HINDUSTAN UNILEVE

Statement of Profit and Loss for the

Net Sales
Other Income
Total Revenue
Total Expenses
Profit before exceptional items and tax
Exceptional items
Profit before tax
Tax
Net Profit

HINDUSTAN UNILEVER LTD.

Balance Sheet March 31 (in millions
2013
Equity and Liabilities

Shareholders' Funds Rs.28,857

Long-term borrowings 84
Other long-term liabilities 4,821
Long-term provisions 7,101
Deferred tax liabilities 2,178
Non-current liabilities 14,184
Short-term borrowings 163
Trade payables 53,417
Other current liabilities 6,591
Short-term provisions 19,884
Current liabilities 80,055
Other 94,239
Total liabilities 123,096

Assets

Tangible assets Rs.23,953

Intangible assets 361
Capital work-in-progress 2,121
Intangible assets under development 103
Non-current investments 3,953
Long-term loans and advances 4,216
Other non-current assets 2,968
Deferred tax assets 4,264
Non-current assets 41,939
Current investments 18,570
Inventories 27,060
Trade receivables 9,965
Cash and bank balances 19,007
Short-term loans and advances 5,820
Other current assets 735
Current assets 81,157
123,096

Assets as on March 31 2011 - Rs.1,05,414

Equity shareholders' fund as on March 31 2011 - Rs.27,495
Net profit after minority interests as on March 31 2013 - Rs.38,289
Net profit after minority interests as on March 31 2012 - Rs.27,907
Weighted average number of equity shares as on March 31 2013 - 2,1
Weighted average number of equity shares as on March 31 2012 - 2,1
HINDUSTAN UNILEVER LTD.
rofit and Loss for the year ended March 31
(In millions Rs.) Change
2013 2012 (%)
270,040 234,363 15
5,320 2,596 105
275,360 236,959 16
-230,757 -201,879 14
44,603 35,080 27
6,057 1,137 433
50,660 36,217 40
-12,267 -8,216 49
38,393 28,001 37

N UNILEVER LTD.
March 31 (in millions)
2012 Change (%)

Rs.36,993 -22
0
3,317 45
6,743 5
1,968 11
12,028 18
0
48,439 10
5,643 17
12,937 54
67,019 19
79,047 19
116,040 6

Rs.22,329 7
299 21
2,173 -2
 103 0
703 462
3,808 11
0
4,068 5
33,483 25
22,519 -18
26,674 1
8,567 16
19,964 -5
4,461 30
372 98
82,557 -2
116,040 6

- Rs.27,495
31 2013 - Rs.38,289
31 2012 - Rs.27,907
n March 31 2013 - 2,161.86 shares
n March 31 2012 - 2,160.68 shares

FAM SESSION 20 & 22-23

1) Profit margin (Net profit/Sales):

2013 2012
38,393/2,70,040 14.22%
28,001/2,34,363 11.95%

Excluding 'Other Income' and

Exceptional items' from Net profit:

2013 2012
27,016/2,70,040 10.00%
24,269/2,34,363 10.36%

2) Asset turnover (Sales/Assets):

2013 2012
2,70,040/1,19,568 2.26 times
2,34,363/1,10,727 2.12 times

Average assets: 2013 2012

1,16,040+1,23,096/2 119,568
1,05,414+1,16,040/2 110,727

3) Return on assets (ROA):

2013 2012
38,393/1,19,568 32.11%
28,001/1,10,727 25.29%
4) Return on equity (ROE):

2013 2012
38,393/32,925 116.61%
28,001/32,244 86.84%

Average equity: 2013 2012

28,857+36,993/2 32,925
36,993+27,495/2 32,244

5) Earnings per share (EPS):

2013 2012
38,289/2,161.86 Eqs Rs.17.71
27,907/2,160.68 Eqs Rs.12.92
Margin is much
lower for both
years and it
actually
decreased in
2013

The increase of
14 paise in sales
per rupee of
investment
indicates
significant
improvement
in utilization of
assets in 2013

ROA is increased
because of improvement
in both margin and
turnover.

Also, higher ROA came from

a larger investment suggesting
that the additional investment
was probably even more
profitable.
The dramatic increase
in the ROE in 2013
was driven by
improved ROA.

Shareholders expect
the ROE to be higher
than the cost of equity
(10.07% in 2013 for HUL).
 HINDUSTAN UNILEVER LTD.
Reformulated Statement of Profit and Lo
for the year ended March 31

Sales
Cost of materials consumed
Purchases of stock-in-trade
Changes in inventories
Employee benefit expenses
Depreciation and amortization expense
Other expenses

Operating profit before tax

Tax, as reported
Deduct: Tax on other income
Add: Tax on interest expense
Deduct: Tax on exceptional items
Tax on Operating Profit
Net Operating Profit After Tax (NOPAT)
Add: Other income
Tax at 32.45%

Deduct: Finance costs

Tax at 32.45%

Net Financial Income

Add: Exceptional items
Tax at 32.45%

Profit After Tax (PAT)

Marginal tax rate for both 2013 and 12 was 32.45% which was also t
statutory tax rate.

