

4.5 times and will account for 45% consumption by 2025 as against 35%

consumption today. These cities will again in turn add another 30% to elite

households which will be again a key source for growth of premium products .

150 – 200 million consumers of FMCG sector will be digitally influenced . these

consumers will spend 40 to 45 billion USD on FMCG , which will be approx. 35

% of branded FMCG market in 2025.

Household distribution by annual income in India

Source: BCG CII Study

Upswing in the fortunes of FMCG sector in turn provides a good opportunity to the

investors for investment in the shares of these companies as well as related

companies. Consistent growth of almost 12-17% year-on-year makes FMCG business

in India a compounding business creating wealth for its investors.

Key growth drivers of FMCG Industry in India in a nutshell

GROWTH DRIVERS PAST GROWTH (2001-2015)

FUTURE GROWTH (2011-2025)

GDP Growth Approx. 7% 8-9%

Population Growth 1.50% 1.20%

Per Capita Income Growth

(1) approx. 14% annual growth (disposable income).(2) Women’s participation 34% in 2010.

(1) >15% annual growth (disposable income).(2) Women’s participation closer to levels in developed nations (70%).

Lifestyle Changes

(1) 2.3% urbanization(2) approx. 60% people in 15-59 age-group in 2010

(1) 2.5% urbanization(2) Similar age profile(3) More up-trading in urban and rural areas

Government Policy(1) NREGA(2) Farmer loan-waiver

(1) GST(2) FDI(3) Right to Education(4) Food Security

Source: NII

Present Status of India’s FMCG Market between Branded and Unbranded Sector

FMCG can be broadly classified into

Staples ( pulses, cereals , dairy, edible oils and fats )

Packaged Foods

Beverages

Consumer Health

Home & Personal Care

Historically, between 2005 to 2015 , the FMCG Industry has grown at the rate of CAGR of 12%. The fastest growing sub-categories are packaged food ( e.g. snacks, packaged water and soft drinks , juice drinks, ice cream etc. ), edible oils and selected segment of home and personal care ( i.e. skin care) .

Status showing Branded & Unbranded Composition

FMCG Sector – no more Defensive Sector

FMCG Sector is no more Defensive Sector today . Investopedia defines “Defensive

Stock as is a stock that provides a constant dividend and stable earnings regardless

of the state of the overall stock market.”. Taking same analogy further , FMCG Sector

was earlier regarded as Defensive . However today , massive opportunity being created

because of changing consumption pattern makes FMCG Sector growing beyond Stock

Market Growth. Besides FMCG , the only sector which can generate high returns is

Pharmaceuticals.

Volume Growth in FMCG is less vulnerable to Economic Cycles

As per analysis conducted by various studies covering FMCG Sector , it has been

observed that there is a very limited correlation between volume growth of FMCG

Sector and GDP growth rate . As a result, growth in FMCG industry is less dependent

on macro economic factors when compared to some other sectors. Again contribution

of volume growth depends on degree of penetration. E.g. low penetration categories

such as deodorants, volume contributes as much as 80% of growth. For high

penetration categories such as hair care , biscuits , volume contributes aprox . 50% of

overall growth. The remaining factors of growth are pricing .

Growth Drivers

Increasing Income : Real average household income is expected to grow by 70% by

2025.

Urbanisation : 35% of Indians are expected to live in cities or urban areas in 2025

compared to 32% in 2015.

Nuclearisation: it is expected that there will be roughly an addition of 10 million

households by 2025 due to reducing family size. There is also expected to signifiant

increase in independent staying population.

Growing Work Force : as per various estimates there is going to be growth of more

than 100 million young people being added to work force .

Soft Raw Material Prices & Emergence of Regional Players

Generally, with a fall in the prices of commodities, the industry sees a host of

mushrooming players, which results in a fight for market share. Therefore, companies

need to focus on maintaining their consumer franchise.

The weak input prices benefitted most of the companies under coverage in the FMCG

sector, with average gross margins expanding by 300bp in the past four quarters,

translating into EBITDA margin expansion of 180bp. However, while companies gained

in terms of gross margin expansion, the low-input price environment also gave an

opportunity to small regional players to gain ground. Hence, with such stiff

competition amidst low consumption, companies have been forced to give up on

pricing power.

