Hindustan Unilever Ltd (HUVR IN) The worst is over

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

Hindustan Unilever Ltd (HUVR IN)

The worst is over – better times ahead INDIA | FMCG | Company Update

25 August 2021

HUL has significantly underperformed the benchmark indices over the past 12 months (HUL up 20% vs. Nifty up 44%) due to the following three reasons: 1. Covid-19 dented the category’s performance because of its direct correlation with

mobility and outings (detergents, skin care, colour cosmetics, out-of-consumption-related categories).

2. Hyperinflation in key raw materials such as PFAD, crude derivatives and tea. 3. Delay in GSK Consumer’s integration with HUL – in terms of revenue synergies. We believe that the worst is over and that HUL will start reporting healthy operating performance from 4QFY22 based on the following five reasons: 1. The management’s approach of taking calibrated price hikes will help HUL gain market

share and achieve volume growth across categories, although margins for next couple of quarters could come under stress.

2. With normalcy resuming from 4QFY22, based on the government’s commitment towards vaccinating the entire population by December 2021, revenue growth in detergents, personal care, and other discretionary categories, which have been most negatively impacted because of the pandemic, should bounce back very sharply.

3. There will be sustained momentum in the ‘soaps/personal wash’ category (20% of sales) even after vaccinations are done, as doctors advocate regular washing of hands and wearing of masks.

4. Malted food category (10% of sales) will see accelerated revenue growth (15-20% at the minimum) given that the category is under-penetrated and once benefits of distribution integration start flowing in by as early as 3QFY22.

5. HUL will tighten its grip even more on best-in-class supply-chain capabilities, i.e., extensive distribution network via focussing on digitization (its direct ordering B2B app), access to chemists outlets (via GSK Consumer’s product portfolio), and piloting a direct-delivery model – i.e., supplying from factory to retailers, which should lead to significant savings in costs and time for the company.

We maintain our high conviction BUY on HUL with a target of Rs 3,000 (60x September 2023 EPS, c.13% EPS CAGR over FY21-24). Any correction in its stock price because of weak 2QFY22 results could be an excellent opportunity to accumulate this Golden Goose. We believe HUL could become the fifth company from India to enter the prestigious US$ 100bn market-cap club (current market cap – US$ 85bn).

BUY (Maintain)

CMP RS 2640 TARGET Rs 3000 (14%)

SEBI CATEGORY: LARGE CAP

COMPANY DATA

O/S SHARES (MN) : 2350

MARKET CAP (RSBN) : 6125

MARKET CAP (USDBN) : 82.5

52 - WK HI/LO (RS) : 2630 / 2001

LIQUIDITY 3M (USDMN) : 44

PAR VALUE (RS) : 1

SHARE HOLDING PATTERN, %

Jun 21 Mar 21 Dec 20

PROMOTERS 61.9 61.9 61.9

DII 10.7 10.7 10.7

FII 15.1 15.0 14.9

OTHERS 12.2 12.5 12.5

KEY FINANCIALS

Rs mn FY21 FY22E FY23E

Net Sales 453,110 518,720 593,416

EBIDTA 113,240 127,023 150,360

Net Profit 79,540 89,560 106,478

EPS, Rs 33.8 38.1 45.3

PER, x 68.7 62.7 52.8

EV/EBIDTA, x 49.0 43.5 36.5

P/BV, x 11.8 11.5 11.0

ROE, % 17.2 18.3 20.8

PRICE VS. SENSEX

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

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HUL BSE Sensex

mailto:[email protected]

mailto:[email protected]


HINDUSTAN UNILEVER LTD COMPANY UPDATE

Re-imaging HUL – an idea whose time has come We believe that the following trends, which could play out across categories in the medium term of 2-3 years, would take this mammoth to an altogether different orbit as far as its revenue profile is concerned.

Trend 1: Premiumization story in detergents to continue after covid-19 headwinds recede

• HUL, a market leader, has played a pivotal role in premiumization through incubating new high-margin and high-realization categories such as liquids and matic detergents, and encouraging customers to try premium products via Low Unit Packs. Surf Excel’s LUP (Rs 10 pack) has seen phenomenal success due to its innovative packaging and premium positioning. It has been able to take away meaningful market share from Tide (P&G). For HUL, 25% of sales come from premium products vs. 15% five years ago.