HINDUSTAN UNILEVER LTD.

Reformulated Statement of Balance Shee
as on March 31
Total Assets
Financial assets
Current investments
Term deposits with original maturity of less than 3 months
CDs with original maturity of less than 3 months
Treasury bills with original maturity of less than 3 months
Term deposits with original maturity of 3 to 12 months
Term deposits with original maturity of more than 12 months

Operating Assets
 HINDUSTAN UNILEVER LTD.
mulated Statement of Profit and Loss
for the year ended March 31
(in millions)
2013 (Rs.) 2012 (Rs.)
270,040 234,363
109,878 94,870
31,253 29,195
-260 952
14,217 12,009
2,513 2,335
72,989 62,502
230,500 201,863
39,540 32,500
-12,267 -8,216
1,726 842
-83 -5
1,965 369
-8,659 -7,010
30,881 25,490
5,320 2,596
-1,726 -842
3,594 1,754
-257 -16
83 5
-174 -11
3,420 1,743
6,057 1,137
-1,965 -369
4,092 768
38,393 28,001

nd 12 was 32.45% which was also the

HINDUSTAN UNILEVER LTD.

mulated Statement of Balance Sheet
as on March 31
(in millions Rs.)
 2013 2012 2011
123,096 116,040 105,414

18,570 22,519 11,401

rity of less than 3 months 3,654 1,974 80
s than 3 months 0 2,685 32
rity of less than 3 months 0 2,204 0
rity of 3 to 12 months 13,673 9,874 14,389
rity of more than 12 months 2,968 0 0
38,865 39,256 25,902
84,231 76,784 79,512

FAM SESSION 20 & 22-23

1) Profit margin (NOPAT/Sales):

2013 2012 In 2013, the NOPAT m

30,881/2,70,040 11.44% was 11.44%, as comp
25,490/2,34,363 10.88% 14.22% that we arriv
without excluding th
effect of financial
investments.

2) Asset turnover (Sales/Operating assets):

2013 2012 In 2013, ATR goes up

2,70,040/80,508 3.35 times 3.35 times from 2.26
2,34,363/78,148 3.00 times because we exclude
financial assets from
denominator, but the
no change in the
numerator, viz. Sales

3) Return on operating assets (Profit/Operating assets):

2013 2012
38,881/80,508 38.36% The Return on operat
25,490/78,148 32.62% assets is 38.36% whi
higher than ROA, i.e.
Also, Return on opera
assets 38.36% is muc
better than the Cost
i.e., 10.07%.
4) Return on financial assets (Net financial income/Financial assets):

2013 2012
3,420/39,061 8.76% The return on financ
1,743/32,579 5.35% is much lower than t
operating assets. Fin
investments dragged
the company's overal
So, shareholders gen
expect the company
in its core or related
and not in MFs or ba
13, the NOPAT margin
1.44%, as compared to
% that we arrived at
ut excluding the
of financial
ments.

13, ATR goes up to

imes from 2.26,
se we exclude
cial assets from the
minator, but there is
ange in the
rator, viz. Sales.

eturn on operating
is 38.36% which is
r than ROA, i.e., 32.11%.
Return on operating
38.36% is much
than the Cost of equity
al assets):

eturn on financial assets

ch lower than that of
ting assets. Financial
ments dragged down
ompany's overall return.
areholders generally
t the company to invest
core or related business
ot in MFs or bank deposits.
 HINDUSTAN UNIL
Statement of Profit and Loss for

Net Sales
Other Income
Total Revenue
Total Expenses
Profit before exceptional items and tax
Exceptional items
Profit before tax
Tax
Net Profit

HINDUSTAN UNILEVER LTD.

Balance Sheet March 31 (in million
2013
Equity and Liabilities

Shareholders' Funds Rs.28,857

Long-term borrowings 84
Other long-term liabilities 4,821
Long-term provisions 7,101
Deferred tax liabilities 2,178
Non-current liabilities 14,184
Short-term borrowings 163
Trade payables 53,417
Other current liabilities 6,591
Short-term provisions 19,884
Current liabilities 80,055
Other 94,239
Total liabilities 123,096

Assets

Tangible assets Rs.23,953

Intangible assets 361
Capital work-in-progress 2,121
Intangible assets under developme 103
Non-current investments 3,953
Long-term loans and advances 4,216
Other non-current assets 2,968
Deferred tax assets 4,264
Non-current assets 41,939
Current investments 18,570
Inventories 27,060
Trade receivables 9,965
Cash and bank balances 19,007
Short-term loans and advances 5,820
Other current assets 735
Current assets 81,157
123,096

Trade receivables in 2011 was Rs.9,633 millions

Cost of Goods Sold for the year ended March 31 2013 was Rs.1,97,6
the year ended March 31 2012 was Rs.1,74,894 millions

