India FMCG Bonanza Apr 2015

April 2015
Bonanza
Analyst
Harsh Gupta
harsh.gupta@bonanzaonline.com
Tel: +91-22-3083950
make money. not mistakes.
FMCG SECTOR
Lower commodity prices coupled with
increased affordability to boost prospects
Margins to improve in 1HFY16 with
Modern trade to drive revenues
declining crude oil prices
higher for FMCG sector
Goods and Service tax (GST) implication
Pick-up in economic growth with higher per
likely to be effective from FY17
capita income will be a fillip for the sector
FMCG SECTOR
CONTENTS
SECTOR
Introduction to FMCG
(3-22)
4
Key Growth Drivers
11
Margins to improve in 2HFY15 & 1HFY16from declining raw material prices
14
Goods and Service tax (GST) implication likely to be from FY17
16
Pick-up in economic growth with higher per capita income will be a fillip
for the sector
17
Modern trade to drive revenues higher for FMCG sector
18
Valuation Parameters
19
Key Risk and Concerns
19
Coverage Summary
20
COMPANIES
(23-72)
Godrej Consumer Products Ltd. : Inorganic growth intact
23
Britannia Industries Ltd. : Reinforcing Pillars
35
Jyothy Laboratories Ltd. : Transformed strategies will enhance prospects
51
Hindustan Unilever Ltd. : Treading Waters
61
Institutional Research
4 April 2015 | Page 2
India Research
6 April 2015
FMCG SECTOR
Thematic Report
Lower commodity prices coupled with

increased affordability to boost prospects
Hindustan Unilever Ltd. (HUL)
Margins to improve in 1HFY16 with declining crude oil prices

With declining crude oil prices, the FMCG companies are going to be highly
benefited. The petroleum derivatives forms the raw material for packaging i.e.
tubes, bottles, covers, Styrofoam, and so on, for diapers, detergents, shampoos,
cosmetics and perfumes. Crude oil prices have been on a downward spree from
the past couple of quarters. The price of crude oil was very well distributed in a
range of USD 97-106/bbl from the start of 2013 till it has witnessed a level of USD
90.5/bbl in the month of September 2014 and a further decline till USD 53.3/bbl in
December 2014 due to increasing production from Libya, Russia and Canada,
coupled with the lack of demand from Europe, Japan, China and other countries
consequentially putting strong pressure on further deteriorating crude oil prices.
Goods and Service tax (GST) implication likely to be effective from FY17
GST for the purpose of integrating multiple indirect taxes under a unified tax
system is likely to be implemented in FY17. The rate of GST on services is likely
to be 16% and on goods is proposed to be 20% Excise duty. The current excise
duty is 12% (GST) is essentially a tax which will replace all indirect taxes levied on
goods and services by the central and state governments in India, and is being
seen as the next logical step towards a comprehensive indirect tax reform in the
country. At present, the range of taxes in force includes Central Sales Tax, State
Sales Tax, Octroi (at the city level), Entry Tax (for entering into states) and the
list goes on.
Pick-up in economic growth with higher per capita income will be a fillip for
the sector
With higher disposable income due to growing economy and reduction of personal
income taxes over the decades, we believe FMCG industry continues to grow at
CAGR of 12% to 14% (between FY15-20E) on the back of superior consumer
spending and further liberalization of the sector. Though slowing economy may
cause threat to growth prospects in the FMCG sector, our analysis suggest that
FMCG will witness growth of 9.6% amidst such hurdles.
Current Price:
INR 881
Target Price:
INR 1,000
Expected Upside
14%
52 Week High/Low
981/ 550
Avg. 6 Month (mn)
1,636
Britannia India Ltd. (BIL)

Current Price:
INR 2,185
Target Price:
INR 2,600
Expected Upside
19%
52 Week High/Low
2,250/ 821
Avg. 6 Month (mn)
186
Godrej Consumer Products Ltd.

(GCPL)
Current Price:
INR 1,073
Target Price:
INR 1,480
Expected Upside
38%
52 Week High/Low
1,227/ 740
Avg. 6 Month
186
Jyothy Laboratories Ltd. (JLL)

Current Price:
INR 273
Target Price:
INR 325
Expected Upside
19%
52 Week High/Low
315/171
Avg. 6 Month
250

Modern trade has opened up an important sales channel catering to the growing
urban shoppers who have a strong purchasing power, abundant alternatives and
a willingness to experiment. This sales channel has not only nudged consumers to
make more impulsive purchases but has also led to the growth of premium
products and has incubated new product categories. Although modern trade has
only a 9.2% market share in the overall FMCG trade in India, it is growing much
faster than general trade.The recent proposal by the government to permit FDI in
multi-brand retail is expected to provide a further fillip to Modern trade in India.
Exhibit 1: Peer Comparison (data on FY14 basis)
Company (mn)
Market Cap
HUL
Dabur
GCPL
Britannia
JLL
1,305,512
313,102
289,900
101,139
37,653
Diluted EPS
17.9
3.8
22.3
30.8
5.9
P/E
33.7
46.6
38.1
27.3
35.4
EV/EBITDA
25.1
33.2
25.0
15.9
19.0
ROE
131.8
40.7
23.1
49.3
13.7
PAT Margins (%)
13.0
13.6
10.4
5.7
8.1
Sources: Company, Bonanza Research
Stock Performance
HUL
BIL
1M
3M
6M
1Y
-5%
13%
16%
44%
3%
21%
55%
161%
GCPL
-8%
10%
6%
28%
JLL
-2%
5%
12%
32%
CNX FMCG
-6%
-1%
0%
9%
CNX Nifty
-5%
3%
7%
27%
Analyst
Harsh Gupta
Tel: 91 22 3086 3950
FMCG SECTOR
INTRODUCTION: FAST MOVING CONSUMER GOODS SECTOR

The Fast Moving Consumer Goods sector, FMCG as better known is broadly divided into
three sub-sectors i.e. Personal Care Segment, Household Care Segment and last but not
the least Food & Beverages Segment. The total market size of the FMCG sector in India
stands at USD52.7bn or Rs 318,835 Cr. in CY14 growing at a CAGR of 14.9% from past
5 years. We may expect the market size to cross USD 100 bn mark by the end of CY19
keeping the pace constant at which the sector is growing. FMCG market is approximately
3% of Indian GDP which stands at USD 1,877bn in CY14.
Exhibit 1: FMCG Industry contribution in Total Indian GDP
2500
2092.9
2000
1876.8
1880.1
1858.7
1710.9
1500
100.0
2228.9
92.2
80.2
1974.4
80.0
70.0
60.0
69.7
60.6
1365.4
52.7
50.0
45.0
1000
30.2
40.0
36.8
34.8
90.0
30.0
CAGR - 15%
500
20.0
10.0
0.0
0
2010
2011
2012
2013
2014
Total India GDP (US$ bn)
2015E
2016E
2017E
2018E
FMCG Market Size(US$ bn)
Source: IBEF, Bonanza Estimates
FMCG in Rural & Urban Markets

The rural and urban market contributes differently to the FMCG sector. In the past few
years, many companies present in the FMCG sector have been focusing on exploiting
growing demand from the rural sector. The contribution from rural market is USD17.4 bn
in CY14growing at a CAGR of 14% whereas urban market contributes USD 35.3 bn
growing at a CAGR of 16%. We expect the scope of penetration in rural markets is still
high compared with the urban markets. We expect rural markets to outperform urban
markets as growth in the urban region is at its maturity levels and the trajectory is to
reverse in favour of rural markets with an expectation to grow at 16-17% going forward
whereas urban markets are projected to grow at 13-14%.
Exhibit 2: FMCG Rural Urban Profile
70
60
60
52
46
50
40
35
40
30
20
33
30
17
15
20
24
28
10
0
2013
2014E
2015E
Rural Market share (US$ bn)
2016E
2017E
2018E
Urban Market share (US$ bn)
Source: IBEF, Bonanza Estimates
FMCG SECTOR
Major Companies Contributing to Indian FMCG Sector

Exhibit 3: Indian FMCG Majors
Market Capitalisation (Rs. Cr.)
United Spirits Ltd.
Tata Global
Beverages Ltd.
Emami Ltd.
United Breweries
Ltd
Britannia
P&G
Marico Ltd.
ITC Ltd.
Colgate Palmolive
Godrej Consumer
Products Ltd.
Jubilant foods
Dabur
Mcleod Russel
Nestle India Ltd.
HUL
300,000
250,000
200,000
150,000
100,000
50,000
-
Total Revenue FY14 (Rs Cr.)
Source: BSE, Bonanza Research
Refer to Exhibit 3; HUL and ITC are the major contributors in the FMCG sector. ITC is a
diversified player in Hospitality and Tobacco business with other FMCG products which
contributes approximately 60% and 2% respectively to its total sales and rest part is into
other FMCG products. Dabur, Colgate Palmolive, Godrej Consumer, United Spirits and
Nestle are other major contributors to the Indian FMCG sector registering total revenues
of more than Rs 3000 Cr.
Exhibit 4: Peer Comparison

Company
HUL
Market cap.
Diluted EPS (Rs)
P/E( x)
EV/EBITDA(x)
ROE (%)
Rs Cr
FY13
FY14
FY13
FY14
FY13
FY14
FY13
FY14
130,551
18
18
27
34
21
25
124
132
Dabur
31,310
40
47
29
33
45
41
Britannia
10,116
20
31
27
27
15
16
40
49
GCPL
28,992
15
17
52
51
39
37
19
20
3,765
61
35
19
19
14
Jyothy Labs
Source: Company Reports, Bonanza Research
FMCG SECTOR
Sector Classification
Exhibit 5: FMCG classification into segments and sub segments
FMCG
Sector
Personal Care
Household
Care
Food &
Beverages
Oral Care, Hair Care,

Skin Care, Etc.
Fabric Wash,
Household Cleaners,
Aerosols, Etc.
Health Beverages,
Staples, Cereals, Dairy
Products, Soft Drinks,
Snacks, Etc.
Source: Bonanza Research
Segments: FMCG Sector

The FMCG sector is divided mainly into 3 segments namely Personal Care, Household
Care and Food and Beverages. The Food & Beverage segment under FMCG sector is
the major contributor with 43% contribution followed by Personal Care Segment with
22% contribution along with Hair care contribution of 8% and Baby care contributing to
2%. Fabric and Home care together contributes 16% in the total FMCG sector.
Exhibit 6: FMCG Sector Break-up
Others, 5%
Baby Care, 2%
OTC Products, 4%
Households, 4%
Hair Care,
8%
Food Products, 43%
Fabric Care, 12%
Personal Care, 22%
Market Break up of Indian FMCG Industry 2013

Source: IBEF
FMCG SECTOR
Personal Care Segment

Exhibit 7: Share of FMCG companies in Shampoo market
Shampoo Market Share

9%
10%
46%
HUL
P&G
Dabur
Cavin Care
12%
Others
23%
Source: IBEF
The Indian personal care industry is estimated at INR~850bn. The industry is divided into
personal wash, hair care, oral care, skin care, cosmetics, mens toiletries and fragrances.
Most segments of this industry face challenges through a decline in lower sales due to
lower volumes as well as lower realization. The next phase of growth has to come from
the rural market as the urban markets are near saturation levels in terms of penetration.
The industry has a low entry barrier and competition is severe. Besides the large
multinational players, there are some leading domestic players as well as the huge
unorganized players. Though most of the market share is with the larger players,
companies vie for the marginal market share. Cheaper imports and duplicate products
are also affecting the major players. Companies have been adopting promotion schemes
to dole out freebies and repackaging products in smaller packages to cater to a wider
consumer base are some recent trends.
The way ahead for the personal care companies is to introduce new and better product,
improve penetration, and make the consumer trade-up in price and quality. Rural
marketing will be a major thrust area for all companies. Under Personal care segment,
HUL is an obvious leader in hair care shampoo segment with a market share of 46%
followed by P&G and Dabur. Sunsilk and Clinic Plus are the most popular brands of HUL
followed by Head & Shoulders of P&G.
Exhibit 8: Hair oils market share
Amla Based Oils

Light Hair Oils
54%
46%
Cooling Oils
Others
Coconut Hair Oil Market size
Non Coconut Hair Oil Market size
Source: IBEF
FMCG SECTOR
Hair care - Oils
The hair oil market is valued at INR 6 bn growing at an impressive 6-7% in volume terms
despite the high penetration level. There are two types hair oil available in the market;
coconut oil and non greasy perfumed oil. Coconut oil comprises approximately 46% the
total market leading by Maricos Parachute Coconut Oil and the balance comprises the
non greasy perfumed oil. Usage of hair oil is an everyday habit with 50% of the
population out of which some perceive that massaging the head with hair oil has a
cooling impact. Penetration in hair oil segment is moderately high at ~87% and uniformly
distributed among the urban and rural areas.
Hair Care Shampoos
Shampoos market in India is valued at INR 4.5 bn with penetration level at 13% only.
The market is expected to heat-up due to lower duties and aggressive marketing and
promotion strategies employed by the players. Shampoo available in sachet has
constructed an image of affordability, comprising of ~40% of the total shampoo sale. The
Indian shampoo market is characterised by a twin-benefit platform: cosmetic and antidandruff. It is basically an upper middle class product, as more than 50% of the
consumers use ordinary toilet soap for washing hair. While the awareness level is high,
the penetration level is very low at about 30% in the metros. Urban markets account for
80% of the total shampoo market. The penetration level is rapidly increasing due to
decline in excise duty, which was 120% in 1993 to 30% currently.
Oral Care
The oral care market can be segregated into toothpaste (60%), toothpowder (23%) and
toothbrushes (17%). While 60% of toothpaste is sold on the family platform, around 35%
is sold on cosmetic propositions. On the other hand, while toothpowder accounts for 52%
of the market, red toothpowder accounts for 40% and black toothpowder accounts 8%.
The penetration level of toothpastes/powder in urban areas is 3 times that in the rural
areas. Traditional materials such as neem and tobacco are popular for dental hygiene in
the rural areas; Frequency of usage for toothpaste is only 1.5 times among other
consumers, compared with 2 times in the developed world. Per capita consumption of
toothpaste is only 70gm compared with 300gm in Europe and 150 gm in Thailand. Given
the low per capita consumption and penetration rates, toothpaste demand is mainly
being driven by the overall market growth of 8-10%. Toothpowder growth is also being
driven by the rural segment.
Major Companies Present in Personal care Segment

1.
2.
3.
4.
5.
HUL (Body Care, Hair Care, Oral Care, Skin Care)

GCPL (Hair Care Godrej Expert, Body Care - Cinthol)
Dabur (Hair Care, Oral Care, Skin Care)
ITC (Body Care)
Emami Ltd. (Skin Care)
Exhibit 9: Personal Care Majors

Company
Segment
Sub-Segment
Brand Leadership
HUL
Body Care
Soap Bar
Lifebuoy, LUX
HUL
Body Care
Body Wash
LUX
Colgate Palmolive
Oral Care
Toothpaste
Colgate
GCPL
Hair Care
Hair Colour
Godrej Renew
HUL
Hair Care
Shampoo
Clinic Plus, Sunsilk
Dabur
Skin Care
Bleach
Fem Oxybleach
HUL
Skin Care
Face Cream
Fair & Lovely
Marico
Hair Care
Hair Oil
Parachute
Reckitt Benckiser
Body Care
Liquid Hand Wash
Dettol
Source: Industry Sources, Bonanza Research
FMCG SECTOR
Household Care Segment