Increasing share of premium products will help HUL deliver gradual improvement in margins

Source: Amazon/Bigbasket, Phillip capital

• Covid-19 put the spanner in the premiumization trend to some extent due to following three reasons:

1. Shrinking of MT – customers generally purchase large packs and premium products from modern trade (MT) outlets and this channel saw significant ramp down because of covid-19 restrictions.

2. Lack of mobility – as educational institutions (schools and colleges) and offices remained shut for major part of the year

3. Less social occasions – lesser social functions such as weddings meant people washed less clothes with premium detergents. Generally, in India, people wash clothes used for special occasions with high-end detergents.

• We believe this is just a temporary blip in long-term structural margin expansion story, as premiumization trends are likely to see a meaningful pick-up based on improving washing-machine penetration (in which premium matic detergent powder is used) and higher value propositions to customers. We believe that out of c.1,000bps margin expansion seen over the past decade at the company level, around c.300-400bps margin expansion has purely come about due to premiumization in its detergent portfolio. HUL’s EBITDA margin expanded to 25% in FY21 from 14% in FY11.



Out-of-home consumption (c.5% of sales) to make a strong comeback Out-of-home consumption categories such as water solutions and ice-creams – which faced significant headwinds over the past two years due to lack of mobility and commuting challenges – are likely to make a strong comeback once economic situation recovers. Moreover, HUL will also reap the benefits of Adityaa Milk Integration (value ice player, which it acquired in 2018, which predominantly had operations in Maharashtra, Karnataka, Kerala, and Goa) with HUL’s network from FY23 onwards.

Trend 2: High-margin personal-care categories will crawl back to growth • HUL’s high-margin personal-care business (23% of total sales), which has taken a

beating – more specifically, highly profitable skin care and colour cosmetics – will gradually start crawling to pre-covid sales, as roll-out of vaccination programme gathers steam and social functions begin. However, this might be couple of quarters away. We also expect the “Lipstick effect” to kick in – customers might avoid high-ticket discretionary purchases due to income disruption, but to indulge themselves, they are likely to continue with low-ticket discretionary purchases.

HUL has taken the following steps to get back into the groove:

• Has set up separate team for premium beauty business within its BCP (Beauty and Personal Care) segment to strengthen its position in the ‘masstige’ segment. This unit will closely work with its e-commerce team and lead the entry into niche premium formats such as serums, sheet masks, hair masks, etc, through existing and new brands.

• Getting into action to compete effectively with D2C (direct to consumer) brands/new age brands: • It has recently launched the D2C consumer website for its Lakme range. • The main advantage of a D2C consumer website is that it can significantly fast-

track its new launches (apart from getting customer profile/details), since the cost of failure is quite low, and it can improve and tweak products based on real-time feedback that customers provide.

• If some product becomes popular on the D2C platform, it can be quickly taken to the mainstream distribution channels.

• The learning process can get amplified from real-time consumer insights that it garners from Lakme salons spread across the country.

However, we believe need of the hour is to intensify focus on chemicals-free and paraben-free products via both organic and inorganic routes (M&A), because consumers are gravitating towards these types of products.

• High-end premium products can be easily brought from Unilever’s stable: As the Indian beauty market (increasing disposable income, higher participation of women in labour force) evolves, HUL can bring a slew of products from Unilever’s stable to India.

Trend 3: Personal wash (c.20% of sales) will get a new lease of life with Covid-19 tailwinds • Lifebuoy and Lux, both brands that had been on a steady decline in terms of

market share (both cumulatively lost +15% market share in a decade), have found new growth vectors. The pandemic has given tailwinds to Lifebuoy, which is one of the strongest brands operating in the health segment. Moreover, strategic interventions (improving quality, communication strategy product positioning) for Lux should enable it to regain some of its lost glory.

• We might see some disruption in its premium portfolio (Dove and Pears), but these winter-based soaps have strong use-case during that season.

https://en.wikipedia.org/wiki/Lipstick_effect



• We believe HUL will be key beneficiary in the fast-growing personal wash and rapidly consolidating categories such as handwash (Rs 20bn), hand sanitizers (Rs 6 bn) because: (1) improved penetration, and (2) many of the opportunistic and fringe players – who entered the market during the first lockdown – have vacated the space.