During the past year, several new small regional players have come up in highly

penetrated categories such as soaps, detergents, shampoos etc. However, with the rise

in commodity prices, it is expected that that these players will die out, thus reducing

competitive intensity.

In December 15, palm oil prices fell by 15% from the 13 levels, which translated into

reduced prices for palm-based derivatives such as PFA (Palm Fatty Acids). As PFA is

one of the major components to manufacture soaps, low PFA prices helped companies

to increase their margins, and further pass on the benefits to consumers in the form of

discounts on multipacks. This also benefited manufacturers in terms of increasing

volume sales. With competition reducing in the backdrop of rising commodity costs, it

is expected of return of pricing power to major players such as Hindustan Unilever.

Following Figures illustrate this above trend. Market share data from Euromonitor, for

the Bath and Shower and Hair Care categories reveal that from 2014 to 2015, major

players lost marginal share, while the ‘Others’ category grew significantly compared

with the previous years. This is mainly due to the emergence of these mushrooming

players, and with rising input prices this trend should die out.

As Consumer mindset was mixed , in a competitive scenario , companies have been

forced to give up on pricing power.

Input prices are increasing & Reduction in competitive

intensity

After declining steeply over the past year, a level of stability has been observed in key

input prices for the FMCG sector, which includes Crude, Palm Oil, Polymers and LAB.

Crude prices have risen by 60% since the low levels of this year, and are up ~15%

YTD. Palm oil prices have increased 24.5% y-y.

However, with the likelihood of input prices now increasing, it is now expected that

small regional players in highly penetrated segments will die out and overall

competitive intensity to reduce. It is expected that pricing power will to return to major

players, and with Advertising & Promotion expenditure stabilizing or on decline,

EBITDA margins are expected to be maintained .

Crude prices have been on a steep decline since early 15, having dropped by 60%

during April 15 to Jan 16. However, there has been some stability since the past two

three months, with prices having risen marginally ~15% YTD since the low levels this

year .

Other commodities too appear to be following suit. Palm oil prices are now up 24.5%

y-y , after the steep ~25% decline in March 15. LAB and polymer prices too both key

ingredients for FMCG products and packaging are now showing trends of steady price

levels after sharp drops in FY16.

With continued soft input prices, companies across the FMCG sector witnessed

significant gross and EBITDA margin expansion as said earlier also.

Advertising & Promotion

Over the past few quarters, it has been observed that companies have been able to

splurge on advertising, due to low material costs. This strategy was also essential

given that consumer interest and sentiment was low during this period. Hindustan

Unilever’s ad spends, as a percentage of sales, was 14-15% in each of the first three

quarters of FY16, compared with 11-12% in the corresponding quarters of 14-15. The

increased ad spends did pay off, with good volume growth in the December 15 quarter

for brands such as Dove, Pears, Lifebuoy, Surf and Rin – though price cuts kept

revenue growth muted. Other players such as Dabur, Emami, and Jyothy Labs, too,

increased their ad spend. Despite the higher ad-spends, companies were able to

manage good EBITDA margin expansion, even though revenue growth was subdued.

Now, with commodity prices having started to increase and regional players facing

steep pressure , it is expected that companies will cut back ad-spends to ensure

steady profit growth in the current low-consumption environment.

Positive controlled rally

Increasing crude prices are a positive for FMCG stocks but provided price rally is

controlled. Going forward, if crude prices increase at a fast pace or substantially, then

above hypothesis will not hold good as companies will struggle to maintain margins.

Emergence of New Competitor – Disruption by products by Religious Gurus

The FMCG Market is witnessing new disruption in the form of introduction of FMCG

products by Religious Gurus such as Patanjali & Art of Living Foundation . Earlier the

Religious Gurus or Leaders were content with products such as Incense Sticks or

related Pooja related products. However slowly they also started introducing products

such as Chyawan Prash, Bath Soaps , Massage Oils etc. But now they have expanded

their portfolio covering almost every sub-category.

Their biggest strength which enabled them to spread their wings was their followers

and who continues to be one of the loyal customers for them today. These customers

also created a strong word of mouth publicity or awareness and also mainly the

“perception” or “hype” about quality and utility of these products. Also “cult” image

created by these leaders is also giving a big boost to marketing of these products.