The household care market of India is a burgeoning industry which comprises of
products used for the upkeep of houses for day to day use. The rapid urbanization of the
Indian population along with rising awareness pertaining to home hygiene has led to a
growth in demand for homecare products. The household care has been in general
perceived as chore which has been transitioning rapidly, impelled by consumers desire
to be house- proud. This has resulted in the creation of a marketplace of easy to use,
convenient and multipurpose products. However, the industry is characterized by low
penetration rates and is presently in development phase, with the presence of only
limited number of players, thus making it an oligopolistic organized market.
The rise in personal disposable income coupled with the evolving lifestyle of the rural and
urban population and rising awareness pertaining to maintenance of hygienic home
conditions have contributed towards promoting the sales of toiletries and household
cleansing products in India. The toiletries and household cleansing market is expected to
grow at a CAGR of 16.36% from FY2014-FY2019. The dish washing market has
displayed rapid growth over the past five years and has majorly been dominated by the
organized players who occupy 50% market share in FY2014. The major brands of this
market are Vim, Exo and Pril which have significant revenue contribution. Within this
market, the liquid dish wash have been the fastest growing segment from FY2009FY2014.
Floor cleaning market is the second largest product category of the toiletries and
household cleansing market of India. As per Euromonitor, Reckitt Benckiser controls
surface care market with 57% share through brands such as Dettol, Easy-Off Bang, Lizol
and Colin. The floor cleaning market has been further segmented into dish wash bars,
liquid and powder in which dish wash bars commanded a predominant share. Lizol,
Domex and Mr Muscle were the major players of the dish washing market with Lizol
positioned as the market leader.
The toilet cleaning market had displayed a consistent revenue growth. Growing
awareness, easier access to range of products through organized retail formats and
changing lifestyles have been the key growth drivers for the sector with even rural
households starting to display preference for toilet cleaner products instead of phenyl
and acids which facilitated the further expansion of the industry in India. Reckitt
Benckiser dominates toilet care space with its brand Harpic enjoying 69% market share
in 2013, as per Euromonitor.
Liquid hand wash is a concentrated market with very few major brands operating in the
market. The major brands are Dettol, Savlon, Lifebuoy and Palmolive among others.
Dettol dominated the market with a revenue share of ~50% in FY12. The liquid hand
wash market was valued at INR ~3,000 million in FY12.
The market is expected to grow in the coming years with increasing number of innovative
product launches by the existing players focusing on niche uses and convenience such
as multifunctional cleaners. These multifunctional cleaners could be used for multiple
domestic applications or liquid hand washes which exhibits both skincare and germicidal
properties. The preferability for the non-ionic surfactants with their inherent bio-friendly
properties and degradability are also likely to make headway in the household care
market of the country.
Major Companies Present in Household care Segment
1. Reckitt Benckiser (Toilet Cleaner Harpic, Aerosol Product - Mortein)
2. Godrej Consumer Products Ltd. (Fabric wash - Ezee and Aerosol Products Good
Knight and HIT)
3. Dabur India (Air Freshener - Odonil, Aerosol Products)
4. Jyothy Lab (Dish wash and Fabric wash)
5. HUL (Dish wash and Fabric wash)
FMCG SECTOR
Exhibit 10: Household Care Segment
Sub-Segment
Brand Leadership
Market
Share
Reckitt Benckiser Home Care
Toilet Cleaner
Harpic
69%
GCPL
Fabric Wash
Liquid Wash
Ezee
75%
HUL
Fabric Wash
Detergent
Surf Excel
36%
Ujala
70%
Company
Segment
HUL
Dish Wash
Liquid Fabric
Whitener
Liquid
HUL
Dish Wash
Dish Bar
Dabur India
Home Care
Jyothy Lab
Fabric Wash
Air Freshener
Mosquito
GCPL
Home Care
Repellent
Source: Industry Sources, Bonanza Research
Competitors
Dettol, Lizol,
Domex,
SaniFresh, Mr.
Muscle
Comfort,
Safewash, Vanish
Tide, Ariel, Rin,
Wheel
Robin Blue, Rin
Vim
60%
Pril
Vim
65%
Exo
Odonil
42%
Air Wick, Ambipur
Good Knight
30%
Maxo, All Out
Food & Beverages Segment

The Indian food industry stood around Rs 247,680 crore (USD 39bn) in 2013 and is
expected to grow at a rate of 11%CAGR to Rs 408,040 crore (USD 64.3bn) by 2018.
Indian agricultural and processed food exports during April-May 2014 stood at USD
3,814 mn, according to data released by the Agricultural and Processed Food Products
Export Development Authority (APEDA).
India has 85,000 bakery units, of which 75,000 operate in the unorganised sector,
garnering a 65% market share. The per capita consumption of bakery products stands
around 1-2kg/annum.
The Indian dairy industry has grown considerably post the white revolution and reports
suggest that with current growth rate of approximately 3-4%, it is thought to grow to 185
mn tonne and become a USD24 bn organised industry by 2020 and USD140 bn overall
including the unorganised sector.
Exhibit 11: F&B Segment
Company
F&B Segment
Brand Leadership
Britannia
Breads & Biscuit
Britannia, Good Day
Amul
Amul Butter
HUL
Dairy Products
Packaged Foods,
Personal Care
Soups
Nestle
Food & coffee
Maggi, Nescafe
ITC
Aashirwad Flour, Vivel

Knorr
Source: Company Websites, Bonanza Research
FMCG SECTOR
Key Growth Drivers for FMCG Sector in India

Exhibit 12: Impact of FMCG Sector drivers
Growth Drivers
Description
Impact
GDP Growth
GDP has witnessed a growth of 7% approximately

from 2001-2010 which is expected to grow by 8%
approximately from 2011-2020.
Positive
Growing Population
Population is expected to grow at a rate of 1.2%

from 2011-2020 against a growth of 1.5% witnessed
from 2001-2010.
Neutral
Changing Lifestyle
Changing taste and preferences of consumers and

shift in age groups has provided potential
Positive
Government Policies
NREGA, Farm Loan waiver, Goods and Services

Tax (GST) and increasing FDI investment limits are
some of the initiatives taken or intended to be taken
by the government to boost up investments in the
FMCG sector.
Positive
Modern Trade
Modern trade has emerged as a high volume

channel for distribution by FMCG players. Second,
the share of some consumer product categories
such as processed food&beverages is also
expected to grow rapidly within organized retail.
Positive
Category Wise Penetration in India

Exhibit 13: Segmental Penetration (%)
120
100
80
60
40
20
CY12
Cold Cream
Antiseptic Cream
Fairness Cream
Talcum Powder
Shampoo
Toothpaste
Hair Oil
Detergent Bars
Washing Powder
Toilet Soaps
CY13
Source: IBEF
Market Leader Category Wise

Exhibit 14: Segment Leaders
Category
Market Leader
Market Share
Brand Name
Competitors
Hair Oil
Marico
42%
Dabur, Bajaj
Shampoo
HUL
46%
Oral Care
Colgate
50%
Parachute
Sunsilk, Clinic Plus,
Dove
Colgate
HUL, Dabur
P&G, Dabur
Skin Care
HUL
58%
Fair & Lovely
Loreal, P&G
Fruit Juice
Dabur
50%
Real Active
Pepsico
Source: IBEF
FMCG SECTOR
Per Capita Consumption in low penetrated segments

Exhibit 15: Segmental Per Capita Consumption across neighbouring nations
9
8
7
6
5
4
3
2
1
0
India
Indonesia
Skin care
China
Shampoo
Malaysia
Thailand
Toothpaste
Source: IBEF
As refer to Exhibit 15, it is visible that India is having lowest per capita consumption in
low penetrated markets as compared to its neighbouring countries in Asia i.e. China,
Malaysia, Thailand and Indonesia. There could be a scope of high growth in such
categories especially in India. The penetration level in toilet soaps and fabric wash
segment is extremely high which makes very difficult for any new player to enter this
segment and compete with existing majors. With lower penetration in shampoos,
powders and skin cream segments, there is a scope of penetration in these segments
and HUL as an obvious market leader in shampoos and skin cream segment with 46%
market share and 58% market share respectively, is going to be largely benefitted. The
per capita consumption in India for such products is still at a growing stage as compared
to other nations. The per capita consumption of skincare products in India is ~USD 0.3,
shampoos USD 0.3 and toothpastes USD 0.4 indicates high potential for FMCG
companies to expand their reach.
FMCG SECTOR
Changing Consumption Pattern across India

The consumption pattern of the consumers has seen a shift in past few years. We can
refer to Exhibit 16 that the consumers have a preference for shampoo over biscuits.
Shampoos in hair care segment have been reaching to 79% of the total stores where
Biscuits reach out to 78% of the total stores.
Exhibit 16: Segment wise stores reach
79%
78%
75%
70%
68%
64%
63%
59%
54%
Stores (In Lacs)
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Toothbrush
Skin Creams
Detergent Cakes
Tooth Pastes
Salty Snacks
Hair Oils
Washing
Powders/Liquids
Toilet Soaps
Biscuits
35%
Shampoo
80
70
60
50
40
30
20
10
0
Reach (%)
Source: IBEF
FMCG SECTOR
Margins to improve in 2HFY15 & 1HFY16 from declining raw material

prices
With declining crude oil prices and crude oil derived products, the FMCG companies are
going to be highly benefited. We believe, the FMCG companies are going to see an
improvement of 100-300 bps in their profit margins with price of crude oil get halved to
USD 50.
The petroleum derivatives form the raw material for packaging i.e. tubes, bottles, covers,
Styrofoam, and so on, for diapers, detergents, shampoos, cosmetics and perfumes. The
crude oil derivatives account for 15-30% of the total cost of making FMCG products
depending on company to company.
The crude oil prices have been on a downward spree from past few quarters. The price
of crude oil was very well distributed in a range of USD 97 to USD 106/bbl from the start
of 2013 till it has witnessed a level of USD 90.5/bbl in the month of September 2014 and
a further decline till USD 53.3/bbl in December 2014 due to increasing production from
Libya, Russia and Canada, also with lack of demand from Europe, Japan and other
countries the crude oil prices have been in pressure and declined significantly. We may
expect that crude oil prices to settle near USD 40/bbl, the levels witnessed in early
CY2009.
Exhibit 17: Crude Oil Price Trend
Crude Oil Prices (USD/bbl)
120.0
100.0
106.3
102.6
100.4 98.0
103.2 93.8 98.5 101.5
97.4 97.2
94.997.5 109.0
99.5 103.5 99.7 105.1
90.5
97.4
94.4 96.0
80.0
79.9 65.9
60.0
53.3
40.0
20.0
Jan'15
Dec'14
Nov'14
Oct'14
Sep'14
Jul'14
Aug'14
Jun'14
Apr'14
May'14
Mar'14
Feb'14
Jan'14
Dec'13
Oct'13
Nov'13
Sep'13
Aug'13
Jul'13
Jun'13
Apr'13
May'13
Mar'13
Feb'13
Jan'13
0.0
Source: http://www.macrotrends.net/1369/crude-oil-price-history-chart
Exhibit 18: PFAD Price Trend
Source: Bloomberg
Sugar Price Rs/Qtl
9/30/2014
5/31/2014
1/31/2014
9/30/2013
5/31/2013
1/31/2013
9/30/2012
5/31/2012
1/31/2012
9/30/2011
11/30/2014
6/30/2014
1/31/2014
8/31/2013
3/31/2013
10/31/2012
5/31/2012
12/31/2011
7/31/2011
2/28/2011
9/30/2010
4/30/2010
11/30/2009
6/30/2009
1/30/2009
0.0
5/31/2011
200.0
1/31/2011
400.0
9/30/2010
600.0
5/31/2010
800.0
1/31/2010
1000.0
9/30/2009
4500
4000
3500
3000
2500
2000
1500
1000
500
0
PFAD Prices (USD/MT)
5/30/2009
1200.0
Exhibit 19: Sugar & Wheat Price Trend
Wheat Price Rs/Qtl
Source: Bloomberg
FMCG SECTOR
Palm Fatty Acid Distillate (PFAD) prices down 18% since January 2014
The main contributor in packaging of FMCG products, PFAD have been witnessing a
considerable downside in its prices since Jan 2014. The price of PFAD is now quoting at
USD 583/MT down 18% from USD718 in Dec 2013. Following a decline in crude oil
prices from past couple of quarters, PFAD prices have been declined too.
Sugar prices softened though Wheat prices remain stable

The continuous fall in commodity prices from past few months have been positive for the
industry. The prices of sugar have been softened from past few months. The sugar
prices came down to INR 2,648 per quintal in Nov 2014 compared to INR 3,356 in Nov
2012. The fall in crude oil and other commodity prices can support the fall of sugar prices
whereas the prices of wheat has not much impacted and remain stable at INR 1,590 Per
quintal.
FMCG SECTOR
Goods and Service tax (GST) implication likely to be from FY17

Implication of GST will integrate multiple indirect taxes under a unified tax system.GST is
essentially a tax which will replace all indirect taxes levied on goods and services by the
central and state governments in India, and is being seen as the next logical step
towards a comprehensive indirect tax reform in the country.
At present, the range of taxes in force includes Central Sales Tax, State Sales Tax,
Octroi, Entry Tax (for entering into states) and the list goes on. The rate of GST on
services is likely to be 16% and on goods is proposed to be 20%excise duty, the current
excise duty is 12%, However, for consumers, it is expected that there will be more money
to spend on FMCG products as income tax exemptions limits have been hiked to
INR250,000
The implementation of GST will lead to rationalisation of warehousing, lower logistics
cost and reduce delivery time for goods manufacturers and it will remove all forms of
Octroi, local body and other forms of indirect taxes.
Key Developments favouring FMCG
Relaxation of license rules - Industrial license is not required for almost all food and
agro-processing industries, barring certain items such as beer, potable alcohol and
wines, cane sugar, and hydrogenated animal fats and oils as well as items reserved for
exclusive manufacture in the small-scale sector.
Statutory Minimum Price - In October 2009, the government amended the Sugarcane
Control Order, 1966, and replaced the Statutory Minimum Price (SMP) of sugarcane with
Fair and Remunerative Price (FRP) and the State-Advised Price (SAP)
FDI in organised retail - The government recently approved 51% FDI in multi-brand
retail, which will boost the nascent organised retail market in the country. It also allowed
100% FDI in the cash and carry segment and in single brand retail.
FMCG SECTOR
Pick-up in economic growth with higher per capita income will be a

fillip for the sector
India's GDP is now measured in market prices instead of factor cost and the base year
was changed to 2011/12 from 2004/05. According to revised figures, the economy
advanced 6.5% in the June quarter (5.7% under the older methodology) and 8.2% in
September quarter (5.3% was initially reported).Indian GDP is expected to register an
overall growth of 7% in CY14 under the new methodology and expected to see a growth
above 8% by end of CY15.
India GDP Annual Growth Rate

Exhibit 20: Quarterly GDP growth rate (y-o-y)
9
8.2
8
7
6.5
6.4
6
5
7.5 7.5
6.5
5.1
4.6
4.4
Q1
Q2
4.5
4
3
2
1
0
CY12
Q3
CY13
Q4
CY14
Source: Tradingeconomics
With higher disposable income due to growing economy and reduction of personal
income taxes over the decades, we believe FMCG industry continues to grow at CAGR
of 12% - 14% between FY15-20 on the back of greater consumer spending and further
liberalization of the sector. Though a slowing economy may cause threat to growth
prospects of FMCG sector but our analysis suggest that in such a worst-case scenario
the FMCG will witness a robust growth of 9%-10% in terms of revenue.
FMCG SECTOR

Modern Trade has opened up an important sales channel catering to the growing urban
shoppers who have strong purchasing power and with more choices, a willingness to
experiment. This sales channel has not only nudged consumers to make more impulse
purchases but has also led to the growth of premium products and incubated new
product categories. Although modern trade has only a 6% share in overall FMCG trade in
India, it is growing much faster than general trade and expected to contribute 10% by
end of CY16. The recent proposal by the government to permit FDI in multi-brand retail is
expected to provide a further fillip to Modern Trade in India.
Modern trade results in
Increased availability of choice in products and services

Rationalization and convergence of prices
Better quality of food and non-food products
Equalization in the standards of living available to consumers between countries
A zero tolerance policy for inefficiencies since consumers will become unwilling to
pay for substandard products and inefficiencies
Modern Trade contributing 6 % in CY12 and expected to contribute

10% of total FMCG sales in CY16
Exhibit 21: FMCG Revenue Channels
Exhibit 22: Modern Trade growing contribution
5%
6%
3%
10%
Grocers
General Stores
6%
Chemists
8%
Paan Plus
59%
13%
Food Stores
Modern Trade
90%
Others
Traditional
Source: IBEF
Modern Trade
Source: IBEF
E-commerce and M-commerce holds promise for the future

E-commerce has been around for a while and trying to establish itself in contributing to
the FMCG sector apart from other sectors. However its contribution to FMCG is still less
than 1%. Despite the consumers increasing access to online payment methods,
shoppers restrict their use of these options largely to travel and electronics. One possible
reason for this could be lack of consumer trust in the quality of FMCG products being
delivered. The other reason could be that e-commerce sites still havent ironed out the
twist in their distribution and deliveries. Late or incomplete deliveries, product
mismatches, etc., have not particularly endeared the concept to online shoppers. Players
like LocalBanya.com and Bigbasket.com are trying to change consumer perception with
new advertising campaigns and investment in optimal distribution capabilities. However,
any change will take time to pay dividends. Moreover e-commerce provides shopping
convenience by sitting at home and delivered at your door step.
M-Commerce, on the other hand, is a relatively new phenomenon. Players like Flipkart
and Amazon are leveraging the rapid growth in mobile internet penetration to reach the
180 mn potential consumers accessing mobile internet from their smart phones. A
number of online retailers have created mobile applications that can be downloaded and
used by consumers.
FMCG SECTOR
Valuation Parameters for FMCG Sector

Exhibit 23: Price Earnings Ratio
70
60
50
40
30
20
10
0
2011
2012
Marico
Colgate
Palmolive
Nestle India
ITC
Jyothy Labs
GCPL
Britannia
Dabur
HUL
2013
2014
Source: Ace Equity
Exhibit 24: EV/EBITDA Ratio

42
36
30
24
18
12
6
0
2011
2012
Marico
Colgate
Palmolive
Nestle India
ITC
Jyothy Labs
GCPL
Britannia
Dabur
HUL
2013
2014
Source: Ace Equity
Exhibit 25: Price/Book Value Ratio

45
40
35
30
25
20
15
10
5
0
2011
2012
Marico
Colgate
Palmolive
Nestle India
ITC
Jyothy Labs
GCPL
Britannia
Dabur
HUL
2013
2014
Source: Ace Equity