Hand wash / Hand sanitizer segment have seen multi-food increase in market opportunity

Source: Company presentation, Phillip capital

• In our view, covid-19 has provided the required tailwinds for soaps (c.20% of overall sales) to becoming a high-growth and increased-involvement category from being low-growth, low-involvement earlier. Doctors are advocating protocols such as masks, hands washing, and social distancing, even after taking the jab (vaccine). So, the growth in personal wash categories seems to be more enduring than the offtake in packaged foods, which was more one-off or limited in scope.

Trend 4: Humungous potential in the under-penetrated malted food category • Malted foods category holds plenty of promise, given it is under-penetrated – 25%

rural and 60% urban penetration even in southern and eastern India, where it is widely consumed.

• After GSK Consumer’s acquisition, HUL has made the following strategic interventions to drive growth:

a) Lunch of Rs 2 SKU for Horlicks and Boost – which will help in recruiting more customers into the category, - improving accessibility.

b) Making Boost a pan-India brand vs. predominantly south-India focused earlier.

c) Increasing grammage for Rs 5 SKU, – thereby improving affordability. d) Premiumization – focusing on the “Plus” range; and e) Extensive marketing of pouch packs, which are cheaper than jars by 20%.

We believe HUL can easily grow its malted foods category (Rs 110 bn) by 15-20% in the medium term due to strategic interventions undertaken, and completion of the integration of GSK Consumer with HUL whose benefits will be visible from 2HFY22.

• HUL’s acquisition of GSK Consumer will enable it to get a strong foothold in the chemist channel – which should allow it to cross-sell its product portfolio: So far, before HUL’s acquisition of GSK Consumer, HUL missed out on having a healthy chemist reach or network because it did not have an appropriate product portfolio to cater to them. GSK Consumer’s integration brings HUL distribution rights for iconic GSK Consumer Healthcare brands such as Sensodyne, Iodex, Eno and Crocin, which are solution-oriented. This will position HUL to cross-sell its premium



portfolio (liquids/ matic powder within detergents, handwashes and sanitizers within personal wash and skin care, or colour cosmetics in its personal-care range), and further enhance its revenue profile.

Source: Company, Phillip Capital


Trend 5: Developing best-in-class supply-chain capabilities • With its distribution network coming under stress due to Covid-19 related

challenges, HUL is leveraging its digital capabilities via enrolling 1,000 outlets per day on the Shikhar app – online order fulfillment app for retailers. Its distribution partners (distributors and retailers) are given additional incentives over normal margins when they complete the entire ordering process flow digitally. The Shikhar app helps optimize space requirements and quicker re-stocking at the retailers’ end since distributors have to ensure goods reach retailers within 24 hours once an order is placed through the app.

• Making cash-collection and claim-settlement processes future ready: Distributors are incentivized to make payments via UPI and legacy cheque transactions are discouraged. HUL also has tied with SBI, India’s largest bank, to provide collateral-free loans up to Rs 50,000 to retailers, so that they are positioned to stock-up better and do not face stock-out situations due to paucity of funds.

• Planning direct dispatches to retailers from the factory: HUL is running a pilot project in Chennai (which it later plans to replicate pan-India), where it dispatches goods directly to retailers from factories, bypassing distributors. The core objective is to reduce multiple loading and unloading of goods, thus saving time, effort, and capital.



Extract from HUL’s FY21 annual report on direct dispatches to retailers: Furthering our journey to create a digital customer ecosystem of connected stores, we have piloted ‘Samadhan’ our direct-to-trade order-fulfilment platform in Chennai. ‘Samadhan’ is fully integrated with our digital order capturing platform and aims to deliver speedier and reliable service to the retail outlets through warehouse automation and optimised last mile logistics.

• Integration of HORECA distributors with GT distributors: HUL has a separate distributor channel for institutional customers (HORECA, CSD) and its pricing policy / SKU composition for that is completely different from the GT distribution network, given its B2B in nature. Our ground checks suggest that since HORECA is under stress for the past 18 months, the viability of standalone HORECA distributors had come under a cloud, so HUL merged HORECA distribution with GT in many geographies.

• Making more inroads into rural areas: HUL reaches +60,000 villages out India’s total 120,000 villages. Moreover, it increased its strength of Shakti Amma (self-made rural entrepreneurs who distribute HUL products) to 136,000 in FY21 from 120,000 in FY20. We believe rural India is on the cusp of revival (as pandemic-related stress is behind us) given that the vaccination program is gathering steam, expectation of normal monsoon, and government focus on creating social infrastructure in the hinterlands.