However , these competitors lack or are failing in following points viz. building a strong

distribution network, easy availability of products to vendors ,always availability of

products on the shelf of vendor for consumers , increase in commission or distribution

margins of distributors and vendors and equally important Customer Service

Department.

Presently one of the biggest selling point of these products is its price vis-à-vis

competitors. However it will be equally difficult for these companies to maintain their

advantage as regards price once they start building distribution network , increase in

commission or margin of vendors and raw material prices.

In the meantime , the competitors not only from FMCG industry like Dabur, Emami

but also other Ayurvedic manufacturers such as Himalaya are fast catching up . HUL

has also entered the Ayurvedic Segment through “ Ayush Therapy” and is expected to

increase its focus to maintain market share.

Source : LiveMint dated June 3, 16

Patanjali is aiming to reach Rs. 10,000 crore in Net Sales by March’17 . Over the next

few years , Patanjali is also planning to focus on six areas viz. natural medicine,

natural dairy products and food , natural cattle feed and feed supplements, bio-

fertilizers, natural indigenous seeds .

Patanjali products has tied up a distribution arrangement with Apollo Pharmacy. It

also has also entered in a marketing arrangement with Kishore Biyani’s Future Retail

Ltd for selling Patanjali products in 243 cities across India. Patanjali Ayurved has also

teamed up with Mukesh Ambani’s retail chain Reliance Retail to sell its products.

Over the next year, Patanjali will increase its retail presence through 4,000

distributors, more than 10,000 company-owned outlets, 100 Patanjali-branded stores

and supermarkets, the company said in a statement recently. Over the next five years,

Patanjali will set up six more factories in other parts of the country, Babad Ramdev

said, declining to divulge investment details. Patanjali currently has three factories

and a bunch of contract manufacturers.

Company will spend more than Rs.1,000 crore to set up new production units and

Rs.150 crore on a research and development facility.

Patanjali’s expansion is backed by a high-powered marketing campaign led by

Ramdev himself. Between January and March, Patanjali Ayurved doubled the number

of advertisements it airs on TV channels, according to data from television viewership

measurement agency Broadcast Audience Research Council India, or BARC.

Patanjali’s weekly ad insertions on television jumped 102% from 11,897 in the first

week of January to 24,050 in the week ended 25 March, according to BARC. AD

insertions by Patanjali are 20% more than those by the next most-advertised brand on

TV—Cadbury, a chocolate brand owned by Mondelez India Foods Pvt. Ltd.

As per report of Amit Sachdeva, an analyst with HSBC Securities and Capital Markets

(India) Pvt. Ltd, “The company’s business model is rewriting the rules of consumer

marketing in India. We think rapid growth will continue, driven by an ever-increasing

consumer demand for its products; the launch of new categories; and a broader retail

and distribution network (two thirds of revenue comes from northern India)”.

Patanajali’s Competitors :

Product Category Competitor (Listed Companies )

Wheat Flour ITC

Biscuits ITC, Britannia

Toothpaste Dabar, Colgate , HUL

Shamoo/ Hair Conditioner Dabar, HUL

Chyawanprash Dabur

Soap, Bath Gel, Hand Wash, Pain Balm

ITC, HUL, Godrej, Emami, Marico

Malted Beverages GSK

Noodles Nestle, HUL

Shortlisting an FMCG company for investment – Buy the leaders

FMCG sector can broadly be classified into Food & Beverages, Personal & Household

Care, and Other Consumer Products. Food & Beverages and Personal & Household

Care segments are the largest and fastest growing segments of this industry (except

soaps and detergents classified as personal and fabric wash although the largest

category has highest penetration and per-capita consumption level). While low

penetration means an opportunity to increase the customer base (i.e. more number of

users), low per capita consumption means an opportunity to increase the quantum of

usage by the same number of customers.

Hence, first identify the companies in each of these sub-segments rather than

preparing a comprehensive list of all the FMCG companies.

After short listing the companies in order of their leadership position in their

respective field of operation, we compute the essential ratios (namely growth,

profitability, liquidity) and assess the financial strength of the company. A macro level

research of the industry dynamics is of utmost importance while researching any

company. Thus, one needs to compare the company’s growth and profitability with

that of the category average in order to assess whether the subject company is growing

faster than its category or otherwise. A faster growth indicates a high revenue-growth

potential for the company. A leader would also have a relatively better pricing power

which would aid in protecting profit margins in times of increasing raw material prices

scenario by way of commanding competitive prices from suppliers on one hand and

passing on the higher input prices to the consumers without affecting volume growth

on the other hand.

