Rating Rationale
May 14, 2018 | Mumbai
Hindustan Unilever Limited
Rating Action
Total Bank Loan Facilities Rated Rs.1000 Crore
Long Term Rating CRISIL AAA/Stable
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL's rating on the long-term bank facilities of Hindustan Unilever Limited (HUL) continues to reflect the company's market leadership across segments in the fast-moving consumer goods (FMCG) industry, strong brand presence, robust financial risk profile, and high operating efficiency. These rating strengths are partially offset by intensifying competition in the FMCG industry.

HUL is one of the largest FMCG Company in India with strong brands across categories and price points. The brands have high visibility and have sustained their market leadership, backed by an extensive distribution network and strong advertising and marketing support. This insulates the company from the effects of downturns in individual segments.

On standalone basis, for nine months ending December 2017, company reported sales growth of 2% year on year despite impact of GST albeit lower base of demonetisation. Comparable domestic consumer growth (adjusting for impact of GST) stood at 11% year on year. Comparable EBIDTA margins (adjusting for impact of GST) improved by 150 bps to 20.6%. CRISIL believes, company will continue to demonstrate healthy business and financial profile with focused effort on brand strengthening, higher advertising and increased focus on building premium offerings. This will be supported by strong distribution network and healthy product mix with supply chain efficiencies. CRISIL believes, HUL will continue to sustain healthy operating profitability despite the slight increase in the input costs, which remains monitorable.

Key Rating Drivers & Detailed Description
* Leading market position across categories in fast-moving consumer goods (FMCG) industry: HUL is one of the largest FMCG companies in India. 5 brands of HUL generate annual turnover of over Rs. 1000 crore each and 6 brands generate annual turnover of over Rs. 2000 crore each. The company also holds the two leading spots in most of the categories where it has presence in terms of market share. The company's product portfolio includes home care, personal care products, foods, and refreshments. HUL's brands have high visibility and have sustained their leadership over decades, backed by one of the most extensive distribution networks in the country and strong advertising and marketing support. HUL has been leveraging its distribution strengths to adapt its channel strategy for its various products and market segments.

* Robust financial risk profile: On consolidated basis, the financial risk profile is marked by strong net cash accruals of Rs. 633 crore in fiscal 2017 and a low gearing. The company has ample liquidity; as on March 31st, 2017, it had cash and bank balances in excess of Rs.1700 crore. The company also has considerable financial flexibility because of minimal debt levels and largely unutilised bank lines. HUL has an aggressive dividend payout policy: in the past three years ended fiscal 2017, it paid dividends of 89% or more of its profit after tax. In fiscal 2017, dividend payout stood at 98%. Despite this, the company has been able to fund its capex and debt repayments from internal accruals.

* Healthy operating efficiency: HUL has high operating efficiency because of its strong distribution network, geographically diversified production facilities, and strong linkages with the parent company Unilever Plc (Unilever; rated 'A+/Stable/A-1' by Standard & Poor's). Due to a good mix of owned factories and outsourced production facilities spread across the country, the company saves on freight costs significantly. The supply chain has been further strengthened by enterprise-wide SAP implementation. The company is gradually deploying hand-held-based selling system across distributors' salesmen. On standalone basis, company has reported a healthy profitability of 20.6% in nine month ended December 2017.

* Susceptibility to intense competition:  The Indian FMCG industry is marked by the presence of both organized and unorganized players across various segments and product categories. HUL continues to face stiff competition in key segments, with the entry of new players, including multinationals, in segments such as soaps and detergents, personal care products, and packaged foods.
Outlook: Stable

CRISIL believes HUL will maintain its strong financial risk profile, and its leading position in the domestic FMCG industry, over the medium term. The company's cash flows are sufficient to fund its capital expenditure requirements.

Downward Scenario
* Significant erosion in HUL's market share in key business segments, thereby adversely affecting the company's business risk profile.

About the Company

HUL is India's largest FMCG company with a diverse product portfolio including soaps and detergents, personal care products, and food and beverages. The company has 28 owned factories and many other outsourced production facilities spread across the country.

In the 1990s, HUL opted for growth through acquisitions. In 1998 (refers to calendar year, January 1 to December 31), group company Pond's India Ltd was merged with HUL. The company also acquired the Lakme brand, its factories, and Lakme Ltd's 50 percent stake in Lakme Lever Ltd in 1998. Vasishti Detergents Ltd (VDL) was merged with HUL with effect from July 1, 2005. VDL has manufacturing facilities for toilet soaps and detergents in Chiplun in Maharashtra. In April 2016 HUL acquired Kerala-based hair oil brand, Indulekha for Rs.392 crore. Indulekha has a strong presence in Kerala, Tamil Nadu, Karnataka and Maharashtra.

Key Financial Indicators
For fiscal ended March 31 2017 2016
Revenue Rs crore 33147 32194
Adjusted Profit After Tax Rs crore 4490 4151
PAT Margins % 13.5 12.9
Adjusted Debt/Adjusted Net worth Times 0.04 0.04
Interest coverage Times 516.87 193.91

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon rate (%) Maturity Date Issue size (Rs. Crore) Rating Assigned with Outlook
NA Proposed Fund-Based Bank Limits NA NA NA 527 CRISIL AAA/Stable
NA Working Capital Demand Loan^ NA NA NA 473 CRISIL AAA/Stable
^HUL is authorized by its board to borrow up to Rs.1000 Crore under a multiple banking arrangement and this amount is interchangeable with overdraft, export packing credit, pre-shipment credit, letter of credit, and bank guarantee
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  1000.00  CRISIL AAA/Stable  27-04-18  CRISIL AAA/Stable  31-03-17  CRISIL AAA/Stable      29-12-15  CRISIL AAA/Stable  CRISIL AAA/Stable 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Proposed Fund-Based Bank Limits 527 CRISIL AAA/Stable Proposed Fund-Based Bank Limits 683 CRISIL AAA/Stable
Working Capital Demand Loan^ 473 CRISIL AAA/Stable Working Capital Demand Loan^ 317 CRISIL AAA/Stable
Total 1000 -- Total 1000 --
^HUL is authorized by its board to borrow up to Rs.1000 Crore under a multiple banking arrangement and this amount is interchangeable with overdraft, export packing credit, pre-shipment credit, letter of credit, and bank guarantee
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Fast Moving Consumer Goods Industry
CRISILs Criteria for Consolidation

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