HUL has almost doubled the strength of Shakti Ammas in the past 5 years


Trend 6: Home & Hygiene Care range – can turn out to be a dark horse • If HUL gets its execution right (improved value proposition, differentiated product,

creating customer awareness) within the fast-growing home-care space, brands such as Domex (toilet and floor cleaner), Nature Protect (hygiene brand targeting disinfectant and the germs-killing space) could turn out to be money-spinners. Notably, the potential for toilet or floor cleaners is humungous as many households in non-metro cities or tier-4 cities still use phenol or acids for this purpose.

• HUL has recently launched Nature Protect, a new brand that will cater to soft hygiene needs. Its product range includes surface cleaners, laundry, fruit and veggie cleaners and on-the-go cleaners.

• Of late, HUL has taken an aggressive stance against Reckitt in the toilet-cleaner category and has been running a high-decibel media campaign directly comparing Domex (8-10% market share) with Harpic (market leader with 70% market share) and marketing it on differentiated positioning, i.e., long-lasting freshness and better effectiveness on toilet surfaces.

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• Domex has launched a low-cost powder format (specifically meant for squat toilets) in selected geographies to address the needs for affordable and efficacious sanitation solutions. In floor cleaners, HUL launched Domex with a formulation containing sodium hypochlorite that is proven to destroy coronavirus in 60 seconds.

Trend 7: Half-hearted attempt at naturals / ayurvedic HUL’s management has adopted a three-pronged strategy towards increasing the adoption of its naturals and ayurvedic products

1. Mergers and acquisitions such as Indulekha 2. Launching new brands such as Ayush 3. Brand extensions such as launching herbal, ayurvedic, and natural variants of

existing brands Apart from the ramp-up of Indulekha (acquired brand) to a pan-India level from just south India, nothing much has clicked for the company. To achieve success in this category, HUL should put the maximum weight of its senior leadership team behind these segments, since incrementally consumers are gravitating towards these.

Trend 8: Solid acceleration in new launches New product development and innovation has been muted across most key categories over the past 18 months because of covid-19 related challenges, which we believe will accelerate in a meaningful manner from 4QFY22, as HUL is already ready with a pipeline of innovative products.

Trend 9: Operating margin expansion to moderate • HUL’s EBITDA margin gains (to c.25% in FY21 from 13.8% in FY11) are likely to

moderate in the medium term as benefits of increased penetration of premium products and cost-efficiency programme will be negated to a large extent by global commodity inflation. We expect EBITDA margins to move up only c.100bps over FY21-24 (to c.26% in FY24).

• Once Bitten, twice shy: In FY01-10, HUL lost significant market share in core categories (soaps and detergents) as It took higher price hikes vs. competition and vacated low-unit packs to counter RM inflation. It became saddled with high-cost inventory when commodity costs started falling due to misjudgement in price forecasting practices.

• With lessons learnt from past debacle, the management is cautious and believes in the thesis of ‘volume growth and market-share gains over margins’. Its approach of calibrated price hikes might lead to supressed operating margins in the short term, but it is a step in the right direction, as it helps HUL to gain market share from peers that are grappling with hyperinflation and supply-chain constraints. We expect gross margin to see c.80bps expansion, moving to 52.5% in FY23 from 51.7% in FY22, due to calibrated price hikes and improving sales mix.

Trend 10: Always will be on prowl for M&As After the appointment of Mr Sanjiv Mehta, HUL has become very aggressive in M&As and these are the acquisitions over the past decade:

Impressive track record of M&A

Year of Acquisition Brand Acquired Previous Owner Industry

2015 Indulekha & Vayodha Mosons Group Ayurveda (Hair Oil Brand)

2018 Adityaa Milk VijayKant Dairy & Food Products Ltd (VDFPL) ice cream and frozen desserts

2020 VWash Glenmark Pharmaceuticals Limited Female Intimate Hygiene Category

2020 Horlicks & Boost GSK CH India Health Food Drinks




We expect similar aggression to continue on the M&A front based on two factors:

1. HUL’s healthy cash balance (Rs 70bn in FY21). 2. Plethora of consumer brands are not being able to scale beyond a certain

threshold as they do not enough shelf space in general trade distribution. HUL has very unique way of doing M&A transactions; apart from initial financial considerations, it also agrees to pay deferred amounts based on certain milestones achieved (generally these are based on revenue targets achieved). As a result, both parties’ interests are protected. Due to this practice, HUL’s risk, to a large extent, is mitigated, if envisaged benefits and synergies from proposed acquisitions do not flow through. The seller believes it will be rewarded considerably via HUL’s marketing and distribution acumen. There will be plenty of opportunities for M&As in D2C, with most of them in the premium or niche segments. Generally, these products are consumed by the top 5% of the population. It might be challenging for such D2C brands to scale up beyond a point since most of India’s purchasing power rests with its middle class. However, it should be relatively easier for HUL to scale up such brands considering the company’s strong marketing acumen and distribution prowess.

Trend 11: Decentralization of power enables the elephant to become nimble HUL’s top-management has been a strong believer of decentralization of power, and as a result, despite being such a mammoth organization, it has been able to deliver 10% revenue CAGR (of which 6% is volume CAGR) over the past decade amidst a challenging macro-economic environment. Other consumer players are now replicating HUL’s unique concepts of WIMI (Winning in Many Indias by designing/marketing products as per regional taste and preferences) and CCBT (Country Category Business Team). What is CCBT?

The CCBT is like a mini operating board of the company and HUL’s management gives it full authority to run these divisions. HUL top management’s job is to mentor and coach these teams to achieve their goals. As of now, HUL has 16 CCBT teams led by young managers with cross-functional management and completely empowered.

These two innovative concepts have enabled HUL, a behemoth, to become agile and nimble, thereby taking faster action. We would like the management to adopt a “Fail Fast” approach to innovation/NPD, as this can significantly accelerate revenue profile of the company and will also keep ever-increasing competition at bay. What is the “Fail Fast” approach?

Failing-fast is a philosophy that takes an iterative, hypothesis-driven approach to developing and launching new ideas. It is heavily related to the concept of a Minimum Viable Product (MVP) and is premised on getting early feedback that can either validate or invalidate an idea. In today’s complex business environment, where things are changing constantly, speed of execution is a lot more important than perfect execution. While you’re trying to perfect a certain solution or product, the situation might have changed already, rendering your product or solution irrelevant. Make it “good enough,” ship it, improve it based on market feedback, rinse and repeat. This approach attains a solution much faster because of the snowball effect of iterative learning.



Trend 12: Can a share buyback be on the cards? Unilever has globally announced a buyback of EUR 3bn, which will be complete by the end of 2021. With a hefty cash balance of Rs 70bn with HUL in FY21, along with Unilever’s stake being diluted to 61% from 66% because of the GSK merger, there is a high probability that share buyback can come through, which can then act as a floor price for long-term investors.

Coverage Universe Valuation Company Size Fw P/E Reco/Upside

Britannia Industries L 44 BUY 9% Jubilant Foodworks L 71 BUY -7% ITC Ltd L 15 NEU 11% Hindustan Unilever Ltd L 53 BUY 14% Colgate Palmolive L 37 SELL -15% Asian Paints L 69 BUY 15% Godrej Consumer Products L 46 BUY 11% Marico Industries L 44 NEU 1% Dabur India L 53 BUY 13% Nestle India L 54 BUY 2% Titan Company L 54 BUY 15% Emami M 30 BUY 19% Agro Tech Foods S 38 BUY 34% Bajaj Consumer Care S 15 BUY 39% Thangamayil Jewellery S 10 BUY 19% Westlife Development Ltd S NA BUY 17%

Source: Company, PhillipCapital India Research (Note: L/M/S = Large/Mid/Small Cap)