Supply chain efficiency and wide-spread distribution network are of prime importance

for a consumer goods company’s growth in the long term. While, efficient supply chain

management is of utmost importance to manage production and storage costs and

meet the consumer demand on time; a strong distribution network is extremely

important to take advantage of the increasing demand from rural markets, which is a

strong growth driver for FMCG companies operating in India. Rural markets have low

per-capita consumption and penetration level for almost all the consumer goods.

Government’s thrust on agricultural development and infrastructural development is

leading to increase in rural incomes which in turn augur well for the consumer goods

companies in terms of revenue growth potential and improving infrastructure to enter

newer niche markets.

To summarise, one needs to select a company which is a leader in its category, has

higher than or equal to the category average growth and commands pricing power, (i.e.

it has a consistent and profitable growth), has a strong and efficient supply-chain

management system and has a strong distribution network (existing or in-progress).

Why value a company

Always remember that value is different from price. While price is the amount that one

pay to acquire a business, value is what he acquires by paying the price. Wealth can

be created by buying a business only when the value of that business is more than the

price paid to acquire it.

Valuation techniques for FMCG business

PE Ratio and DCF are the widely used techniques for valuing consumer goods

businesses. Additionally, EV/EBITDA and ROCE are two important parameters in

valuation.

FMCG business is characterised by low capital intensity, faster receivables turnover,

negative working capital, and relatively inelastic demand to a certain extent (giving

pricing power to the companies).

Being non-capital intensive, incremental Capex is funded by business cashflow, hence

consumer companies are mostly debt free. Hence, consumer companies have very low

interest outflow unless the company has debt-funded its Brownfield or Greenfield

expansion. Thus, high EBIT margins results into higher return on capital employed

(ROCE). Resultantly FMCG business is a rich business that enjoys high ROCE due to

higher operating and net profit margins and high asset turns (Assets Turnover Ratio).

After raw and packing material cost, marketing (advertising and sales promotion)

expenditure is of substantial size due to high spend on generating demand and

creating brand awareness. Branding is an inevitable activity in any FMCG business

since a strong brand not only commands a loyal customer base, it also helps in

protecting profit margins during raw material inflation.

Consumer goods companies in India have a relatively stable revenue and earnings

growth and have a lower exposure to foreign currency due to focus on robust domestic

demand; although some raw and packing materials are crude oil derivatives and hence

subject to foreign currency movements. Hence Price-to-Earnings Ratio (PER) based

valuation is a widely accepted method of valuing consumer goods business. Most of

the FMCG companies in India command a higher PE multiple in comparison to its

global counterparts due to its sustainable long-term growth potential (sales volume as

well as earnings). In PE Ratio based valuation, past PE Ratio range is important.

However, significant improvement in revenues and profitability due to change in

technology, increase in capacity, entry into newer categories and geographies

commands a premium valuation and this would lead to a PE re-rating for the

company.

FMCG companies having diversified businesses should be valued according to the

nature of business of each business unit. For example, ITC has presence in difference

business segments ranging from consumer goods business (cigarettes having almost

inelastic demand, fast growing food and personal care business) to agricultural goods

to hotels to paperboards business. Each of these businesses have different dynamics,

are at different stages of growth, have different profit margins and have a different

amount of contribution to sales and profits. Accordingly, each of these business

segments should be valued separately using appropriate valuation method. Pure

FMCG business, as explained above, can be valued on PER basis. However, fast

growing but currently loss making FMCG business should be valued on EV/Sales

basis due to negative contribution to profits. Similarly, hotels and paperboards

businesses being capital intensive and seasonal in nature (hotels) should be valued on

EV/EBITDA basis. A sum-of-the-parts (SOTP) based valuation is thus an appropriate

method of valuing a diversified company.