1. Risk from volatility in currency movement
2. Increase in the raw material prices
3. Decline in Consumer Confidence Index
FMCG SECTOR
Coverage Summary
Godrej Consumer Products Ltd. (GCPL)
Inorganic growth intact
Investment Rationale
Global businesses reaching 50% of total business, expected to contribute more

going forward
Acquiring leading brands to maintain leadership in present segments
Improving margins on declining raw material prices
Product Innovations and re launches to increase market share
Initiate with Buy, TP 1,480
Britannia Industries Ltd. (BIL)

Reinforcing Pillars
Innovation in Pillar brands to increase market share
Strengthening depth and width of distribution network to boost revenues
Adding Health focused brands to its product line
Cost optimization aid to improve margins with favourable commodity cycle
Initiate with Buy, TP 2,600
FMCG SECTOR
Jyothy Laboratories Ltd. (JLL)

Transformed strategies will enhance prospects
Innovations to continue through investments in high growth brands
HI segment to grow strong on lower base going forward
Margin expansion in sight
Power brands presence expanding geographically
Initiate with Buy TP 325
Hindustan Unilever Ltd. (HUL)

Treading Waters
Strong brand positioning and distribution network - Retaining leadership
Pickup in growth across segments on lower base, F&B to remain healthy
Growth overhangs in rural segment, volumes still to pick up
Re launching existing brands to derive higher demand and keeping market share
intact
Initiate with Buy TP 1,000
FMCG SECTOR
This page has been intentionally left blank
India Research
4 April 2015
Godrej Consumers Product Limited |BUY

INITIATING COVERAGE
Bloomberg Code: GCPL IN | Reuters Code: GOCP.BO
Inorganic Growth Intact

Godrej Consumer Products Ltd. (GCPL) is a perfect blend of domestic and
international business in FMCG products. The companys strategic move to grow
inorganically in 3 continents and mainly in 3 segments has been fruitful for the
company till now. The company has grown at a robust pace in last 5 years at a
CAGR of 40% in terms of its revenues because of international acquisitions made
in past few years which contributes 47% in its total revenues. We expect this
growth to normalize going forward on back of higher growth base.
FMCG
Global businesses reaching 50% of total business, expected to contribute

more going forward
The revenue from international business stands at 47% of the total revenues by
the end of FY14 which stood at merely 15% in FY10 of total sales. We believe
GCPL may see 50:50 revenue contributions from its domestic and international
business going forward. The highest contributor in international sales is from
Indonesia at 45% of total international sales followed by Africa at 25%, Latin
America at 19% and Europe at 10% in FY13. In international business, the
revenues from Africa business are growing at a faster pace vis-a-vis other
business geography.
Bloomberg Code

GCPL 3*3 approach for business expansion has been successful so far where
they have been acquiring companies with brands leading that segment. The
company is focusing on 3 segments focusing in 3 continents. Hair care segment,
Household care segment and Personal care segment and they have chosen Asia,
Africa and Latin America as their target markets. The company has acquired
Rapidol, Kinky Group, Darling Group and Frika all under Hair care segment in
Africa (in different periods) to lead the market in this segment.

GCPL has launched innovative products not only domestically but also globally. In
Household Insecticides (HI) segment GCPL has introduced Hit anti roach gel
and Good Knight Fast Card which has been witnessing pick up in its demand
after a delayed monsoon in FY15. GCPL has also launched Godrej Expert Rich
Hair Creme in the personal care segment. These launches would help GCPL to
maintain their leading market share in HI segment and Hair care segment in India.
Key Financials
INR 1,073
Target Price:
INR 1,480
Expected Upside (%)
38%
Stock Details
GCPL IN
Reuters Code
GOCP.BO
Shares O/S (mn)
340.4
M Cap (INR mn)
3,65,249
52 week H/L (INR)
1,195/701
Shareholding Pattern (%)

Promoter Group
63.3%
FII
28.9%
DII
1.9%
Others
5.8%
Stock Performance Chart

200
150
100
50
0
13-Mar-14
7-Apr-14
7-May-14
30-May-14
24-Jun-14
17-Jul-14
12-Aug-14
8-Sep-14
1-Oct-14
31-Oct-14
27-Nov-14
22-Dec-14
15-Jan-15
10-Feb-15
5-Mar-15

With a significant decline in raw material prices like crude oil and its derivative
products like PFAD, HDPE, LDPE etc. from past couple of quarters and high
exposure of GCPL towards crude oil derivatives will be beneficial for the company.
We expect Q4FY15 and Q1FY16 will reflect improvement in margins on back of
lower crude oil prices. The crude oil prices have been on a downward spree from
past couple of quarters.
Current Price:
GCPL
Nifty
Stock Performance
Return (%)
1 Mth
6 Mths
1 Yr
Absolute
-8%
6%
28%
Relative
-3%
-1%
1%
Analyst
Year to March
FY14
FY15E
FY16E
FY17E
CAGR (%)
Net Sales (Rsmn)
76,024
81,914
96,658
114409
15%
EBITDA (Rsmn)
11,629
14,981
17,081
18092
16%
PAT (Rsmn)
8,193
10,263
11,849
12575
15%
EBITDA Margin (%)
15%
18%
18%
16%
EPS (Rs)
24
30
35
37
16%
EV/EBITDA (x)
26
26
22
26
Harsh Gupta
Tel: 91 22 3086 3950
Source: Company, Bonanza Research
For private circulation only. For important information about Bonanzas rating system and other discloser refer to the end of this material.
Godrej Consumer Products Limited

Godrej Consumer Products Ltd. (GCPL) is growing at a CAGR of 40% in last 5 years in
terms of its revenues because of international acquisitions made in past few years which
contributes 47% in its total revenues. We expect this growth to normalize going forward
on back of higher growth base. The 3*3 strategy has been fruitful so far for the company
as they have a focused approach in 3 continents Africa, Latin America and Asia in 3
segments Personal Care, Hair care and Household care.
Global businesses reaching 50% of total business, expected to contribute

more going forward
At CMP of INR 1,073, the stock is trading at 31x of FY16E EPS and 29x of FY17E EPS.
We assign a BUY rating on the stock valuing the Company 40x on FY17E EPS of INR 37
to arrive at target price of INR 1,480 proposing an upside of ~38%.
Initiate with BUY; TP- INR 1,480
Global businesses reaching 50% of total business,

expected to contribute more going forward
GCPLs 3*3 approach for business expansion has been successful so far where they
have been acquiring companies with brands leading that segment. The company is
focusing on 3 segments focusing in 3 continents. Hair care segment, Household care
segment and Personal care segment and they are focusing in Asia, Africa and Latin
America as their target markets. The revenue from international business stands at 47%
of the total revenues by the end of FY14 which stood at merely 15% in FY10 of total
sales. We expect that this trend will lead to 50:50 revenue sharing between domestic and
international business by FY16. The highest contributor in international sales is from
Indonesia at 45% of total international sales followed by Africa at 25%, Latin America at
19% and Europe at 10% in FY13. We expect Africa business to outperform the Latin
America business in terms of revenue growth considering the acquisitions made in Africa
and growth of more than 30% registered in Q3FY15.
Exhibit 1: Domestic and International revenue mix
Exhibit 2: International revenue mix
90%
60%
80%
50%
70%
60%
40%
50%
30%
40%
20%
30%
20%
10%
10%
0%
0%
Europe
2010
2011
2012
2013
Domestic Business
2014
Indonesia
Middle East
2015E 2016E 2017E

FY12
International Business
Latin
America
Africa
FY13
Source: Company and Bonanza Research
Exhibit 3: Revenues (INR Mn)
Exhibit 4: Profits After Tax (Domestic & International)
70,000
7,000
60,000
6,000
50,000
5,000
40,000
4,000
3,000
30,000
2,000
20,000
1,000
10,000
0
0
FY12
FY12
FY13
FY14
Domestic Revenues (mn)
FY15E
FY13
FY14
FY17E
International Revenues (mn)
FY16E
Domestic PAT (mn)
9M ending Dec
2015
International PAT (mn)

Exhibit 5: PAT Margin (Domestic & International Business)
25%
21%
20%
15%
14%
15%
14%
10%
10%
5%
8%
7%
6%
0%
FY12
FY13
FY14
Domestic
Exhibit 6: EBITDA Margin (Domestic & International Business)

20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
9M ending Dec
FY15
19%
17%
18%
11%
11%
FY13
FY14
19%
14%
13%
FY12
Domestic
International
9M ending Dec
FY15
International
Quarterly Performance by international subsidiaries

Exhibit 7: EBITDA Margins
Exhibit 8: Quarterly Revenues (INR mn)
Indonesia
Africa
Latam
Europe
Indonesia
Latam
Q3FY15
Europe
International businesses are outperforming the domestic business growth in revenues

mainly on back of company maintaining their strategy to grow inorganically. Historically
we have witnessed a robust growth in the revenues and profits from the international
business though PAT margins remain better for the domestic business. The African
business may see some consolidation after GCPL has acquired Frika in the current year,
a hair extension company in South Africa. The profitability is expected to improve on
back of falling crude oil prices and most likely we may see EBITDA and PAT margins
trending up in domestic as well as international businesses. We can see the EBITDA
margins have been stable to positive in last 2 quarters of FY15 and expected to remain
firm in coming few quarters on back of lower crude oil prices.
Africa
Q2FY15
Q3FY15
Q2FY15
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
0%
Q1FY15
5%
Q4FY14
10%
Q3FY14
15%
Q2FY14
20%
Q1FY14
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
25%
International business
exhibits a strong revenue
growth though domestic
business PAT margins
outshine international
business PAT margins.
Acquiring leading brands to maintain leadership in

present segments
GCPL has a strategy to acquire the brands which are leaders in their own segment. The
company has made acquisitions in 3 continents Asia, Latin America and Africa in 3 core
categories - household care, personal care and hair care as per their 3*3 business
strategy.
Africa
GCPL has acquired companies in Africa which are leader in their segment. With
acquisition of Kinky and Rapidol brands in hair care segment in South Africa in 2008 and
2006 respectively, GCPL has become a prominent player in Africa. Moreover acquisition
of Tura in 2010, Nigeria seems to be a strategic fit for GCPL. Tura has been a household
brand for over two decades in Africa, whose products like soaps, moisturising lotions and
skin-toning creams are sold widely. Notably, it has an efficient sales network with over
70% distribution reach in the West African region. For GCPL, which currently has a
relatively stronger presence in South Africa, Tura will further strengthen its presence in
the African continent and also prove to be a solid base for introducing GCPLs own
products in West African countries. To fully capture the synergies, GCPL plans to put in
place a cross-functional team from India, Rapidol, Kinky and Tura operations. That apart,
penetration levels are also low in Africa so the scope for long term growth is quite visible
for GCPL. With a recent acquisition of Frika in South Africa, GCPL is consolidating their
business with larger presence. The company has posted an average growth of 19% in its
sales in first 3 quarters of FY15 boosted by a growth of 30% (y-o-y) in Q3FY15.
African acquisitions
provides an opportunity to
penetrate aggressively for
a long term growth
Asia
GCPL has acquired an Indonesian company, Megasari in 2010 which is present in the
personal care and household care segment. Megasari offers products like Stella, a
leading brand in Air care segment in Indonesia, HIT, also a leading brand in HI segment
and Mitu, which is present in Baby care segment is one of a leading brand in Indonesia.
Indonesia business currently contributes largest share (40%) in total sales from GCPLs
international business.
Latin America
GCPL has made acquisitions in Chile and Argentina in 2012 and 2010 respectively with
acquisitions of Cosmetica Nacional in Chile and Issue group and Argencos in Argentina.
With such acquisitions the company has made its presence in Latin American markets.
Latin American entities

contributing significantly
to the total revenues from
international operations
Exhibit 9: GCPLs acquisitions over a period of time

Name of the company
Country
Entry Segment
Keyline Brands Limited
UK
Personal Care
Acquisition Period
2005
Rapidol (Pty) Limited
South Africa
2006
Kinky Group
South Africa
Megasari
Indonesia
Tura
Nigeria
Hair Care - Color

Personal Care&
Household Care
Hair Extensions
Household Care &
Personal Care
Personal Care
Cosmtica Nacional
Chile
Hair Care Color
2010
Issue Group
Argentina
Hair Care Color
2010
Argencos
Argentina
2010
Darling Group
South Africa
Frika
South Africa
Hair Care Color

Hair Care Hair
Extensions
Hair Care Hair
Extensions
Godrej Global Mideast FZE UAE
2007
2008
2010
2010
2011
2015

With declining raw material prices like crude oil and PFAD prices from past couple of
months and high exposure of GCPL towards crude oil derivatives will be beneficial for the
company. We expect Q4FY15 and Q1FY16 will reflect significant improvement in
margins on back of lower crude oil prices around USD 45/bbl. The price of crude oil was
very well distributed in a range of USD 97 -106/bbl from the start of 2013 till it has
witnessed a level of USD 90.5/bbl in the month of September 2014 and a further decline
till USD 53.3/bbl in December 2014 due to increasing production from Libya, Russia and
Canada, also with lack of demand from Europe, Japan and other countries the crude oil
prices have declined significantly.
Palm Fatty Acid Distillate (PFAD) prices have declined significantly as it is a derivative
product of crude oil. The current prices in Jan 2015 are quoting below last 5 years
average price at USD 583/mt. We expect the prices of Crude Oil to settle around USD
55-60 in 2015 on pickup in demand from Europe and Japan.
We expect the cost of materials which is 45% of net sales will decline by 100 basis points
in FY15 to 44% approximately leading to improvement in EBITDA margins by 300 bps to
18% in FY15 and FY16 from 15% in FY14 whereas the PAT margins are expected to
improve by 100-200 bps in FY15 and FY16. The margins may remain stable in FY16 as
the company will spend on A&P (advertising and promotions) for launching 10 products
next year and hence the benign commodity prices will set off from higher spending on
A&P expenses.
Exhibit 10: Palm Fatty Acid Distillate Prices (USD/MT)
1,200
PFAD Prices (USD/MT)
1,000
800
600
400
200
0
1/30/2009
1/30/2010
1/30/2011
1/30/2012
1/30/2013
1/30/2014
Source: Bloomberg
Exhibit 11: GCPL consolidated PAT & EBITDA Margin

20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
18%
18%
15%
18%
16%
15%
15%
13%
13%
12%
11%
FY12
FY13
FY14
EBITDA Margin
FY15
FY16E
11%
FY17E
PAT Margin

Exhibit 12: Declining Cost of Materials as % of Net Sales
52
50.8
50
48.1
48
46.4
46
44.9
43.9
44
44.5
42
40
FY12
FY13
FY14
FY15E
FY16E
FY17E
Cost of Materials as % of net sales

Source: Ace Equity and Bonanza Research
Goods and Services Tax (GST) would be an added advantage
With expectations of introducing GST in upcoming budget w.e.f. 1 st April 2016, the scope
of margin improvement will add to GCPLs profitability. The company would be able to
save on its freight and transportation cost. The rate of GST on services is likely to be
16% and on goods is proposed to be 20% excise duty.
Product Innovations and re launches to increase

market share
GCPL is innovating and launching new products and relaunching existing brands across
all its business segments to increase its market share. GCPL launched seven to eight
products in 2013 which came down to five to six in 2014 due to economic slowdown. The
company is expected to launch nine to ten new products next year in 2015-16 and most
of them to be present in Hair care and Home care segment.
In soap segment, it has launched Godrej No.1 face wash, relaunched Cinthol with a
brand name Cinthol confidence plus and Godrej Protekt Hand wash and sanitizers
which has been well received in the modern trade. The company has also launched
B:Blunt, which is a premium hair care and styling brand. Apart from these, GCPL has
launched a premium air freshener called Aer and paper-based mosquito repellent called
Fast Card at Rs 1 and Neem low-smoke coil variant in household care segment. They
have launched HIT Anti Roach Gel which is a different concept of getting rid of
cockroaches from homes.The company has recently launched winter soap in Punjab for
test marketing. The company has plans to keep innovating and re-launching products in
existing segments to boost up their revenues going forward.
Revenue growth to pick up in FY16 with better profitability
The overall profitability for GCPL would likely to witness a robust growth of 25% in FY15
and 15% in FY16 (on a higher base) due to decline in its material cost and other
operating costs. We expect the cost of raw material as percent of net sales to see a
correction of 100 basis points from 44.9% in FY14 to 43.9% in FY15 and FY16 may
again see an uptick of 60 basis points to 44.5% with growing demand from Europe,
Japan and other countries. The revenues are expected to be soft at 8% in FY15 on back
of declining demand and a disappointing performance from its international subsidiaries.
We may expect the demand to grow from the last quarter of FY15 on back of visible
signs of moderating interest rate cycle leading to pick up in economic growth. We
believe, GDP to grow at 7% and above by FY16 which may remain around 6%in FY15
(as per latest methodology). The revenues of GCPL are expected to grow by an average
18% in FY16 on back of lower base.
Exhibit 13: Total Revenues, EBITDA and PAT (INR mn)

140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
FY12
FY13
FY14
Total Revenues
FY15E
EBITDA
FY16E
FY17E
PAT
Valuations and Outlook