Financials Income Statement Y/E Mar, Rs mn FY21 FY22E FY23E FY24E

Net sales 453,110 518,720 593,416 660,353 Growth, % 18 14 14 11 Other operating income 6,850 7,535 8,289 9,117 Total income 459,960 526,255 601,705 669,471 Raw material expenses -216,770 -250,369 -281,666 -309,832 Employee expenses -22,290 -24,965 -27,961 -31,316 Other Operating expenses -107,660 -123,898 -141,719 -157,388 EBITDA (Core) 113,240 127,023 150,360 170,935 Growth, % 18.0 12.2 18.4 13.7 Margin, % 25.0 24.5 25.3 25.9 Depreciation -10,120 -11,120 -12,477 -13,881 EBIT 103,120 115,903 137,883 157,054 Growth, % 19.0 12.4 19.0 13.9 Margin, % 22.8 22.3 23.2 23.8 Interest paid -1,080 -1,134 -1,191 -1,250 Other Income 5,130 6,259 7,197 8,277 Non-recurring Items -2,270 0 0 0 Pre-tax profit 104,900 121,027 143,890 164,081 Tax provided -25,360 -31,467 -37,411 -42,661 Profit after tax 79,540 89,560 106,478 121,420 Growth, % 18.0 9.5 18.9 14.0 Net Profit (adjusted) 79,540 89,560 106,478 121,420 Unadj. shares (m) 2,350 2,350 2,350 2,350 Wtd avg shares (m) 2,350 2,350 2,350 2,350

Balance Sheet Y/E Mar, Rs mn FY21 FY22E FY23E FY24E

Cash & bank 43,210 69,475 104,140 142,366 Marketable securities at cost 26,830 26,830 26,830 26,830 Debtors 16,480 18,866 21,583 24,018 Inventory 33,830 34,108 39,019 43,420 Other current assets 16,050 16,050 16,050 16,050 Total current assets 136,400 165,329 207,622 252,684 Investments 20 20 20 20 Gross fixed assets 541,050 553,050 565,050 577,050 Less: Depreciation -30,780 -41,900 -54,377 -68,258 Add: Capital WIP 6,230 6,230 6,230 6,230 Net fixed assets 516,500 517,380 516,903 515,022 Non-current assets 13,140 13,140 13,140 13,140 Total assets 681,160 710,969 752,785 795,966

Current liabilities 108,410 121,613 136,644 150,114 Provisions 15,510 17,756 20,313 22,604 Total current liabilities 123,920 139,369 156,957 172,718 Non-current liabilities 82,900 82,900 82,900 82,900 Total liabilities 206,820 222,269 239,857 255,618 Paid-up capital 2,350 2,350 2,350 2,350 Reserves & surplus 471,990 486,350 510,578 537,998 Shareholders’ equity 474,340 488,700 512,928 540,348 Total equity & liabilities 681,160 710,969 752,785 795,966

Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY21 FY22E FY23E FY24E

Pre-tax profit 104,900 121,027 143,890 164,081 Depreciation 10,120 11,120 12,477 13,881 Chg in working capital 12,300 12,785 9,960 8,925 Total tax paid 37,110 -31,467 -37,411 -42,661 Other operating activities 9,487 0 0 0 Cash flow from operating activities 173,917 113,465 128,915 144,226 Capital expenditure -470,930 -12,000 -12,000 -12,000 Chg in marketable securities -14,350 0 0 0 Other investing activities 260,670 0 0 0 Cash flow from investing activities -225,210 -12,000 -12,000 -12,000 Free cash flow -51,293 101,465 116,915 132,226 Equity raised/(repaid) 402,620 0 0 0 Dividend (incl. tax) -95,175 -75,200 -82,250 -94,000 Other financing activities -317,157 0 0 0 Cash flow from financing activities -9,712 -75,200 -82,250 -94,000 Net chg in cash -61,005 26,265 34,665 38,226