PER based valuation may not be possible for valuing unlisted companies. Also, it

would be inappropriate (and even impossible in case of loss making businesses) to

value on PER basis companies which are in the initial stages of heavy investment in

fixed assets and technology, returns on which are expected after a few years. Hence,

discounted-cash-flow (DCF) is the most appropriate method of valuing an FMCG

company. EV/EBITDA and ROCE are the other two parameters to be considered while

valuing a consumer business and also comparing with the peers. Infact, a

combination of PER and DCF based valuation combined with EV/EBITDA and ROCE

ratios would be more appropriate tool to value a consumer business.

Potential wealth creating businesses other than consumer goods

Factors such as industrialisation, adverse environmental changes, and change in

consumer life style, have been playing an important role in shortage of vital natural

resources and increase in ailments globally. Though it is highly undesirable yet it is an

inevitable change happening in the society. Considering this as a boon in disguise, it

would also make sense to invest in businesses related to this change, namely

alternative sources of energy, purification (water in particular), and healthcare.

Case Study :

HUL’s Product Portfolio

80+ years in India with strong brands and leading market position across categories

Over 18,000 employees, 70 Manufacturing locations, 40+Depots, 3500 Stockists

Background of HUL:

HINDUSTAN UNILEVER LTD: The Company was founded in 1931 and is based in

Mumbai, India. The company was formerly known as Hindustan Lever Limited and

changed to Hindustan Unilever Limited in 2007. It is a Fast moving Consumer Goods

(FMCG) Company providing home and personal care products, foods and beverages in

India. The Company operates in 7 business segments. The Company offers soaps and

detergents including soaps, detergent bars, detergent powders, detergent liquids.

Personal products such as oral care, skin care, skin care, hair re,

deodorant, talcum powder, and color cosmetic products, as well as Ayush services.

It also provides beverages such as Tea and coffee and foods such as atta (flour), salt,

bread. Culinary products comprising tomato and fruit based products and soups ice

creams or frozen desserts). In addition, company offers chemicals, agri commodities

and water purifiers.

HINDUSTAN UNILEVER LTD is a play on consumption growth story in India. It is

India's largest Fast Moving Consumer Goods Company with a heritage of over 75 years

in India and touches the lives of two out of three Indians. HUL has over 35 brands

spanning 20 distinct categories such as soaps, detergents, shampoos, skin care,

toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, and water

purifiers, the Company is a part of the everyday life of millions of consumers across

India.

HUL is a subsidiary of Unilever, one of the world’s leading suppliers of fast moving

consumer goods with strong local roots in more than 100 countries across the globe

with annual sales of about €53.3 billion in 2015. Unilever has about 67%

shareholding in HUL. The Company HUL has over 16,000 employees and has an

annual turnover of around Rs. 32,086.32 Cr (financial year 2014 – 2015).

HUL Product / Brand Portfolio

Key Financials

FY11 FY12 FY13 FY14 FY15Net Sales 19,401.11 22,116.37 25,810.21 28,019. 30805.62YoY % Chg - 14 17 9 10EBITDA 2,951.25 3,569.65 4,610.65 5,096.29 5,826.63EBITDA % 15 16 18 18 19PAT 2,305.97 2,691.40 3,796.67 3,867.49 4,315.26PAT % 12 12 15 14 14Equity Capital 215.95 216.15 216.25 216.27 216.35EPS – Basic 10.58 12.46 17.56 17.88 19.95

Source : Annual Reports for respective years Values in INR CR

Key Ratios

FY11 FY12 FY13 FY14 FY15

EBIT ( % of Gross Sales)

12.1 13.5 14.1 14.6 15.3

Fixed Assets Turnover (No of times)

8.3 9.6 10.6 10.6 10.9

PAT/ Gross Sales %

10.6 11.4 12.4 12.3 12

ROCE % 87.5 96.8 109.1 130.2 127.7

Return on Net Worth

74 77.7 94.7 104.1 99.5

Source : Annual Report for year ending 2015 Values in INR CR

Key Data

Face Value Re.1Traded Volume ( Shares) 10,22,769Free Float Market Cap ( Rs cr) 62,45952 Week High / Low 944 ( 8 Jul 16) / 766 ( 27 Jan 16)Nifty Code HINDUNILVR