GCPL at CMP of INR 1,073 is trading at 31x of its FY16E EPS of INR 35 and 29x of
FY17E EPS of INR 37. We believe, with the pickup in growth of Indian economy, a
decline in raw material prices, accretive innovations and a robust growth in revenues of
international subsidiaries would help GCPL to post robust revenues and increased
profitability. Hence we assign a multiple of 40 (considering industry trend) to its FY17E
EPS of Rs 37 which gives us a one year target price of INR 1,480 proposing an upside of
38%.
Exhibit 14: P/E Band

4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
Apr 30 2008
Jul 31 2008
Oct 31 2008
Jan 31 2009
Apr 30 2009
Jul 31 2009
Oct 31 2009
Jan 31 2010
Apr 30 2010
Jul 31 2010
Oct 31 2010
Jan 31 2011
Apr 30 2011
Jul 31 2011
Oct 31 2011
Jan 31 2012
Apr 30 2012
Jul 31 2012
Oct 31 2012
Jan 31 2013
Apr 30 2013
Jul 31 2013
Oct 31 2013
Jan 31 2014
Apr 30 2014
Jul 31 2014
Oct 31 2014
Jan 31 2015
Apr 27 2015*
Jul 26 2015*
Actual Price INR
Px = 1183 @ p/e of 53
Px = 1026.7 @ p/e of 46
Px = 870.48 @ p/e of 39
Px = 714.24 @ p/e of 32
Px = 558.00 @ p/e of 25
Source: Bloomberg and Bonanza Research
Increased competition in the domestic business, leading to lower pricing/higher

brand spends
Regulatory pressures including changes to tax law and seasonal fluctuations
Increasing costs of raw material, transport and storage.
Margin pressures in overseas business
Exchange rate fluctuation and arbitrage risk
Company Profile
Godrej Consumer Products Ltd (GCPL) is present in FMCG sector with leading
Household and Personal Care Products. GCPL's products include soap, hair colorants,
toiletries and liquid detergents. Its brands include 'Cinthol', 'Godrej Fair Glow', 'Godrej
No.1' and 'Godrej Shikakai' in soaps, 'Godrej Powder Hair Dye', 'Renew', 'Colour Soft' in
hair colourants and 'Ezee' liquid detergent. GCPL currently operates several
manufacturing facilities in India spread over seven locations and grouped into 4
Operating Clusters at Malanpur (Madhya Pradesh), Guwahati (Assam), Baddi-Thana
(Himachal Pradesh), Baddi-Katha (Himachal Pradesh), Pondicherry, Chennai and
Sikkim. GCPL has bought out foreign companies in UK, Africa, Latin America and Asia
as a part of its strategic move. They have made several acquisitions mainly in 3
continents where they are focused, Africa, Asia and Latin America and in 3 segments
Hair Care, Home Care and Personal Care segment.
Exhibit 15: Value Growth Y-o-Y across segments

40%
35%
30%
25%
20%
15%
10%
5%
0%
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Household Insecticides
Q1FY15
Hair Colors
Q2FY15
Q3FY15
Soaps
Gauging on quarterly basis, the growth across all the segments have been subdued in
past few quarters due to higher base growth in same quarters of the preceding year.
Going forward we expect uptick in volume growth on back of lower crude oil prices and
economic growth coming back on track. Going forward, we expect higher growth to be
seen again in HI and Hair Colors segment and a constant growth of lower double digit in
Soap segment.
Exhibit 16: Business Growth in Constant Currency Terms
Domestic Business
Insecticides
Soaps
Q3FY14 (Y-o-Y)
Q4FY14 (Y-o-Y)
Q1FY15 (Y-o-Y)
Q2FY15 (Y-o-Y)
Q3FY15 (Y-o-Y)
13%
12%
6%
7%
12%
8%
17%
9%
2%
16%
6%
1%
2%
13%
11%
Hair Colors
37%
16%
14%
9%
10%
Liquid Detergents
36%
NA
NA
NA
13%
International Business
22%
12%
14%
12%
20%
Indonesia
18%
1%
10%
15%
19%
Africa
29%
39%
17%
15%
36%
Latin America
Europe
15%
5%
-4%
31%
25%
124%
16%
42%
-9%
-13%

Exhibit 17: Urban and Rural Profile for GCPLs Revenues
72%
80%
60%
40%
28%
20%
0%
Rural
Urban
FY14
Product Portfolio
Subsidiary companies
Country
Segment
Brands
Godrej UK
UK
Personal Care
Cuticura, Soft & Gentle,
Godrej South Africa
South Africa
Hair Care - Color
Inecto, Kinky
Godrej Nigeria
Nigeria
Personal Care
Tura
Darling
Africa
Hair Care
Darling
Godrej Argentina
Argentina
Hair Color
Cosmetica Nacional
Chile
Hair Color
Godrej Indonesia
Indonesia
Home Care
Godrej Global Middle East
Sharjah
Hair care, Home care

and Personal Care
Godrej Household Products

Bangladesh (Pvt) Ltd.
Bangladesh

and Personal Care
Godrej Household Products

Lanka (Pvt) Ltd.
Srilanka

and Personal Care
Godrej Consumer Products

Ltd.
India

and Personal Care
Issue, Roby, 919

Illicit, Pamela Grant,
Villeneuve
Stella, Mitu
Good Knight, Cinthol,
Godrej Expert, Ezee,
Godrej No.1
No.1, Godrej Expert,
Ezee, Godrej Renew
HIT, Godrej Expert,
Ezee, Godrej Renew
Aer, HIT, Protekt, Godrej
Expert, Ezee, Nupur
Henna, Godrej No.1
Recent Developments
Godrej Consumer Products has hiked its stake in hair extension brand Darling South
Africa and Mozambique businesses to 90%.
GCPL also acquired South Africa's hair extensions firm Frika Hair in 2015 for an
undisclosed sum in order to consolidate its position in the South African market. Frika
has annualized revenues of USD 200 mn.
Financials
P&L
Particulars (mn)
Sales
Less : Excise Duty
Rate of Excise Duty
Other Operational Income
Net Sales
Cost of Materials
Change in Inventory
Operating & Other expenses
Total Operating Expenses
EBITDA
Depreciation
EBIT
Other exceptional Income
Interest Expenses
Other income
EBT
Tax
Current Tax
Deferred Taxation
Profit After tax
No. of shares
EPS
Ratio Analysis
FY14
78,031
2,205
3
198
76,024
35,043
667
28,686
64,396
11,629
819
10,810
59
1,199
627
10,297
2,104
2,167
(63)
8,193
340
24
FY15E
84,273
2,360
3
FY16E
99,443
2,784
3
FY17E
117,342
2,934
3
81,914
36,996
96,658
44,252
114,409
54,504
29,937
66,933
14,981
884
14,097
35,325
79,577
17,081
990
16,091
41,813
96,317
18,092
1,089
17,003
1,199
1,199
1,199
12,898
2,635
14,892
3,043
15,804
3,229
10,263
340
30
11,849
340
35
12,575
340
37
Particulars (INR mn)

EBITDA
FY14
FY15E
FY16E
FY17E
11,629
14,981
17,081
18,092
EBITDA Margin (%)
15%
18%
18%
16%
PAT Margin (%)
11%
13%
12%
11%
ROE (%)
22%
22%
21%
19%
24
30
35
37
EPS (INR)
P/E (x)
Enterprise Value (EV)
35
37
32
38
298,875
383,018
378,314
473,616
26
26
22
26
EV/ EBIDTA (x)

EV/Sales (x)
Balance Sheet
Particulars (mn)
FY14
Share Capital
340
Share warrants
52
Reserves and Surplus
37,361
Loan Funds
15,903
Secured Loans
Unsecured Loans
15,903
Deferred tax Liability
(203)
Other long term liability
56
Total
53,509
Application of Funds
Fixed Assets
58,035
Less : Depriciation
6,821
Less: Impairment of Fixed Assets
Net Block
51,214
Capital Work in Progress
1,671
Investments
1,363
Long Term Loan and Advances
8,285
Current Assets
27,645
Inventories
10,821
Sundry debtors
7,113
Cash and Bank Balances
7,048
Other Current Assets
1,020
Loans and Advances
1,643
Current Liablities & Provisions 36,255
Current Liablities
27,482
Short & Long Term Provisions
8,773
Net Current Assets
(8,610)
Misc. Exp.
(412)
Total
53,509
Cash Flow
FY15E
340
45,633
15,903
15,903
265
53
62,194
FY16E
340
55,492
15,903
15,903
265
53
72,053
FY17E
340
66,076
15,903
15,903
265
53
82,637
Particulars
Profit Before Tax
FY14
FY15E
FY16E
FY17E
10,297
12,898
14,892
15,804
Adjustments for Interest and

Depreciation
1,675
2,083
2,189
2,288
Adjustments for : changes

in Working Capital
1,693
(3,647)
3,031
2,753
13,664
11,334
20,112
20,845
(2,635)
(3,043)
(3,229)
Cash From Operating

Activities
Income Tax Paid
Net Cash flow from
Operating Activities
13,664
8,699
17,069
17,617
Net Cash flow from

Investing Activities
(4,948)
(3,871)
(9,174)
(8,971)
(6,333)
(3,190)
(3,190)
(3,190)
2,384
1,638
4,705
5,456
62,678
7,705
70,199
8,695
77,219
9,785
54,972
61,504
67,435
Net Cash flow from

Financing Activities
1,363
9,184
32,400
12,741
8,307
8,686
1,110
1,556
35,725
27,986
7,739
(3,325)
1,363
10,837
41,374
15,034
9,803
13,391
1,310
1,837
43,024
34,089
8,935
(1,650)
1,363
12,787
52,144
17,637
11,726
18,847
1,573
2,362
51,091
41,609
9,482
1,052
Net Change in cash and

cash equivalents
62,194
72,053
82,637
India Research
4 April 2015
Britannia Industries Limited | BUY

Bloomberg Code: BRIT IN | Reuters Code: BRIT.BO
Reinforcing Pillars
Britannia Industries Ltd. (BIL) is well placed for gaining market share in the premium
biscuits segment. Biscuits Industry is mainly dominated by 3 organised players in Indian
market Parle, ITC and Britannia. The company has a focused approach towards biscuits
segment with introducing new launches in premium segment recently and moreover
introducing different segments into play apart from biscuits category. The company has
added health focused brands in their product portfolio such as Oat, Ragi, 5 grain biscuits
etc. under their NutriChoice brand, breakfast food such as Poha, Upma and also present
in dairy products by introducing Butter, Cheese and Milk. BIL is making their distribution
network strong for fast and easy availability of their products to the consumers with great
focus on optimizing their cost through various measures. We expect company to register a
CAGR of 14-15% in FY14-FY17E. We initiate coverage on the stock with a Buy rating with
a target price of INR 2600.
FMCG
Current Price:
INR 2,185
Target Price:
INR 2,600
Expected Upside (%)
19%
Stock Details
Bloomberg Code
BRIT IN
Reuters Code
BRIT.BO
Shares O/S (mn)
120
M Cap (INR mn)
2,62,200
52 week H/L (INR)
DII
9.2%
OtheINR
20.5%
Cost optimization and favourable commodity cycle aid to improve margins
BIL
The continuous fall in commodity prices from past few months have been positive for the
industry. In case of BIL, the prices of sugar have been softened from past few months. The
sugar prices came down to INR 2,648 per quintal in Nov 2014 compared to INR 3,356 in
Nov 2012 whereas the prices of wheat has not much impacted and remain stable at INR
1,590 per quintal. The fall in crude oil prices would also help the company to lower their
freight cost. Moreover the company is taking various measures to keep their cost in check.
Year to March
FY14
FY15E
FY16E
FY17E
CAGR (%)
Net Sales (INR mn)
63,074
71,313
84,860
1,02,829
18%
EBITDA (INR mn)
5,966
7,364
8,763
10,198
20%
PAT (INR mn)
3,698
5,581
5,351
6,278
19%
EBITDA Margin (%)
9%
10%
10%
10%
EPS (INR)
31
47
45
52
19%
EV/Sales
1.6
3.5
2.9
2.3
EV/EBITDA
16.9
34.2
28.5
23.7
Sensex
Stock Performance
Return (%)
Key Financials
13-Jan-15
300
250
200
150
100
50
0
13-Nov-14
BIL is adding brands for health conscious people which suit the special lifestyle and
nutrition needs of diabetics to manage extreme swings in blood sugar. The company is
adding these brands under their range of Nutri-Choice biscuits. They have introduced
brands like Nutri-Choice Digestive, Nutri-Choice 5 Grain, Nutri-Choice Ragi, Nutri-Choice
Oat cookies and Nutri-Choice SugarOut. Apart from Biscuits BIL have now dairy products
to offer too for a healthy meal plan. BIL offers Milk, Curd, Butter, Cheese, Gourmet etc.
19.4%
13-Sep-14
50.7%
FII
13-Jul-14
BILs Sales, distribution and channel capabilities have been strengthened to increase width
(increase in number of stores) of distribution in rural markets and depth (increase
sales/store) in the urban markets. The company has already managed to increase number
of rural distributors by 50%. BIL has a direct reach to 0.5 mn outlets two years ago and
expecting to be close to 1 mn by FY16. The overall expansion plan is to reach 4.5 mn
outlets in the next four-five years.
Promoter Group
13-May-14
Strengthening depth and width of distribution network to boost up revenues
13-Mar-14
BILs power brand Good Day has gained a substantial market share against its closed
competitors like Parle and ITC. Good Day has become INR 1,600 crore brands and sells
over 50 lakh packs every day. BIL is innovating new variant for their existing pillar brands.
The company has recently launched Good Day Chunkies and NutriChoice Havens in
Biscuits segment with Britannia Cake catering to the Cake and Rusks segment.
2,250/821
13-Mar-15
INITIATING COVERAGE
1 Mth
6 Mths
1 Yr
Absolute
3%
55%
161%
Relative
8%
48%
134%
Analyst
Harsh Gupta
Tel: 91 22 3086 3950
Britannia Industries Limited
Britannia Industries Ltd.

Britannia is well placed for gaining market share in the premium biscuits
segment. The company has a focused approach on premium biscuits segment
with introducing new launches in the same segment recently and moreover
introducing different segments into play apart from biscuits category. The
company has added health focused brands in their product portfolio such as Oat,
Ragi, 5 grain biscuits etc. under their NutriChoice brand, breakfast food items
Poha, Upma and also present in dairy products by introducing Butter, Cheese
and Milk. BIL is making their distribution network strong for fast and easy
availability of their products to the consumers with great focus on optimizing their
cost through various measures. We expect company to register a CAGR of 1415% in FY14-FY17E. We initiate coverage on the stock with a Buy rating with a
target price of INR 2,600.
Strengthening depth and width of distribution network to boost

revenues
Cost optimization aid to improve margins with favourable commodity

cycle
At CMP of INR 2,185, the stock is trading at 46x of its FY15E EPS of INR 47 and
49x of its FY16E EPS of INR 45. We believe the overall outlook is positive for the
FMCG industry considering lower raw material prices, introduction of GST and
improving economic health which supports higher valuations for the industry.
Hence we assign a P/E of 50x to FY17E EPS of INR 52, considering demand
uptick in premium biscuits segment, though BIL has registered a onetime gain by
selling off its land & building in Q2FY15 which has amplified its earnings in FY15.
We assign a Buy rating on the stock with a target price of INR 2,600.
Innovation in Pillar brands to increase the market

share
BILs pillar brand Good Day has gained a substantial market share against its
closed competitors like Parle and ITC in past few years. Good Day has become
INR 1,600 crore brand. It sells over 50 lacs packs every day. Good Day is the
largest brand in the cookies segment and has remained so ever since its
inception. Britannia is the leading player in cookies with an estimated market
share of 30%. ITC, on the other hand, is the largest player in creams with an
estimated share of around 26%. Parle Products, the number two in both creams
(22%) and cookies (27%), takes the top spot when the two segments are
combined. It has a share of 25% in the INR 72,000 mn cookie plus cream
market.
BILs market share to

improve in premium
segment with
additions of
innovative brands to
its product line.
Apart from Good Day, other pillar brands like NutriChoice, 50:50, Marie Gold and
Tiger have been performing well. The total market share of Parle is still largest
with its popular Brand Parle G under biscuit category of INR 100/kg but BIL is
able to capture the market share in premium brand segments with its pillar
brands like Good Day and NutriChoice.
The cookies segment is growing at a CAGR of 14% in India. The mid-premium
cookies segment is relatively smaller in size with INR 1,800 cr. consumer spends
but has witnessed a CAGR of 20% in recent years. To maintain its leadership in
the lucrative cookies segment, BIL has strengthened Good Day portfolio with the
introduction of a new brand Good Day Chunkies. Moreover under its NutriChoice
brand, BIL has added NutriChoice Havens which is a mix of Oats and
Cranberries.
BILs Performance across segments

Exhibit 1: Biscuits & High Protein Food Sales (INR mn)
100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
-
Exhibit 2: Cakes Sales (INR mn)

25%
20%
4,000
45%
3,500
40%
35%
3,000
15%
10%
FY12
FY13
FY14
FY15E
25%
2,000
20%
1,500
15%
5%
1,000
0%
500
FY16E FY17E
30%
2,500
10%
5%
0%
-5%
FY12
Biscuits and High Protein food Sales (mn)
FY13
FY14
FY15E
Cake Sales (mn)
Growth ( YoY)
Exhibit 3: Bread and Rusk Sales (INR mn)
Exhibit 4: Others Sales (INR mn)