Valuation Ratios

FY21 FY22E FY23E FY24E

Per Share data EPS (INR) 33.8 38.1 45.3 51.7 Growth, % 8.4 9.5 18.9 14.0 Book NAV/share (INR) 201.8 208.0 218.3 229.9 FDEPS (INR) 34.8 38.1 45.3 51.7 CEPS (INR) 40.1 42.8 50.6 57.6 CFPS (INR) 70.8 45.6 51.8 57.9 DPS (INR) 40.5 32.0 35.0 40.0 Return ratios Return on assets (%) 18.4 13.0 14.7 15.8 Return on equity (%) 17.2 18.3 20.8 22.5 Return on capital employed (%) 23.8 15.6 17.9 19.4 Turnover ratios Asset turnover (x) 1.9 1.1 1.3 1.5 Sales/Total assets (x) 1.0 0.7 0.8 0.9 Sales/Net FA (x) 1.6 1.0 1.1 1.3 Working capital/Sales (x) (0.1) (0.1) (0.1) (0.1) Receivable days 13.3 13.3 13.3 13.3 Inventory days 27.3 24.0 24.0 24.0 Payable days 90.8 90.3 91.4 92.1 Working capital days (33.9) (37.0) (36.9) (36.8) Liquidity ratios Current ratio (x) 1.3 1.4 1.5 1.7 Quick ratio (x) 0.9 1.1 1.2 1.4 Interest cover (x) 95.5 102.2 115.8 125.6 Net debt/Equity (%) (9.1) (14.2) (20.3) (26.3) Valuation PER (x) 68.7 62.7 52.8 46.3 PEG (x) - y-o-y growth 8.1 6.6 2.8 3.3 Price/Book (x) 11.8 11.5 11.0 10.4 EV/Net sales (x) 12.2 10.6 9.2 8.3 EV/EBITDA (x) 49.0 43.5 36.5 31.9 EV/EBIT (x) 53.8 47.6 39.8 34.7



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. We have different threshold for large market capitalisation stock and Mid/small market capitalisation stock. The categorisation of stock based on market capitalisation is as per the SEBI requirement.

Large cap stocks Rating Criteria Definition

BUY >= +10% Target price is equal to or more than 10% of current market price

NEUTRAL -10% > to < +10% Target price is less than +10% but more than -10%

SELL <= -10% Target price is less than or equal to -10%.

Mid cap and Small cap stocks 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%.

Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report will mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.

This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future

N (TP 1760)

B (TP 2160)

B (TP 2160)B (TP 2160)

B (TP 2170)B (TP 2000)

B (TP 2330)B (TP 2330)

B (TP 2330)

B (TP 2330)B (TP 2360)B (TP 2300)

B (TP 2450)

B (TP 2600)B (TP 2600)

B (TP 2800)B (TP 2800)B (TP 3000)

700

900

1100

1300

1500

1700

1900

2100

2300

2500

2700

A-18 O-18 D-18 J-19 M-19 A-19 J-19 J-19 S-19 N-19 D-19 F-20 M-20 M-20 J-20 A-20 S-20 N-20 D-20 F-21 A-21 M-21 J-21



prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.

Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report.

Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in this

report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the

company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this

research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for

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

the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in 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

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.

Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.

Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event will PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.

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Kindly note that past performance is not necessarily a guide to future performance.

For Detailed Disclaimer: Please visit our website www.phillipcapital.in IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report is a product of PhillipCapital (India) Pvt. Ltd. which is the employer of the research analyst(s) who has prepared the research report. PhillipCapital (India) Pvt Ltd. is authorized to engage in securities activities in India. PHILLIPCAP is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor.

Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc, 40 Wall Street 59th Floor, New York NY 10005, a registered broker dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through PHILLIPCAP. Rosenblatt Securities Inc. accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor.

The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of Rosenblatt Securities Inc. and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account. Ownership and Material Conflicts of Interest Rosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as determined in accordance with Section 13(d) of the Exchange Act, 1% or more of any of the equity securities mentioned in the report. Rosenblatt Securities Inc, its affiliates and/or their respective officers, directors or employees may have interests, or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein. Rosenblatt Securities Inc. is not aware of any material conflict of interest as of the date of this publication Compensation and Investment Banking Activities Rosenblatt Securities Inc. or any affiliate has not managed or co-managed a public offering of securities for the subject company in the past 12 months, nor received compensation for investment banking services from the subject company in the past 12 months, neither does it or any affiliate expect to receive, or intends to seek compensation for investment banking services from the subject company in the next 3 months. Additional Disclosures This research report is for distribution only under such circumstances as may be permitted by applicable law. This research report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient, even if sent only to a single recipient. This research report is not guaranteed to be a complete statement or summary of any securities, markets, reports or developments referred to in this research report. Neither PHILLIPCAP nor any of its directors, officers, employees or agents will have any liability, however arising, for any error, inaccuracy or incompleteness of fact or opinion in this research report or lack of care in this research report’s preparation or publication, or any losses or damages which may arise from the use of this research report.

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Investing in any non-U.S. securities or related financial instruments (including ADRs) discussed in this research report may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the U.S. Securities and Exchange Commission. Information on such non-U.S. securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect within the United States.

The value of any investment or income from any securities or related financial instruments discussed in this research report denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related financial instruments.

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