Reuters Code HLL.NSBloomberg Code HUVR:INYear End March

Source : NSE India Website 13 June 2016

Economic Value Added : HUL

INR CR

05 06 07 09 10 11 12 13 14 15

Avg. Debt 360 163 382 342 119 2 0 0 0 0

Avg. Equity 2200 2515 2402 1928 2497 3118 3462 4018 3715 4338

Avg. Cap. Employed

2560 2678 2784 2270 2616 3120 3462 4018 3715 4338

Cost of Debt % ( Post tax)

3.38 5.90 6.24 3.91 3.95 5.36 6.20 6.02 6.36 5.56

Cost of Equity %

15.5 16.38 17.59 14.47 12.51 12.93 10.10 10.07 11.62 10.91

WACC % 13.8 15.74 16.03 12.88 12.12 12.92 10.10 10.07 11.62 10.91

COCE 353 421 446 365 317 403 350 405 432 474

PAT 1355 1540 1743 2501 2103 2153 2599 3314 3555 3843

Add : Int. ( post tax )

12 7 17 17 5 0 1 17 24 11

Net Op Profit Post

1367 1547 1760 2518 2108 2153 2600 3331 3579 3854

COCE 353 421 446 365 317 403 350 405 432 474

EVA 1014 1126 1314 2154 1791 1750 2250 2926 3147 3380

Source: HUL Annual Report 2015

HUL Shareholding Pattern as on March 31, 16

HUL Dividend Per Share

HUL Earnings Per Share

HUL Scrip Performance vis-à-vis BSE FMCG Index

HUL Scrip Performance vis-à-vis Nifty

Analysis of Cash Flow from Operations

Rs in CR

Raw Material Consumption:

FY11 FY12 FY13 FY14 FY15Oils , Fats and rosins

1,163.05 1,395.06 1,615.51 1,711.01 1,928.87 Chemicals & perfumes

2,907.06 3,639.86 4,612.58 4,888.19 5,072.60 Tea 1,112.98 919.78 1,187.11 1,336.51 1,465.36 Others ( coffee, flavours , other

701.70 728.82 873.01 976.47 969.10

Source : Annual Reports Values in INR CR

Segment wise Performance:

Sales (Incl Exports) but net of excise duty

FY11 FY12 FY13 FY14 FY15Soaps 3,939.71

4,303.39 5,362.64

5,694.54 6,141.18

Synthetic Detergents

4,160.10 5,373.72

6,077.94 6,539.82

7,175.95 Personal Products

5,926.17 6,509.82

7,428.83 8,092.72

8,996.69 Tea 2,097.50

1,982.35 2,224.60

2,577.98 2,811.93

Frozen Desserts

271.95 354.32 413.44 454.91 551.48 Processed Vanaspati

15.13 19.23 17.74 23.27 23.73 canned and processed

575.71 647.91 676.73 770.20 905.73 branded staple foods

338.89 377.59 425.04 434.80 465.11 Others 2,055.85

2,167.27 2,579.42

2,820.05 3,098.70

TOTAL 19,381.01 21,735.60 25,206.38 27,408.29 30,170.50

Source : Annual Reports Values in INR CR

Financial Statements:

Income Statement:

FY11 FY12 FY13 FY14 FY15Net Sales 19401.11 22116.37 25810.21 28019.13 30805.62Other Income 586.04 278.31 606.9 621.03 618.39Total Income 19987.15 22394.68 26417.11 28640.16 31424.01Cost of Materials

17035.9* 8584.89 10284.66 11159.81 11867.31Purchases of Stock In Trade

* 3024.14 3235.31 3350.19 3697.96Change in Inventories

* 128.73 (31.13) (166.38) 58.28Employee Benefit

* 1107.28 1318.34 1435.95 1578.89Finance Costs 0.24 1.24 25.15 36.03 16.82Depreciation 220.83 218.25 236.02 260.55 286.69

Other Expenses * 5979.99 6999.28 7764.3 8394.94Total Expenses 17256.97 19044.52 22067.63 23840.45 25900.89Profit Before Exceptional

2730.18 3350.16 4349.48 4799.71 5523.12Exceptional Items

152.72 118.87 608.4 228.68 664.3PBT 2882.9 3469.03 4957.88 5028.39 6187.42Prov for Tax 576.93 (778.53) (1161.21) (1160.19) (1872.16)PAT 2305.97 2691.4 3796.67 3867.49 4315.26