25%
FY17E
Growth ( YoY)
12,000
FY16E
2,000
250%
1,800
10,000
20%
1,600
200%
1,400
8,000
15%
6,000
1,200
150%
1,000
10%
4,000
800
100%
600
5%
2,000
50%
400
200
0%
FY12
FY13
FY14
FY15E
Bread and Rusk Sales (mn)

FY16E
FY17E
Growth ( YoY)
0%
FY12
FY13
FY14
FY15E
Others Sales (mn)
FY16E
FY17E
Growth ( YoY)
Strengthening depth and width of distribution

network to boost revenues
BILs Sales, distribution and channel capabilities have been strengthened to
increase width (increase in number of stores) of distribution in rural markets and
depth (increase sales/store) in the urban markets. Several initiatives were
undertaken to drive sales productivity, which includes re-structuring of sales
team, distributor consolidation, portfolio reconfiguration to simplify handling, split
portfolio for focused selling, hub & spoke model to increase reach in the rural
areas. The number of cities using the split-route model is already up from 11
cities to 25 currently and the company proposes to increase this to 50 in a year.
The company has already managed to increase number of rural distributors by
50%.
BILs revenues are

expected to boost
with an aggressive
strategy to increase
direct distribution
outlets across India at
CAGR of 35% by 2020.
BIL had a direct reach to 0.5 mn outlets two years ago and expecting to be close
to 1 mn by FY16. The overall expansion plan is to reach 4.5 mn outlets in the
next four-five years.
Moreover, salespersons carrying hand held devices has been increased to 50%,
(25% a year earlier), for effective monitoring of sales. BIL has been able to
reduce the distance travelled by its products by 20% in the last three years.
Through its optimized manufacturing foot print, There is a sharp focus on product
availability and freshness of the stock and has substantially improved the count
of stock on shelves within 33% of the shelf life of the products, most notably in
cakes and rusks and to almost to level of biscuits.
Good Day and NutriChoice biscuits have added nearly half a dozen new
manufacturing units with plans to invest Rs 400 crore in the next 18 months to
set up additional capacity and increase its in-house production to 60-65% of its
total sales from 46% now. The company has also doubled its direct distribution
where it was traditionally weaker. It will soon open a R&D centre in Bangalore to
enable faster innovations and new launches.
Exhibit 5: Aggressive Plans to Increase Direct Distribution

Outlets
Exhibit 6: Penetration(Urban and Rural India)
5,000,000
4,500,000
4,000,000
80%
3,500,000
70%
60%
3,000,000
CAGR - 35%
2,500,000
50%
2,000,000
1,500,000
40%
30%
CAGR - 26%
1,000,000
20%
500,000
10%
0%
FY12
FY14 FY15E
Source: Company Report and Bonanza Research
FY20E
Urban Markets
Rural Markets
Source: IBEF

BIL is now focusing at the centre of the plate rather than being on side with just
biscuit segment. The company is adding brands for health conscious people
which suit the special lifestyle and nutrition needs of diabetics to manage
extreme swings in blood sugar. The company is adding brands under their range
of Nutri-Choice biscuits and moreover introducing variant for healthy breakfast
such as Poha (Flattened Rice), Upma (Semolina), Oats and Porridge. They have
introduced brands like Nutri-Choice Digestive, Nutri-Choice 5 Grain, Nutri-Choice
Ragi, Nutri-Choice Oat cookies and Nutri-Choice SugarOut. Apart from this, BIL
owns dairy products to offer for a healthy meal plan. BIL offers Milk, Curd, Butter,
Cheese, Gourmet etc. The dairy and cakes segment is still at a nascent stage
and leaves a scope of high penetration going forward though the dairy segment
has been leveraged by Amul and BIL existence in dairy segment will be very
competitive.
BIL is diversifying
itself from just
being a biscuit
player, targeting
foods for healthy
breakfast
Britannia NutriChoice targets the urban customer; Nutrichoice Heavens is aimed

at SEC-A, the most desirable category of consumers. Nutrichoice accounts for 67% of Britannias overall revenues and within the next three years, it is expected
to account for 20-25% of the companys overall revenues.
Exhibit 7: Health based Product line and competitors
Britannia Products
Competitors
NutriChoice Havens
ITC- Sunfeast Oats & Raisins Gourmet Cheese
NutriChoice Oat
Cookies
NutriChoice ragi
cookies
NutriChoice 5 grain
NutriChoice Digestive
Dairy
ITC- Sunfeast Oats & Almonds Actimind
Parle Simply Good

Mcvities, Parle Simply Good
Digestives
NutriChoice sugarout
Competitors
Amul, Mother Dairy,
Local Players
Amul Kool
Tigerzor Badam Milk
Amul, Danone
Tigerzor Choco Milk
Amul, Danone
Dairy Whitener
Umang Dairies
Butter
Amul
Upma
Local Players
Masala Chaas
Amul
Poha
Local Players
Kellogs, Saffola, Quaker,
Bagrrys
Milk
Amul
Dahi Fresh
Amul, Danone
Ghee
Amul
Oats & Porridges
Source: Company Report, Bonanza Research
Cost optimization aid to improve margins with

favourable commodity cycle
In addition to falling commodity prices, the company is taking initiatives to
lowering their costs. The company has already launched bio mass energy in their
factories and have plans to use such methods to reduce the usage of energy
which will lead to increase in their margins. The Power & Fuel cost is 1.1% of the
total expenditure so we believe there will be a negligible impact. Moreover an
average distance travelled by a pack of biscuit is planned to reduce from 600 KM
to 480 KM and further down going forward. Apart from these initiatives company
has already been implementing Automation, TQM and Kaizen method to reduce
their cost and hence improve their operating margins.
We expect an
improvement of 100
bps of improvement
in its EBITDA
margins with lower
food prices.
The continuous fall in commodity prices from past few months have been
positive for the industry. In case of BIL, the prices of sugar have been softened
from past few months. The sugar prices came down to INR 2,648 per quintal in
Nov 2014 compared to INR 3,356 in Nov 2012. The fall in crude oil and other
commodity prices can support the fall of sugar prices whereas the prices of
wheat has not much impacted and remain stable at INR 1,590 Per quintal.
Exhibit 8: Palm Oil Price Trend (USD/MT)
Exhibit 9: Sugar & Wheat Price Trend (INR/QTL)
1,400
4,500
1,200
4,000
1,000
3,500
3,000
800
2,500
600
2,000
400
1,500
Nov-14
Jul-14
Sep-14
Mar-14
May-14
Jan-14
Nov-13
Jul-13
Sep-13
May-13
Jan-13
Mar-13
Nov-12
Jul-12
Sep-12
500
May-12
0
Jan-12
1,000
Mar-12
200
0
5/30
5/30
5/30
Sugar Price Rs/Qtl
Palm Oil Price (USD/MT)

Source: Bloomberg, Bonanza Research
5/30
5/30
5/30
Wheat Price Rs/Qtl
Exhibit 10: Raw Material Cost Contribution
% contribution in total raw material cost

Fats & Oils
12
13
Lamination Roll
8
Flour
27
Others
24
Sugar
Source: Ace Equity, Bonanza Research

While the CY13 stock price gain was essentially earnings led, CY14 gain was
both due to earnings and multiple expansion which was imminent due to
sustainable change in return on capital and margins. CY15 is likely further see
strong earnings growth as the volume growth trajectory is likely to step up over
FY14 led by imminent urban recovery and new product launches.
Premiumisation coupled with higher spending, cost control and incremental
progress in depth of distribution continue to boost margins with significant
commodity tailwinds leading to lower transportation costs will create further
margin tailwinds. We expect the EBITDA and PAT margins at 10% and 8%
respectively in FY15E against 9% and 6% respectively in FY14.
Eyeing bigger pie in international markets to boost revenues

International business currently represents around 5% of total sales. BIL is
eyeing to increase their international revenues through organic or inorganic
growth route and to increase this share to 25%. The company has plans to
acquire overseas companies and growing capacities through inorganic route in
FY16 and going forward. The company has ambitious plans to increase sales
from international markets to INR 7000 mn within the next 18 months from
roughly INR 4000-4500mn at the end of March. The company distributes its
products in 75 countries, with Middle Eastern countries accounting for a majority
of its international business.
BIL has plans to take

its international
business to
contribute 25% from
5% through organic
or inorganic route.
The dairy and cakes segment is still at a nascent stage and leaves a scope of
high penetration going forward though the dairy segment has been highly
competitive by presence of Amul. BILs premium biscuits and cakes segment is
going to benefit with higher consumer spending.
Britannias Subsidiaries Performance - Turnover (LHS), PAT (RHS)
Exhibit 11: Britannia Dairy Pvt. Ltd.
Exhibit 12: Strategic food International Inc
3,500
400
3,000
300
2,500
200
100
2,000
0
1,500
-100
1,000
-200
500
-300
-400
0
FY10
FY11
FY12
Turnover (mn)
FY13
3,000
100
2,500
50
2,000
1,500
-50
1,000
-100
500
-150
-200
FY14
FY10
PAT (mn)
FY11
FY12
Turnover (mn)
FY13
FY14
PAT (mn)
Exhibit 13: Al Sallan Food International Co. LLC
Exhibit 14: Daily Bread Gourmet Foods (India) Pvt. Ltd.

0
-5
-10
-15
-20
-25
-30
-35
-40
-45
-50
300
250
200
150
100
50
0
FY10
FY11
FY12
Turnover (mn)
FY13
PAT (mn)
FY14
1,600
40
1,400
20
1,200
1,000
-20
800
-40
600
-60
400
-80
200
0
-100
FY10
FY11
FY12
Turnover (mn)
FY13
FY14
PAT (mn)

BILs subsidiary Britannia Dairy Pvt. Ltd has a presence in dairy products and
growing at a CAGR of 13% in last 4 years (FY10-FY14) in terms of total turnover
though the profits have been negligible. We believe the dairy business would
likely to get a tough competition from Amul who are already a prominent
player in dairy business.
Britannia strategy to focus on Biscuits and Bakery supply chain over haul, and
aggressive focus on cost management led to doubling of EBITDA margins and
Return on capital. Sustainable change in this cost economics not only has
accelerated the earnings growth but also de-risked the operating model
vulnerable to vagaries of volatile input prices.
BILs profitable growth in its subsidiaries through exports and dairy businesses
fuelled a strong show in the consolidated bottom line in Q3FY15, which was up
36.5% y-o-y.

BIL is outpacing the industry growth. The overall Biscuit industry did not fare well
and grew only 5% in revenue terms and 1.5% in volume terms in the past year
though BIL is showing a healthy double digit sales growth of 14% y-o-y both in
Q3FY15 and 9 months ending Dec14.In Q3 FY15, Britannia reported standalone
EBITDA margin came at 10.6% aided by lower input costs (down 182 basis
points to 50.7% of sales) as well as advertising and promotional costs (down 55
basis points to 7.6%). The company has registered a profit from the sale of its
land and building in Q2FY15 which resulted in jump in profits and EPS, excluding
that other income, company is still able to register a healthy growth of more than
20% in profits in first three quarters of FY15 outperforming the revenue growth.
BIL at CMP of INR 2,185 is trading at 46x of its FY15E EPS of INR 47 and 49x of
its FY16E EPS of INR 45. We believe the overall outlook is positive for the
FMCG industry considering lower raw material prices, introduction of GST,
improving economic health and the increasing margins for the company on back
of focusing on premium product categories which supports higher valuations for
the company. Hence we assign a P/E of 50x to FY17E EPS of INR 52 which
gives us a target of INR 2,600.

6,000
5,000
4,000
3,000
2,000
1,000
Mar 31 2008
Jun 30 2008
Sep 30 2008
Dec 31 2008
Mar 31 2009
Jun 30 2009
Sep 30 2009
Dec 31 2009
Mar 31 2010
Jun 30 2010
Sep 30 2010
Dec 31 2010
Mar 31 2011
Jun 30 2011
Sep 30 2011
Dec 31 2011
Mar 31 2012
Jun 30 2012
Sep 30 2012
Dec 31 2012
Mar 31 2013
Jun 30 2013
Sep 30 2013
Dec 31 2013
Mar 31 2014
Jun 30 2014
Sep 30 2014
Dec 31 2014
Mar 28 2015*
Jun 26 2015*
Actual Price INR
Px = 2475 @ p/e of 75
Px = 2145 @ p/e of 65
Px = 1815 @ p/e of 55
Px = 1485 @ p/e of 45
Px = 1155 @ p/e of 35
Key Risk & Concerns
Increase in raw material prices i.e. Wheat, Sugar or Palm Oil Prices will
affect profit margins for the company
Weakness in economic environment lead to slower growth
Business segments to remain highly competitive, Risk of losing market

share to the competitors

BILs new launches Good Day Chunkies and NutiChoice Havens have a direct
competition from ITCs brands Sunfeast Dark Fantasy and Sunfeast Farmlite
respectively which are present in the premium segment of Biscuit industry.
Parles Milano will also be challenged through BILs Good Day Chunkies.
Britannia unveiled NutriChoice Heavens, priced at INR 50 for a 100 gm pack, or
60% above the cost of its premium NutriChoice range. In the past six months,
Parle Products Pvt. Ltd has unleashed premium and super premium brands such
as Hide & Seek Black Bourbon, Milano Centre Filled Dark Cookies and Happy
Happy Dual Cream biscuits to take on ITC Ltds Sunfeast Dark Fantasy and
Mondelez India Foods Ltds Oreo biscuits. The share of premium category in
overall revenues expected to more than double in the next three years from 7%
to 15%. This segment, as it is growing faster than the overall market.
Something to Cheer about
Consumer spending to rise with visible signs of economic growth

Premium segment to benefit with higher spending
With visible signs of pick up in Indian economic growth, consumer spending
in India increased to INR 15,338.82bn in Q4 of 2014 from INR 14,645.01 bn
in Q3 of 2014, an increase of 4.7% q-o-q. Consumer Spending in India
averaged INR 8,152.51 bn from 2004 until 2014, reaching an all time high of
INR 15,338.82 bn in Q4 of 2014 and a record low of INR 4,469.88 bn in Q3
of 2004.
India Total Disposable Personal Income

Disposable Personal Income in India increased to INR 80,663,730 mn in
2012 from INR 71,787,870 mn in 2011. Disposable Personal Income in India
averaged INR 11,464,052 mn from 1950 until 2012, reaching an all time high
of INR 80,663,730 mn in 2012 and a record low of INR 91,540 mn in 1950.
Financial Charts
Exhibit 16: Total Revenues & Profit after Tax
Exhibit 17: EBITDA & PAT Margins

12%
120,000
10%
104,716
10%
100,000
10%
9%
10%
86,417
80,000
8%
72,622
64,232
57,008
60,000 50,328
6%
7%
8%
6%
6%
6%
6%
FY16E
FY17E
4%
40,000
4%
4%
2%
20,000
1,867
2,339
5,581
3,698
5,350
6,278
0%
0
FY12
FY13
FY14
Sales (Rs Mn)
FY15E
FY16E
FY12
FY17E
Profit After tax (Rs Mn)
FY13
FY14
FY15E
EBITDA Margin
Exhibit 18: ROE & ROCE
Exhibit 19: EV/EBITDA
70
PAT Margin
40
64
60
34
35
30
50
41
40
25
24
36
34
32
30
20
43
29
25
20
36
17
17
15
28
20
10
16
10
0
FY10
FY11
FY12
ROCE (Standalone)
FY13
FY14
2012
ROE (Standalone)
2013
2014
2015E
2016E
2017E
EV/EBITDA
BIL is a debt free company with returns of more than 40% on its equity in FY14
and FY15E. The EBITDA margins too are expected to escalate from an average
of 7% to 10% in FY15 and going forward on back of lower raw material cost.
BILs enterprise value expected to be 30x of its EBITDA on back of significant
jump in its market capitalization in FY15.
Financials
Ratio Analysis
P&L
FY14
FY15E
FY16E
FY17E
Ratio Analysis
FY14
FY15E
FY16E
FY17E
64,232
72,622
86,417
104,716
EBITDA Margin
9%
10%
10%
10%
Particulars (Rs mn)

Sales
1,158
1,309
1,557
1,887
PAT Margin
6%
8%
6%
6%
Net Sales
63,074
71,313
84,859
102,829
EV/EBITDA
17
35
31
26
Cost of Materials
38,223
42,484
50,554
61,782
Debt / Equity
Less : Excise Duty
Change in Inventory
(126)
ROE
19,010
21,465
25,543
30,849
57,108
63,949
76,097
92,631
5,966
7,364
8,763
10,198
634
775
913
986
EBIT
5,332
6,589
7,850
9,211
(200)
1,599
54
EBITDA
Depreciation
Interest Expenses
Other income
5,426
8,188
7,850
9,211
Tax
1,728
2,607
2,500
2,933
Profit After tax
3,698
5,581
5,350
6,278
120
120
120
120
31
47
45
52
EPS
0.0
0.0
0.0
48%
36%
34%
348
EBT
No of shares (mn)
0.0
43%
Balance Sheet
Particulars (Rs mn)
Cash Flow
FY14
FY15E
FY16E
FY17E
240
240
240
240
8,338
11,486
14,505
18,120
Loan Funds
Secured Loans
Unsecured Loans
Share Capital
Share warrants

92
188
191
191
191
8,860
11,921
14,940
18,555
Fixed Assets
9,393
11,063
13,030
14,072
Less : Depriciation
3,937
4,712
5,624
6,610
Net Block
5,457
6,352
7,406
7,462
883
Total
972
Non Current Investments
2,290
2,323
2,323
Investments
1,440
1,440
1,440
1,004
1,452
1,663
Current Assets
7,160
14,352
17,629
28,111
Inventories
3,669
4,613
5,489
6,338
Sundry debtors
537
778
926
1,133
658
5,834
7,494
16,319
Non Current Assets

10
28
33
28
Loans and Advances
2,287
3,099
3,688
4,292
Current Liablities & Provisions
9,584
13,998
15,522
17,900
Current Liablities
6,331
9,088
10,815
12,376
Net Current Assets

Total
FY15E
FY16E
FY17E
8,188
7,850
9,211
775
913
986
8,963
8,763
10,198
2,399
(94)
722
11,362
8,669
10,920
(2,607)
(2,500)
(2,933)
8,754
6,169
7,987
(1,146)
(2,178)
3,502
(2,432)
(2,332)
(2,663)
5,177
1,659
8,825
121
Particulars (Rs mn)

FY14
Cash Flow From Operating
5,426
Activities
Adjustments
557
Operating Profit before
5,983
working capital changes
Adjustments for Working Capital
1,981
changes
Cash Generated From
7,964
Operations
Income Tax Paid
(1,819)
Net Cash flow from Operating
6,145
Activities
Net Cash flow from Investing
(635)
Activities
Net Cash flow from Financing
(3,255)
Activities
Net Change in cash and cash
2,255
equivalents
3,254
4,910
4,707
5,524
(2,424)
354
2,108
10,211
8,860
11,921
14,940
18,555

Biscuit Industry
Indias biscuit market is estimated to be worth INR 23,000 crore and growing at
the rate of 8% per annum. The premium category accounts for 25% of the overall
biscuits category and is growing at 17% per annum. The focus on premium and
health biscuits comes amid a slowdown of the category growth from mid-teens
over two years ago to single digits. The slowdown in rural areas was even
sharper. However, the rural growth rate is still higher than urban. We may expect
the trend of premiumisation will accelerate going forward but mass people
product cannot be ignored.
Exhibit 20: Biscuits Per capita consumption globally
Exhibit 21: Biscuit Market Share
Biscuit Per Capita consumption (Kg)
Biscuit Market Share

6%
12
11%
10
40%
8
15%
6
4
2
38%
Parle
India
US
Japan
Britannia
Priya Gold
ITC
Others
Singapore
Source: IBEF, Bonanza Research
Source: IBEF, Bonanza Research
Exhibit 22: BILs Revenue Mix

120,000
100,000
80,000
60,000
40,000
20,000
0
FY12
FY13
FY14
FY15E
FY16E
FY17E
Biscuits and High Protein food
Bread, Bread Toast and Rusk
Cake
Others
Exhibit 23: BILs Operating Performance

Operating Performance
Domestic bakery business (Volume
Growth)
Gross Margin
EBITDA Margin
FY12
FY13
FY14
Q2FY15
9%
4%
4%
8%
35.7%
36.8%
38.9%
38.8%
5.6%
6.7%
9.6%
10.9%

Exhibit 24: Product Portfolio
Britannia Biscuits
Biscuit Competitors
Breads & Rusk
Cake
NutriChoice Havens
ITC- Sunfeast Oats & Raisins
Britannia Breads
Fruit Rollz
Gourmet Cheese
NutriChoice Oat Cookies
ITC- Sunfeast Oats &Almonds
Multi Fiber
Veg Cakes
Actimind
NutriChoiceragi cookies
NA
Multi Grain
TigerzorBadam Milk
NutriChoice 5 grain
Honey & Oats
Tigerzor Choco Milk
NutriChoice sugarout
Parle Simply Good

Mcvities, Parle Simply Good
Digestives
NA
Britannia Tiger
ITC - Sunfeast Glucose
Milk Bikis
Little Hearts
ITC Sunfeast Milky Magic

Parle Marie, ITC Sunfeast Marie
Light
Parle Krack Jack, ITC Sunfeast
Sweet n Salt
ITC Sunfeast Dream Cream
ITC Sunfeast Moms Magic
(Cashew, Butter), Parle 20-20
Cookies
ITC Sunfeast Bourbon Bliss, Parle
Hide & Seek Black Bourbon
Parle Milano, ITC Dark Fantacy
Choco Fills
NA
Nice Time
Parle Coconut
NutriChoice Digestive
Marie Gold
Fifty Fifty
Jim Jam
Good Day (Cashew/Butter)
Bourbon
Good Day Chunkies
Rusks Suji Toast
Dairy
Dairy Whitener
Butter
Masala Chaas
Milk
Dahi Fresh
Ghee
Company Profile
Britannia Industries Ltd. (BIL) is in the business of bakery and dairy products,
which include biscuits, bread, dairy products, rusk and cakes. BIL holds around
38% market share in biscuit segment and sales from this segment contribute
83% to its total sales. Some of the major brands of Britannia are Tiger, Good
Day, Nutri-Choice, Marie Gold, 50:50 etc. Its dairy products include Britannia
Butter, Britannia Cheese Slices, Britannia Milk, Britannia Slimz Milk, Britannia
Flavoured Yoghurt and Britannia Daily Fresh Dahi. The Company through its
wholly owned subsidiary, Daily Bread Gourmet Foods Pvt Ltd., offers bakery
products, including cakes, salads, pastas, specialty breads, Ragi Bread, Omega
3 Bread and range of health breads, among others. It has around 36 stores and
serves cafe chains and multiplex chains. It has operations in Mumbai, Delhi,
Kolkata, Chennai, Odisha and Uttaranchal, among others.
India Research
4 April 2015
Jyothy Laboratories Limited | BUY

INITIATING COVERAGE
strategies
will
enhance
FMCG
Expected Upside (%)
19%
Stock Details
Bloomberg Code
JYL IN
Reuters Code
JYOI.BO
Shares O/S (mn)
181
M Cap (INR mn)
49,413
52 week H/L (INR)
315/171

Promoter Group
66.8%
FII
15.4%
DII
8.0%
Others
9.8%
JLL
Nifty
200
150
100
50
13-Jan-15
Stock Performance
Return (%)
1 Mth
6 Mths
1 Yr
Absolute
-2%
12%
32%
Relative
3%
5%
5%
Key Financials
Year to March
Net Sales (Rs mn)
EBITDA (Rs mn)
PAT (Rs mn)
EBITDA Margin (%)
EPS (Rs)
EV/EBITDA (x)
FY14
12,602
1,668
1,061
13%
6
25
FY15E
14,616
2,334
1,585
16%
9
25
FY16E
15,539
2,801
2,064
16%
11
21
FY17E
20,828
3,166
2,321
15%
13
18
CAGR (%)
18%
24%
30%
29%
-
13-Mar-15
0
13-Nov-14

With a single brand and only presence in south India, JLL has now become multi
product brand with geographic expansion. JLL has now power brands which are
adding significantly to its revenues. JLLs power brands (Ujala, Henko, Maxo, Pril,
Exo and Margo) have witnessed a pickup in volumes last quarter (Q3FY15) on
back of lower base in previous quarters. We expect JLL will focus on maintaining
the market share of its power brands and invest in innovation and re launching its
power brands.
INR 325
13-Sep-14

The EBITDA Margins for the Q3FY15 stood at 13.5% as against 13.2% reported
in Q3FY14. As per the management the impact of lower crude is yet to be seen in
Q4FY15. Due to inventory issues in Q3FY15 there was not much improvement in
the profit margins but at the start of Jan15 month there has been an improvement
of 400 bps in their gross margins. We expect EBITDA margins to improve by 300
basis points in FY15 to 16% as compared to 13% in FY14 and to remain stable
going forward and PAT margins are expected to improve from 8% in FY14 to 11%
in FY15 and 12% in FY16.
INR.273
Target Price:
13-Jul-14

The Household Insecticide (HI) segment has rebounded and registered a robust
growth of 48% in Q3FY15 due to lower base. The growth is mainly backed by
liquid vaporizer in the HI segment whereas the coil segment has registered a
subdued growth and expected to de-grow considering the industry trend Coil
segment subdued growth will be offset by growing demand in liquid vaporizers.
Moreover the company has plans to launch a new mix of liquid vaporizers in
Q4FY15 with fast cards in the HI segment under their Brand Maxo.
Current Price:
13-May-14

Jyothy Laboratories Ltd. (JLL) will go for innovating and launching new products
through investments in Ujala, Exo and Maxo. These three brands provide JLL a
good prospect for growth in the future. The company has plans to launch fast card
in the HI segment under their brand Maxo and new mix of liquid vaporizer in the
same segment in Q4FY15. In personal care segment, Margo has recently
launched liquid face wash in two variants Original Neem and Neem and Saffron
to compete with players like Himalaya, Clean & Clear, Ponds etc. Margo glycerine
is another brand extension in soap segments after JLLs existing brand Margo
original Neem. It has launched last year and has been competing with HULs
Pears, Godrej No.1 Saffron and Milk and other similar brands with larger
geographic presence.
13-Mar-14
Transformed
prospects
Bloomberg Code: JYL IN | Reuters Code: JYOI.BO
Analyst
Harsh Gupta
Tel: 91 22 3086 3950
Jyothy Laboratories Limited
Jyothy Laboratories Ltd.

JLLs revenue grew by 22% in FY14 and expected to see a moderate growth of 16% in
FY15 on back of sluggish industry growth of 10% though we expect a robust growth of
40% in EBITDA in FY15E on back of robust growth expected in high margin Household
Insecticides segment on a lower base. We expect that revenues for JLL will be back on
track by FY16 and may register a growth of 20% on back of improving economic
situations, Lower raw material prices, lower interest rate cycle and Q3FY15 indicating a
pickup in volumes from previous quarters. We expect EBITDA margin to improve by 250300 bps to 16% in FY15E and FY16E on back of lower raw material prices.
At CMP of INR 273, the stock is trading at 25x of FY16E EPS of INR 11 and 21x of
FY17E EPS of INR 13. We assign a BUY rating on the stock valuing the Company 25x
on FY17E EPS of INR 13 to arrive at target price of INR 325 proposing an upside of
~19%.
Initiate with BUY; TP- INR 325
Innovations to continue through investments in high

growth brands
JLL has been innovating and launching new products through investments in Ujala, Exo,
Maxo and Henko. These three brands provide JLL a good prospect for growth in the
future.
The company has plans to launch fast card in the HI segment and new mix of liquid
vaporizer in the same segment in Q4FY15under its brand name Maxo. In personal care
segment, Margo has recently launched liquid face wash to compete with various brands
available in this segment. Margo glycerine is already launched in soap segments last
year competing with HULs Pears and similar brands in the same segment.
Investments in high
growth brands to
aid JLL improve its
margins.
JLL has recently launched Pril with a gel based formulation and named as Pril Kraft-Gel
in dish wash segment. Overall Pril Liquid is showing a good growth since it has been
launched. In Q2FY15 it has grown by more than 20% and as a brand, grown by 17% in
the same quarter. JLL has also re-launched Margo soap brand with Margo face wash in
two variants; one is the original Neem and the other is Neem& Saffron variant.
JLL has introduced Henko LINTelligent for washing machines which have been about
more than 5 months since the launch of product in the market place. JLL has spent
significantly on the promotion of this brand and expected to continue investing behind
Henko both from a marketing as well as distribution standpoints. The company has
grown this business by about 39% during the quarter.
JLL is likely to keep their spending on Advertising and Promotion to 12.4% of the total
sales from 9% in Q3FY14 due to new launches they have made in the recent past. As
per the management, the major portion of A&P spend will be on Henko.
HI segment to grow strong on lower base going

forward
The HI segment has rebounded and registered a robust growth of 48% in Q3FY15 on
back of lower base of 24% in Q2FY15 and a growth of 20% in nine month ending
December of FY15. The growth is mainly backed by liquid vaporizer in the HI segment
whereas the coil segment has registered a flat growth and expected to de-grow
considering the industry trend. Coil segment subdued growth will be offset by growing
demand in liquid vaporizers. Moreover the company has plans to launch a new mix of
liquid vaporizers in Q4FY15 with fast cards in the HI segment. Maxo liquid vaporizer is
among top three players in the HI segment following Good Knight (Godrej Consumer
Products Ltd.) and All Out (SC Johnson).
Robust growth in HI
segment in Q3FY15
due to lower base
formed in previous
quarters, expected
to be strong going
forward.
Exhibit 1: Segmental revenue growth (Y-o-Y)

1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
Fabric Care
Dishwashing
Mosquito
Repellant
Q3FY14
Personal Care Other Products
Laundry
Services
Q3FY15
Exhibit 2: Revenue Growth in 9 month ending Dec FY15 (Y-o-Y)

6,000
5,000
4,000
3,000
2,000
1,000
0
Fabric Care
Dishwashing
Mosquito
Repellant
YTD FY14
Personal Care Other Products
Laundry
Services
YTD FY15

The EBITDA Margins for the Q3FY15 stood at 13.5% as against 13.2% reported in
Q3FY14. As per the management the impact of lower crude is yet to be seen in Q4FY15.
Due to inventory issues in Q3FY15 there was not much improvement in the profit
margins but at the start of Jan15 month there has been an improvement of 400 bps in
their gross margins. We expect EBITDA margin to see an improvement of 300 bps to
16% in FY15E and FY16E on back of lower commodity prices whereas PAT margins too
will see a range of 10%-12% in FY15E-FY16E from 8% in FY14.
Lower raw material

cost aid JLL to see
better
margins
going forward.
Healthy ROE & ROCE visibility going forward

The companys RoCE and RoE have been on the lower side in FY13 and FY14 due to
capacity expansion, sluggish industry growth and higher costs. Nonetheless, we expect
profitability to improve led by earnings traction and increased capital efficiency (as capex
cycle plays out). 25% earnings CAGR over FY12-16E and lower capital requirement
would enable return ratios to reach higher (RoCE of 36%, RoE of 17% in FY16E).
Exhibit 3: HDPE Prices (INR/Kg)
Exhibit 4: Profit Margins
180
18%
175
16%
170
14%
165
12%
160
10%
155
8%
150
6%
145
4%
2/6/2015
1/6/2015
12/6/2014
11/6/2014
10/6/2014
9/6/2014
8/6/2014
7/6/2014
6/6/2014
5/6/2014
4/6/2014
3/6/2014
2/6/2014
1/6/2014
140
2%
0%
FY12
HDPE Prices (INR/Kg)
FY13
FY14
FY15E
EBITDA Margin
FY16E
PAT Margin
Source: http://www.recycleinme.com, Bonanza Research
Exhibit 5: Total Revenues, EBITDA and PAT
Exhibit 6: Performance Ratios (ROE &ROCE)
25,000
20,000
3500
40%
3000
35%
2500
30%
15,000
2000
10,000
1500
FY17E
25%
20%
1000
5,000
0
FY12
FY13
FY14
Total Revenues (mn)

FY15E
FY16E
EBITDA (mn)
15%
10%
500
5%
0%
FY17E
PAT (mn)
FY12
FY13
FY14
ROE
FY15E
FY16E
ROCE

With a single brand (Ujala) and only presence in south India, JLL has now become a
multi product brand with geographic expansion. JLL has increased their presence in non
south Indian regions and has increased their share from 52% in FY13 to 58% till date in
FY15. The company has now power brands which are adding significantly to its
revenues. JLLs power brands (Ujala, Henko, Maxo, Pril, Exo and Margo) has seen pick
up in volumes Q3FY15 on back of lower base formed in Q2FY15 and Q1FY15. We
expect JLL will focus on maintaining the market share of its power brands and invest in
innovation and re launching its power brands. All the power brands are profitable
crossing revenues of INR 1 bn and the power brands can fund their own growth and don't
need to be cross-subsidised.
Lower raw material

cost aid JLL to see
better
margins
going forward.
JLL has a strong distribution network of total 2.9 mn outlets (Direct coverage of 1 mn
outlets) with backward integrated operations into manufacturing bottles enhancing
penetration across India. The companys distribution strength compares well with most
other FMCG majors like HUL and ITC considering size and scale of operations.
Ujala has close to 70% market share making it the undisputed leader in fabric whitener
category, with the closest competitor (Robin Blue) having market share less than 5%.
JLL sells approximately 1 mn bottles of Ujala Supreme every day.
Exhibit 7: Shifting focus to Pan India Presence from just being a south Indian player
70%
60%
50%
40%
30%
20%
10%
0%
FY13
FY14
South India
YTD FY15
Non South India
Exhibit 8: Market Share (Volume)
Exhibit 9: Market Share (Value)
70
80
60
70
50
60
50
40
40
30
30
20
20
10
10
0
Ujala Fabric
Whitener
Maxo Coil
Q3FY13
Maxo Liquid
Q2FY14
Pril Liquid
Q3FY14
Exo Bar
Ujala Fabric
Whitener
Maxo Coil
Q3FY13
Maxo Liquid
Q2FY14
Pril Liquid
Exo Bar
Q3FY14

The company is a leader in fabric whitening product through its brand Ujala with market
share close to 70%. In household segment the company has witnessed a robust growth
in dish wash segment with presence of its brands Exo and Pril. Exo has now become a
number two player in the dish wash segment after HULs Vim in terms of market share.
Moreover Henko is expected to deliver higher volumes going forward in washing
machine detergent powder category.
We expect an overall growth of 16% in JLLs revenues FY15 and 20% in FY16 and
FY17. JLL at CMP of INR 273 is trading at 25x of its FY16E EPS of INR 11 and at 21x
of its FY17E EPS of INR 13. We believe the stock price is valued at par considering
the overall outlook for the FMCG sector hence we assign a conservative P/E of 25x
to its FY17E earnings which gives us a target price of INR 325.