Source: Annual Repots * - break up not available. INR CR

Balance Sheet:

FY11 FY12 FY13 FY14 FY15Equity & Liabilities Equity 215.95 216.15 216.25 216.27 216.35Reserves 2417.97 3296.78 2457.77 3060.78 3508.43Net Worth 3277.05 3724.78Non – Current Liabilities

* 996.64 1182.59 1202.81 1126.46Current Liabilities

7399.85 6448.7 7655.86 8518.54 8782.82

Total 10033.77 10958.27 11512.47 12998.4 13634.06

AssetsTangible Assets 2169.16 2117.53 2256.79 2397.94 2435.5Intangible Assets

* 29.94 36.11 24.12 22.03Capital WIP 299.08 205.13 205.32 312.08 479.01Intangible Assets WIP

* 10.32 10.32 7.7 -Non Current Investments

* 186.31 548.03 636.17 654.11Net Deferred Assets /

209.66 214.24 204.78 161.73 195.96Long Term Loans &

* 401.27 384.29 605.51 583.46Other Non Current Assets

* - 296.84 0.68 0.44Current Investments

1260.78 2251.90 1782.63 2457.95 2623.82Inventories 2811.26 2516.65 2526.99 2747.53 2602.68Sundry Debtors 943.20 678.99 833.48 816.43 782.94Cash & Bank balances

1640.01 1830.04 1707.89 2220.97 2537.56Other Current Assets

700.72 515.95 719 609.59 716.55

Total 10033.77 10958.27 11512.47 12998.4 13634.06

Source : Annual Reports Values in INR CR *= represents non availability of values

Cash Flow Statement:

FY11 FY12 FY13 FY14 FY15Net Profit/Loss Before

2,730.20 3,350.16 4,349.48 4,799.71 5,523.12 Net CashFlow From Operating

1,891.78 2,869.56 3,529.58 3,724.15 3,103.76 Net Cash Used In Investing

(294.02) (452.45) 34.33 (513.16) 448.04 Net Cash Used From Financing

(2,276.08) (1,722.32) (4,160.44) (2,916.79) (3,450.44)Net Inc/Dec In Cash And Cash

(678.32) 694.79 (596.53) 294.20 101.36 Cash And Cash Equivalents

906.47 228.15 922.94 326.41 620.61 Cash And Cash Equivalents End

228.15 922.94 326.41 620.61 721.97

Source : Moneycontrol Website

Important Newspaper Cuttings for Reference

Increase in Demand for Soft Drinks & Packaged Water

Impact or risk of Misrepresentation in Advertising and Also Importance of Efficient Customer Service

Risk of Crude Oil Price Decreasing again

Increased focus by HUL on Foods & Refreshment Segment as independent SBU

Bibliography :

1. Annual Reports of HUL

2. CII FMCG Industry Reports

3.Various Brokerage House Reports of

a. SBICAP

b. NOMURA

c. JM FINANCIAL

d. Religare

4. GOLDMAN SACHS Report Dated June 1, 2016

5. Indian Brand Equity Foundation Report – January 2016

6. Economic Times & Mint Newspaper

7.Investopedia Website

8. BSEINDIA & NSEINDIA Websites

Links to Research Reports

D:\1 MyCFO\Personal\BFISCM Project\HUL\The Asian Consumer - India Consumer Close-up (June 1) - Goldman Sachs.pdf

D:\1 MyCFO\Personal\BFISCM Project\HUL\resoource paper submitted to BFISCM\Supporting Reports\SBICAP_Hindustan_Unilever_Initiating_Coverage.pdf

D:\1 MyCFO\Personal\BFISCM Project\HUL\resoource paper submitted to BFISCM\Supporting Reports\FMCG-January-2016.pdf

Links to HUL Annual Reports

..\annual reports\hul annual report 2014-15.pdf

..\annual reports\hul-annual-report-2013-14.pdf

..\annual reports\hul_annual_report_2012-13.pdf

..\annual reports\hul_annual_report_2011-12.pdf

..\annual reports\hul_annual_report_2010-11.pdf

Links to Excel Supporting File

D:\1 MyCFO\Personal\BFISCM Project\HUL\resoource paper submitted to BFISCM\HUL _Review_180616.xlsx

Thank You