700
600
500
400
300
200
100
Dec 31 2014
Mar 28 2015*
Jun 26 2015*
Jun 30 2014
Sep 30 2014
Sep 30 2013
Dec 31 2013
Mar 31 2014
Mar 31 2013
Jun 30 2013
Jun 30 2012
Sep 30 2012
Dec 31 2012
Dec 31 2011
Mar 31 2012
Mar 31 2011
Jun 30 2011
Sep 30 2011
Sep 30 2010
Dec 31 2010
Dec 31 2009
Mar 31 2010
Jun 30 2010
Jun 30 2009
Sep 30 2009
Sep 30 2008
Dec 31 2008
Mar 31 2009
Mar 31 2008
Jun 30 2008
Actual Price INR
Px = 214.65 @ p/e of 45
Px = 176.49 @ p/e of 37
Px = 138.33 @ p/e of 29
Px = 100.17 @ p/e of 21
Px = 62.01 @ p/e of 13
Key Risk& Concerns
Increase in raw material prices
Competitors capturing the market share
Weakness in economic environment lead to slower growth
Financials
Ratio Analysis
P&L
Particulars (Rs mn)
FY14
Sales
13,062
Less : Excise Duty
460
Net Sales
12,602
Cost of Materials
6,711
Change in Inventory
4,168
10,934
EBITDA
1,668
Depreciation
616
EBIT
1,052
Interest Expenses
531
Other income
565
EBT
1,063
Tax
2
Profit After tax
1,061
No. of shares
181
EPS
6
FY15E
15,146
530
14,616
7,573
FY16E
18,175
636
17,539
9,087
FY17E
21,810
981
20,828
10,905
4,709
12,282
2,334
665
1,669
(23)
531
450
1,587
3
1,585
181
9
5,651
14,738
2,801
719
2,082
6,758
17,663
3,166
776
2,390
464
450
2,068
4
2,064
181
11
516
451
2,325
4
2,321
181
13
Balance Sheet
Particulars (Rs mn)
FY15E
FY16E
FY17E
181
181
181
181
8,624
10,208
12,272
14,593
Loan Funds
5,159
5,159
5,159
5,159
Secured Loans
5,150
5,150
5,150
5,150
265
265
265
1,472
53
53
53
15,436
15,866
17,930
20,251
Fixed Assets
8,298
8,962
9,679
10,453
Less : Depriciation
1,950
2,616
3,334
4,110
Net Block
6,299
6,346
6,345
6,343
939
939
939
Share warrants
Unsecured Loans
Total
FY14
FY15E
FY16E
FY17E
EBITDA Margin
13%
16%
16%
15%
PAT Margin
8%
11%
12%
11%
EV/EBITDA
25
24
21
18
Debt / Equity
0.6
0.5
0.4
0.4
ROE
12%
15%
17%
16%
ROCE
14%
26%
30%
38%
Cash Flow
FY14
Share Capital
Ratio Analysis
35
Particulars (Rs mn)
FY14 FY15E FY16E FY17E
Cash Flow From Operating Activities
1,063
1,587
2,068
2,325
585
746
733
842
1,648
2,334
2,801
3,167
10
(869)
(971)
110
1,658
1,465
1,830
3,277
(193)
(3)
(4)
(4)
1,465
1,462
1,826
3,273
Adjustments
Operating Profit before working
capital changes
Adjustments for Working Capital
changes
Cash Generated From Operations
Income Tax Paid
Net Cash flow from Operating
Activities
Activities
Net Cash flow from Financing
Activities
equivalents
(1,791) (2,039) (2,395) (3,800)

447 (1,228)
(14)
(65)
120 (1,805)
(584)
(592)
Non Current Investments

Investments
Non Current Assets
939
55
6,982
8,392
10,070
13,096
Current Assets
4,030
4,615
5,204
5,932
Inventories
1,612
2,006
2,407
2,858
556
2,291
2,749
3,264
556
(1,249)
(1,833)
(2,425)
751
788
945
1,122
Loans and Advances
554
781
937
1,112
Current Liablities & Provisions
2,905
4,426
4,628
6,058
Current Liablities
1,463
2,272
2,353
2,726
1,443
2,154
2,275
3,332
Net Current Assets
1,125
189
576
(126)
15,436
15,866
17,930
20,251
Sundry debtors
Total
Company Profile
Jyothy Laboratories, Ltd. manufactures and distributes household products. The
Company is engaged in manufacturing and marketing of fabric whiteners, soaps,
detergents, mosquito coils and incense sticks. It operates in two segments: Soaps &
Detergents and Home Care. Soaps and Detergents include fabric whiteners, fabric
detergents, dish wash bar and soaps including ayurvedic soaps and Home Care
products include incense sticks, dhoop and mosquito coils and scrubber. Its subsidiaries
include Jyothy Fabricare Services Limited, Jyothy Kallol Bangladesh Limited, Associated
Industries Consumer Products Pvt Ltd., Jyothy Consumer Products Marketing Ltd, and
Diamond Fabcare Private Ltd.
Exhibit 11: Sales Break Up
Exhibit 12: Operating Income

1,600
12,000
1,400
10,000
1,200
1,000
8,000
800
600
6,000
400
4,000
200
0
2,000
-200
FY11
FY12
FY13
FY14
-400
0
FY12
FY13
Soaps & Detergents
FY14
Home Care
FY15E
Soaps and Detergents Home Care Products
Others
Others
Laundry Services

Personal Care
Competitors
Home Care
Competitors
Margo (Soap Bar and Face

Wash)
Pears, Lifebuoy,
Garnier, Ponds
Maxo
Good Knight, All Out,

Mortein
FA
Axe
Exo Floor shine
Lizol (Reckitt Benckiser)
Neem Active Toothpaste
Colgate, Close-up
Maya
Fabric Care
Henko
Surf Excel, Tide
Ujala
Robin Blue, Revive
Mr. White
Rin
New Super Chek
Active Wheel
More Light
Active Wheel
Dish wash
Exo
Vim Bar
Pril
Vim Liquid
This page has been intentionally left blank
India Research
4 April 2015
Hindustan Unilever Limited |

INITIATING COVERAGE
BUY
Bloomberg Code: HUVR IN | Reuters Code: HLL.BO
Treading Water
Hindustan Unilever Ltd. has registered a CAGR of 37% from FY09 to FY14 in its revenues
and 9% CAGR in its net profits. We expect HULs revenue CAGR to sustain at 12% over
FY12-16E on back of higher base growth. Foods, personal products and ice cream will be
the growth drivers in this phase, while soaps & detergents (S&D) and beverages will see
moderation in growth. Innovation and re-launches in higher margin personal products
(PP), coupled with lower raw material prices, will drive a 100bps margin expansion to 15%
in FY15E and FY16E. While we are positive on HULs growth prospects, we note that the
stock has outperformed Nifty by 24% in the past one year. Valuations at 44x are also at
the higher-end of the 5-year trading range. We base our target price on 40x PE multiple of
FY17 earnings and initiate coverage with a BUY.
FMCG

Hindustan Unilever Ltd. (HUL) has a strong brand positioning in Household & Personal
Care (HPC) segment. In the soap segment, HUL is present in economy as well as premium
class. Brand Lifebuoy has a largest market share in the economy class segment and
brand Lux and Dove are present in the premium segment with a strong presence. The
soap segment is clearly leading by HUL though we may expect a subdued growth for this
segment going forward on back of increasing competition from P&G and growth nearing
saturation in the soap segment. With large distribution network, HUL may likely to see
robust growth from its other segments like Hair care, Skin care and F&B segment.
Shares O/S (mn)
2,162
M Cap (INR mn)
19,04,722
Re-launching existing brands to derive higher demand and keeping market share
intact
HUL has been re launching its existing brands across varied segments. The company has
made re-launches in detergents and skin care segment. Launch of new RIN variant and
Lakm exciting innovations. Lakm skin forayed into the anti-aging segment with the
launch of Youth Infinity skin cream. In addition, a new Complexion Care (CC) cream was
introduced, the Perfect Radiance range was re-launched and the facial cleansing portfolio
was revamped with the addition of new Clean Up range.
The demand from rural areas has not been picking up from past few quarters and still not in
sight for the coming quarters. We expect that rural growth will be dependent on the
monsoon conditions starting Jun15, till that time we may expect a subdued growth from the
rural segment. Moreover with growth near saturation in soap and detergents, HUL is more
dependent on its other brand portfolio in Skin Care, Hair care and F&B segment for its
growth. In the last three quarters, the growth in domestic business has been declining from
13% in Q1FY15 to 8% in Q3FY15.
INR 881
Target Price:
INR 1,000
Expected Upside (%)
14%
Stock Details
Bloomberg Code
HUVR IN
Reuters Code
HLL.BO
52 week H/L (INR)
981/550

Promoter Group
67.2%
FII
15.0%
DII
3.9%
Others
13.9%

200
150
100
50
0
13-Mar-14
13-Apr-14
13-May-14
13-Jun-14
13-Jul-14
13-Aug-14
13-Sep-14
13-Oct-14
13-Nov-14
13-Dec-14
13-Jan-15
13-Feb-15
13-Mar-15

HUL has registered a growth pick up in Q3FY15 in its skin care and Hair care portfolio. Its
major brands Fair & Lovely, Ponds and Lakme has witnessed a double digit growth and
expected to remain show a healthy growth on back of higher scope of penetration in the
cosmetics segment whereas Hair care segment is driven by double digit growth in volumes
from Dove and Clinic Plus. TREsemme is showing signs of progress in hair care segment.
We expect PP segment to register a growth of 10-11% in FY15E-FY16E. Meanwhile F&B
segment will continue to keep its growth healthy with an average growth of 13-15% in
FY15E-FY16E.
Current Price:
HUL
Nifty
Stock Performance
Return (%)
1 Mth
6 Mths
1 Yr
Absolute
-5%
16%
44%
Relative
0%
9%
17%
Key Financials
Year to March
Net Sales (Rsmn)
FY14
FY15E
FY16E
FY17E
CAGR (%)
2,80,191
3,12,348
3,51,777
3,99,948
13%
Analyst
Harsh Gupta
Tel: 91 22 3086 3950
EBITDA (Rsmn)
44,442
53,961
60,772
64,331
13%
PAT (Rsmn)
38,675
45,896
51,157
53,713
12%
EBITDA Margin (%)
16%
17%
17%
16%
EPS (Rs)
17.9
21.2
23.7
25
12%
EV/Sales (x)
36.4
36.5
32.1
31.1

Hindustan Unilever Limited

Hindustan Unilever Limited is expected to grow at a CAGR of 13% in FY12-16E on back
of higher base growth witnessed in the prior period. HUL has a strong brand positioning
across various segments and a strong distribution network close to 7 million stores
across India to cater to the large population of the country. The company is a leader in
Soap & Detergent Segment with its popular brands Lifebuoy, LUX, Surf Excel, RIN and
Active Wheel. In Skin Care segment Fair & Lovely is a leading brand with highest market
share.
Re launching existing brands to derive higher demand and keeping market

share intact
At CMP of INR 881, the stock is trading at 37x of FY16E and 35x of FY17E EPS. We
assign a BUY rating on the stock valuing the Company 40x on FY17E EPS of INR 25 to
arrive at target price of INR 1,000 proposing an upside of ~14%.
Strong brand positioning and distribution network Retaining leadership

Hindustan Unilever Ltd. (HUL) has a strong brand positioning in Household& Personal
Care (HPC) segment and a leading player across its various segments. The company
has a large distribution network with a total coverage close to 8 million stores and a direct
coverage close to 4 million stores. They have a presence in 70 locations for their
manufacturing unit in India. With such a large distribution network and holding a strong
brand portfolio which leads with highest market share stands tall against its peers.
Growing strong
distribution channel
with a total coverage
of 8 million stores
approx. leading to
higher revenues
S&D Segment (Soap & Detergents Segment)

In the soap segment, HUL is present in economy, medium and premium segment. Brand
Lifebuoy has a largest market share in the economy class segment and brand Lux
and Dove are present in the premium segment with a strong presence. The soap
segment is clearly leading by HUL with highest value market share of 45% in 2014
comprises of its leading brands like Lifebuoy, Lux, Dove, Liril and Rexona in the soap
segment though we may expect growth to remain stagnant in this segment going forward
on back of increasing competition and penetration nearing saturation in the soap
segment. Likewise detergent segment is leading by HUL with its brands Surf Excel,
Wheel and Rin bars. The growth in sales from soaps segment in FY13 stood at 25%
which declined to 6% in FY14 whereas detergent segment sales in FY13 has registered
a growth of 13% which declined to 8% in FY14. The trend is expected to remain the
same in FY15 though we may expect a slight pickup in sales from S&D segment to 910% on back of lower base formed in FY14.
Exhibit 1: Total Revenues
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Exhibit 2: Operating Margins
172,063
152,330
114,406
122,344
135,378
16%
14%
14%
12%
FY13
FY14
8%
6%
4%
2%
0%
FY12
FY13
FY14
FY15E
FY16E
FY17E
FY10
FY11
S&D
FY12
S&D
Exhibit 3: Detergent Per capita consumption (Per Kg)
Exhibit 4: Soap Market Share
12
16%
10.0
10
14%
12%
14.4%
14.4%
10%
8.8%
6
4
13%
9%
10%
96,771
13%
12%
3.7
7.8%
8%
3.7
2.7
2.2
2.1
6.0%
6%
4%
2%
0
India
Malaysia Philippines
USA
China
Thailand
Detergent per capita consumption (Kg per annum)

Source: Euromonitor
0%
Lifebuoy
Lux
Santoor
Dettol
Godrej No.
1
Source: IBEF

PP Segment (Personal Product)
HUL likely to witness relatively a better growth from Hair & Skin care segment compared
to S&D segment. The level of penetration is still less in PP segment and leaves a higher
scope of growth compared to the S&D segment though the segment is as competitive as
S&D segment. The PP segment has witnessed a growth of 14% in FY13 and a growth of
9% in FY14 we may expect a growth of 10-11% in FY15 and to retain a growth of 1112% in FY16 on back of momentum picked up by its power brands Fair & lovely, Ponds
and Lakme after re launch of Fair and lovely and premium products offered by Lakme
and Pond in their facial cleansing portfolio. The growth is expected to be volume led
rather than value led in coming quarters on back of lower commodity prices.

112,664
120,000
27%
89,020
74,288
27%
27%
98,828
100,000
80,000
PP segment to
register a pickup in
growth on back of
higher spending on
premium products
from growing
disposable income
80,927
26%
65,098
26%
25%
60,000
26%
40,000
25%
20,000
25%
25%
25%
24%
0
FY12
FY13
FY14
FY15E
FY16E
FY10
FY17E
FY11
FY12
FY13
FY14
PP
PP
Beverages Segment
HUL offers tea and coffee brands under its beverages segment and has witnessed a
growth of 12% in FY13 and 16% in FY14. The segment will see a growth of 9-10%by the
end of FY15 on back of high competition from the small players like Wagh Bakri, Society
Tea etc. and the tea price growth remained muted in first 3 quarters of FY15. We expect
an average growth of 14% in FY16 on back of pick up from a lower base of 9-10%
expected in FY15.
45,000
20%
38,452
40,000
33,534
35,000
29,403
30,000
25,000
22,246
15,000
8%
6%
10,000
4%
5,000
2%
0%
0
FY13
FY14
FY15E
Beverages
15%
FY10
FY11
16%
14%
10%
20,000
FY12
18%
15%
14%
12%
25,780
19,824
18%
16%
FY16E
FY17E
FY12
FY13
FY14
Beverages

Packaged Foods Segment
The packaged foods segment comprises of Kissan Jams and Ketchups, Annapurna
Wheat Flour, Knorr Soups, Modern Breads, cakes, rusks and cookies. The segment as a
whole registered a growth of 15% in the first 3 quarters of FY15 driven by a robust
growth in processed triglycerides segment though other segment growth remained
muted. The staple foods segment has witnessed a growth of 13% in FY13 and dropped
to 2% in FY14, Canned and processed fruits and vegetable segment grew by 14% in
FY14 against 4% in FY13 and we expect it to grow by 10-12% in FY15 and FY16. Frozen
Desserts segment grew by 10% in FY14 against a growth of 17% in FY13. We expect a
growth of 13% in FY15 and FY16 as HULs ice cream brand Magnum has grown itself
geographically in the last quarter of FY15 through making its presence in 5 more cities
across India.

23,353
25,000
20,636
4%
18,628
20,000
13,991
15,000
15,330
4%
4%
3%
16,832
3%
2%
3%
2%
2%
10,000
2%
1%
5,000
1%
1%
0
FY12
FY13
FY14
FY15E
FY16E
FY17E
0%
FY10
FY11
Food
FY12
FY13
FY14
Foods
Distribution Network (HUL)

Exhibit 11: Direct Distribution Network
Exhibit 12: Total Distribution Outlets

9,000,000
4,500,000
4,000,000
4,000,000
7,000,000
3,500,000
6,400,000
6,000,000
3,000,000
CAGR - 28%
5,000,000
2,500,000
4,000,000
2,000,000
3,000,000
1,500,000
1,000,000
8,000,000
8,000,000
900,000
2,000,000
1,000,000
500,000
0
0
FY09
FY15E
FY13
FY15E

HUL has adopted a new low cost distribution model to leverage the increasing
penetration of mobile phones among the bottom of the pyramid retailers. Taking orders
through tele-calling saved time and led to a significant cut in front end distribution cost.
Reduction in servicing cost enabled to reach more shoppers who purchase from those
marginal outlets outside the purview of traditional distribution model.
Pickup in growth across segments on lower base, F&B

to remain healthy
HUL has posted a double digit growth in Q3FY15 in its skin care and Hair care portfolio.
Its major brands Fair & Lovely, Ponds and Lakme has witnessed a double digit growth
from a growth of 9% in FY14 for PP segment and expected to remain show a healthy
growth on back of higher scope of penetration in the cosmetics segment whereas Hair
care segment is driven by double digit growth in volumes from Dove and Clinic Plus.
TREsemme is showing signs of progress in the premium segment of hair care.
CY12
Cold Cream
Antiseptic
Cream
Fairness Cream
Talcum Powder
Shampoo
Toothpaste
Hair Oil
Detergent Bars
Toilet Soaps
120
100
80
60
40
20
0
Washing
Powder
Exhibit 13: Category wise Penetration
CY13
Source: IBEF
F&B segment exhibit a potential to grow

Packaged foods category is still at a nascent stage and holds a huge potential to grow.
HUL in this segment has witnessed a consecutive double digit growth from past 5
quarters mainly driven by Kissan Jams and Ketchups, Knorr Soups and Kwality Walls
and Magnum Ice creams. As we can refer to the chart below, F&B segment barely
contributes 18% to the total revenues and as we believe the growth in soap and
detergent segment to remain constant at single digits or lower double digits, room for
growth in F&B segment is expected to be more than 15% from FY14 to FY16.
Exhibit 14: Packaged Soup Market Share
F&B segment
registering a healthy
growth from past 5
quarters and
expected to grow by
15% in FY14-FY16E.
Exhibit 15: Ketchup Market Share
13%
27%
47%
25%
62%
26%
Knorr
Maggi

Ching
Maggi
Kissan
Others


Exhibit 16: Ice-Cream Market Share
12%
8%
38%
6%
16%
20%
Amul
Regional & Niche Players
Kwality Walls
Ceam bell
Mother Dairy
Vadilal
Exhibit 17: F&B Product Mix

Food
Beverages
Kissan Jam
BRU Coffee
Kissan Ketchup
Brooke Bond Red Label
Modern Bread
Lipton
Knorr Soup, Pasta, Manchurian etc.

Annapurna - Flour, Salt
Magnum Ice Cream (Premium)
Kwality Walls Ice Cream
Re launching existing brands to derive higher demand

and keeping market share intact
HUL has been re launching its existing brands across varied segments. The company
has made re-launches in detergents and skin care segment recently.
S&D Segment -Vim had a new SKU coming into its portfolio and Launch of new RIN
variant last year.
PP Segment - The company has launched the Lakme lipsticks and the Best Ever Fair &
Lovely with Vaseline Healthy White last year and Ponds BB+ andLakm CC cream in
India to leverage on the global beauty trend catering to consumers looking for instant
optical radiance.
Hair Care and Skin Care brands were premiumised with Lakm Pro-Stylist, TRESemm
and Toni & Guy being some of the innovations last year. In beverages, green tea was
added to the Lipton and Taj Mahal range. Magnum, Unilevers most premium ice cream
brand globally, was launched in Chennai in 2013 and has been extended to more cities
this year. Pureit, launched the water purifier, Pureit Ultima RO + UV. Through Axe, HUL
continued to deploy innovations and implementing a project to establish deodorants
manufacturing facility in India. This facility will provide a regular supply of high quality
deodorant products to cater to markets across the world.
Growth overhangs in rural segment, volumes still to

pick up
The demand from rural areas has not been picking up from past few quarters which are
still not in sight for the coming quarters. We expect that rural growth will be dependent on
the monsoon conditions starting Jun15, till that time we may expect a subdued growth
from the rural segment. Moreover with growth near saturation in soap and detergents,
HUL is more dependent on its other brand portfolio in Skin Care, Hair care and F&B
segment for its growth.
With recent price hikes, we expect the volume growth has bottomed out and we may see
stable to positive momentum in the volume growth in coming quarters on back of benign
commodity prices. The price growth may remain subdued around 3-4% in coming
quarters and the revenue growth is likely to be volume led.
Exhibit 18: Quarterly Price/Volume Growth
8%
7%
7%
6%
6%
5%
4%
6%
6%
5% 5%
5% 5%
4%
5%
4%
3%
3%
3%
3%
2%
1%
0%
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Volume Growth
Q1FY15
Q2FY15
Q3FY15
Price Growth
Source: Company Reports and Bonanza Research
Financial Charts
Exhibit 19: Profitability
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Exhibit 20: Sales, EBITDA and PAT

450,000
15%
15%
16%
15%
14%
17%
15%
17%
15%
16%
13%
12%
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
FY12
FY13
FY14
EBITDA Margin
FY15E
FY16E
PAT Margin
FY17E
0
FY12
FY13
Sales (mn)
FY14
FY15E
EBITDA (mn)
FY16E
FY17E
PAT (mn)

HUL has witnessed a subdued growth in its volumes in past few quarters due to lower
demand across its various segments. The soap and detergent segment has witnessed a
growth of 6% y-o-y, Personal Products segment has witnessed a growth of 6.5% y-o-y,
and beverages segment has seen a growth of 8% y-o-y and packaged foods has seen a
growth of 12.6% y-o-y in its Q3FY15 revenues. The total revenues in Q3FY15 increased
by 7.7% y-o-y from 13.2% increase in Q1 FY15 and 10.6% increase in Q2 FY15. We
expect in coming quarters revenues growth will be a mix of volume and price led due to
lower raw material prices and a recent hike in prices from HUL on its skin care segment.
The prices may remain stable and the company is likely to offer discounts in some of its
product category to revamp the subdued demand. We believe the growth from personal
products and F&B segment will outperform the growth from S&D Segment.
At cmp of INR 881 the stock is trading at 37x of its FY16E EPS of INR 24 and 35x of its
FY17E EPS of INR 25. With favourable crude oil prices in current quarter and visible
signs of economic growth we expect the volume to pick up from Q4FY15 and Q1FY16.
Considering these factors we assign a P/E of 40x to its FY17E EPS of INR 25 which
gives us a one year target of INR 1,000.
1,400
1,200
1,000
800
600
400
200
Mar 31 2008
Jun 30 2008
Sep 30 2008
Dec 31 2008
Mar 31 2009
Jun 30 2009
Sep 30 2009
Dec 31 2009
Mar 31 2010
Jun 30 2010
Sep 30 2010
Dec 31 2010
Mar 31 2011
Jun 30 2011
Sep 30 2011
Dec 31 2011
Mar 31 2012
Jun 30 2012
Sep 30 2012
Dec 31 2012
Mar 31 2013
Jun 30 2013
Sep 30 2013
Dec 31 2013
Mar 31 2014
Jun 30 2014
Sep 30 2014
Dec 31 2014
Mar 28 2015*
Jun 26 2015*
Actual Price INR
Px = 747.84 @ p/e of 41
Px = 674.88 @ p/e of 37
Px = 601.92 @ p/e of 33
Px = 528.96 @ p/e of 29
Px = 456 @ p/e of 25
Key Risk& Concerns
Increase in raw material prices
Losing segment market share to the competitors
Weakness in economic environment leading to slower growth
Further decline in volume growth
Financials
Ratio Analysis
P&L
Particulars (mn)
Sales
Less : Excise Duty
Rate of Excise Duty
Net Sales
Cost of Materials
Change in Inventory
EBITDA
Depreciation
EBIT
Interest Expenses
Other income
EBT
Tax
Profit After tax
No. of Shares
EPS
FY14
295,579
15,388
5
280,191
122,624
(1,664)
114,790
235,750
44,442
2,595
41,847
2,287
360
6,511
50,284
11,609
38,675
2,162
18
FY15E
329,501
17,154
5
312,348
133,448
FY16E
FY17E
371,096 421,913
19,319
21,965
5
5
351,777 399,948
150,294 174,333
124,939
258,387
53,961
2,802
51,159
1,766
252
6,999
59,673
13,777
45,896
2,162
21
140,711
291,005
60,772
3,025
57,747
1,766
161,284
335,617
64,331
3,261
61,071
1,766
6,999
66,513
15,356
51,157
2,162
24
6,999
69,836
16,123
53,713
2,162
25
Ratio Analysis
FY14
FY15E
FY16E
FY17E
EBITDA Margin
16%
17%
17%
16%
PAT Margin
14%
15%
15%
13%
EV/EBITDA
36
37
32
31
Debt / Equity
0.0
0.0
0.0
0.0
120%
99%
83%
73%
ROE
Balance Sheet
Cash Flow
Particulars (mn)
FY14
FY15E
FY16E
FY17E
Share Capital
2,163
2,163
2,163
2,163
44,051
59,511
71,554
Share warrants
427
30,181
(1,617)
2,788
Total
33,941
46,213
61,673
73,717
Fixed Assets
44,429
47,967
51,786
55,825
Less : Depriciation
20,208
23,010
26,035
29,295
Net Block
24,221
24,957
25,752
26,529

Investments
3,121
30,941
30,941
30,941
30,941
6,055
7,121
8,020
8,258

Intangible assets under
development
Current Assets
63,945
85,413
111,763
137,483
Inventories
27,475
32,251
36,322
41,296
8,164
9,592
10,803
12,283
22,210
38,047
58,418
76,833
2,401
2,751
3,099
3,523
Loans and Advances

Current Liablities &
Provisions
Net Current Assets
3,695
2,771
3,121
3,549
94,425
102,219
114,803
129,495
(30,480)
(16,806)
(3,040)
7,988
33,941
46,213
61,673
73,717
84
Sundry debtors
Total
Particulars (mn)
FY14
FY15E
FY16E
FY17E
Cash Flow From Operating

Activities
50,284
59,673
66,513
69,836
Adjustments for:
(2,707)
3,053
3,025
47,577
62,726
69,538
4,788
665
6,605
55,953
63,390
76,142
(12,785)
(13,777)
Fringe Benefit Tax Paid

(52)
Net Cash flow from
43,116
Operating Activities
(5,132)
Activities
Net Cash flow from
(29,168)
Financing Activities
8,816
equivalents
(16)
49,614
60,787
64,362
(1,483)
(4,719)
(4,277)
Operating Profit before

working capital changes
Adjustments for Working
Capital
Cash Generated From
Operations
Income Tax Paid
(32,278)
15,853
3,261
73,097
7,388
80,485
(15,356) (16,123)
(35,697) (41,669)
20,371
18,416
Company Profile
Hindustan Unilever operates in five segments: S&D, PP, beverages, packaged foods,
and others. S&D segment include soaps, detergent bars, detergent powders, detergent
liquids, scourers. PP segment include products in the categories of skin care, hair care,
oral care, colour cosmetics and deodorants. The foods and beverages portfolio of the
Company includes tea, coffee, processed foods, frozen desserts, ice creams, bakery
products and out of home operations, including Bru world cafe. The Packaged foods
segment of the company includes culinary products such as jams, ketchups and soups,
soupy noodles and meal makers; branded staples (atta and salt; bakery products, and
frozen desserts/ice creams. Others segment includes exports, chemicals, water business
and infant care products. HUL is the largest FMCG Company in India after ITC with a
total revenues of more than INR 3,20,000 mn. The company has a strong brand
positioning across various segments and a strong distribution network close to 7 million
stores across India to cater to the large population of the country. The company is a
leader in Soap & Detergent Segment with its popular brands Lifebuoy, LUX, Surf Excel,
RIN and Active Wheel. In Skin Care segment Fair & Lovely is a leading brand with
highest market share.
Exhibit 22: Segmental contribution in revenues
60%
50%
40%
30%
20%
10%
0%
Soaps and
Detergents
Personal Products
FY12
Beverages
FY13
Packaged Foods
Others
FY14

Soap & Detergent Segment
Food & Beverages
PP Segment
Lux
Kissan Jam, Ketchup, Squash
Lakme
Lifebuoy
Ponds
Axe
Rexona
Modern Bread
Knorr Soup, Pasta, Manchurian
etc.
Annapurna - Flour, Salt
Dove
Magnum Ice Cream (Premium)
Tresemme
Breeze
Kwality Walls Ice Cream
SunSilk
Pears
BRU Coffee
Clinic Plus
Vim
Brooke Bond Red Label
Aviance
Rin
Lipton
Tigi
Liril
Fair & Lovely
Magic
Tony & Guy
Sunlight
Clear
Surf Excel
Elle 18
Active Wheel
Vaseline
Comfort
Institutional Equities Team

Kamal Bansal
Head of Equity
Yogesh Nagaonkar
Co. Head of Equity & HOR
kamal@bonanzaonline.com
022-306 3514
n.yogesh@bonanzaonline.com
Institutional Dealing
Hareesh Bohra
Sales Trader
022-3086 3786
hareeshbohra@bonanzaonline.com
Manoj Pawar
Sales Trader
022-3086 3982
manoj.p@bonanzaonline.com
Nitesh Jalan
Sales Trader
022-3086 3758
nitesh.j@bonanzaonline.com
Corporate Office :Plot No. M-2, Cama Industrial Estate, Walbhat Road, Behind The Hub Goregaon (E), Mumbai - 400 063. Tel.: 022-67605500 / 600
Head Office :2/2 A, First Floor, Lakshmi Insurance Building, Asaf Ali Road, New Delhi - 110 002. Tel.: 011-30181290 / 94
Web: www.bonanzaonline.com

India FMCG Bonanza Apr 2015

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April 2015

make money. not mistakes.

Margins to improve in 1HFY16 with

Modern trade to drive revenues

declining crude oil prices

higher for FMCG sector

Goods and Service tax (GST) implication

Pick-up in economic growth with higher per

likely to be effective from FY17

capita income will be a fillip for the sector

Key Growth Drivers

Margins to improve in 2HFY15 & 1HFY16from declining raw material prices

Goods and Service tax (GST) implication likely to be from FY17

Modern trade to drive revenues higher for FMCG sector

Key Risk and Concerns

Godrej Consumer Products Ltd. : Inorganic growth intact

Britannia Industries Ltd. : Reinforcing Pillars

Jyothy Laboratories Ltd. : Transformed strategies will enhance prospects

Hindustan Unilever Ltd. : Treading Waters

4 April 2015 | Page 2

Lower commodity prices coupled with

Hindustan Unilever Ltd. (HUL)

Margins to improve in 1HFY16 with declining crude oil prices

Avg. 6 Month (mn)

Britannia India Ltd. (BIL)

Avg. 6 Month (mn)

Godrej Consumer Products Ltd.

Jyothy Laboratories Ltd. (JLL)

Modern trade to drive revenues higher for FMCG sector

PAT Margins (%)

Sources: Company, Bonanza Research

INTRODUCTION: FAST MOVING CONSUMER GOODS SECTOR

Total India GDP (US$ bn)

FMCG Market Size(US$ bn)

Source: IBEF, Bonanza Estimates

FMCG in Rural & Urban Markets

Rural Market share (US$ bn)

Urban Market share (US$ bn)

Source: IBEF, Bonanza Estimates

6 April 2015 | Page 4

Major Companies Contributing to Indian FMCG Sector

Market Capitalisation (Rs. Cr.)

United Spirits Ltd.

Nestle India Ltd.

Total Revenue FY14 (Rs Cr.)

Source: BSE, Bonanza Research

Exhibit 4: Peer Comparison

Diluted EPS (Rs)

Source: Company Reports, Bonanza Research

6 April 2015 | Page 5

Oral Care, Hair Care,

Source: Bonanza Research

Segments: FMCG Sector

Food Products, 43%

Fabric Care, 12%

Personal Care, 22%

Market Break up of Indian FMCG Industry 2013

6 April 2015 | Page 6

Personal Care Segment

Shampoo Market Share

Exhibit 8: Hair oils market share

Amla Based Oils

Coconut Hair Oil Market size

Non Coconut Hair Oil Market size