Inventories for the year ended March 31 2011 was Rs.28,757 million

FAM SESSION 20 & 22-23

 HINDUSTAN UNILEVER LTD.
of Profit and Loss for the year ended March 31
(In millions Rs.)
2013 2012
270,040 234,363
5,320 2,596
275,360 236,959
-230,757 -201,879
44,603 35,080
6,057 1,137
50,660 36,217
-12,267 -8,216
38,393 28,001

N UNILEVER LTD.
March 31 (in millions)
2012 Change (%)

Rs.36,993 -22
0
3,317 45
6,743 5
1,968 11
12,028 18
0
48,439 10
5,643 17
12,937 54
67,019 19
79,047 19
116,040 6

Rs.22,329 7
299 21
2,173 -2
 103 0
703 462
3,808 11
0
4,068 5
33,483 25
22,519 -18
26,674 1
8,567 16
19,964 -5
4,461 30
372 98
82,557 -2
116,040 6

2013 was Rs.1,97,601 millions and that for

millions

as Rs.28,757 millions
Change 1) Current Ratio = Current assets/Current liabilities
(%)
15 2013
105 81,157/80,055 1.01
16 82,557/67,019
14
27
433
40
49
37

2) Quick Ratio = Quick assets/Current liabilities

2013
54,097/80,055 0.68
55,883/67,019

3) Receivable Turnover (RTO) = Net sales/Average rece

2013
2,70,040/9,266 29.14 times
2,34,363/9,100

Average receivables: 2013

9,965+8,567/2 9,266
8,567+9,633/2

4.1) Average collection period = Average receivables/A

2013
9,266/750 12.35 days
9,100/651

4.2) Average collection period = 360 days/Receivable t

2013
360 days/29.14 12.35 days
360 days/25.75

5.1) Inventory turnover (ITO) = Cost of Goods Sold*/Av

2013
1,97,601/26,867 7.35 times
1,74,894/27,716

Average inventories: 2013

27,060+26,674/2 26,867
26,674+28,757/2

5.2) Average inventory holding period = 360 days/Inve

2013
360 days/7.35 48.95 days
360 days/6.31
* As HUL doesn't report COGS, so we have to calculate
Expense items such as employee benefits and deprecia
manufacturing, marketing and administration. We exc
and sales promotion and finance costs that are non-ma
and treat the rest as manufacturing expenses.

**To neutralise the above issue we can use sales instea

then the ratio would get affected by changes in profit

5.3) Inventory turnover (ITO) = Sales**/Average invent

2013
2,70,040/26,867 10.05 times
2,34,363/27,716

Average inventories: 2013

27,060+26,674/2 26,867
26,674+28,757/2

5.4) Average inventory holding period = 360 days/Inve

2013
360 days/10.05 35.82 days
360 days/8.46

6) Operating cycle = Average inventory holding period

2013
(48.95+12.35) days 61.30 days
(57.05+13.98) days
ets/Current liabilities

2012
The decrease in the current ratio
1.23 in 2013 means that the company
had less current assets to meet
its current liabilities.
On the face of it, it is unfavourable
for the company's short-term creditors.

Current liabilities

2012
The decrease in the Quick Ratio is in
0.83 line with, but a bit less than, the drop
in the Current Ratio.
As a rule of thumb, the CR is
expected to be at least 2:1 and the
QR 1:1.
The latter means that a firm must have
at least as much liquid assets as its
current obligations so that it will
have no difficulty in paying those
obligations.

= Net sales/Average receivables

2012
The higher RTO in 2013 indicates
25.75 times better management of receivables.

2012
 9,100

= Average receivables/Average daily sales

2012

13.98 days

= 360 days/Receivable turnover

2012 The company's receivables

remained outstanding,
13.98 days on average, for 12.35 days in
2013 as compared to 13.98 days
in 2012, indicating improvement
in collection. To assess whether
this is satisfactory, we need information
on the company's credit terms.

= Cost of Goods Sold*/Average inventories

2012
The higher inventory turnover
6.31 times in 2013 indicates better inventory
management.

2012

27,716

g period = 360 days/Inventory turnover

2012 The average inventory holding

period had also improved in 2013
57.05 days as a result of higher ITO.
 so we have to calculate it as follows:
ee benefits and depreciation may relate to
administration. We exclude advertising
ce costs that are non-manufacturing items
uring expenses.

e we can use sales instead of COGS, but

ed by changes in profit margins.

= Sales**/Average inventories

2012

8.46 times

2012 Here, due to higher ITO in

2013 than COGS calculation
27,716 the average inventory
holding period had come down
to 35.82 days which shows
g period = 360 days/Inventory turnover enormous improvement
in company's inventory
2012 management.

42.57 days

nventory holding period + Average collection period

2012
The significant decrease
71.03 days of operating cycle time
in 2013 implies that HUL's
funds were held up in
receivables and inventories
for a shorter time resulting in
savings in interest, storage
and other expenses.
rmation
 ITO in
alculation

come down
h shows
 HINDUSTAN UNILEVE
Statement of Profit and Loss for the

Net Sales
Other Income
Total Revenue
Total Expenses
Profit before exceptional items and tax
Exceptional items
Profit before tax
Tax
Net Profit

HINDUSTAN UNILEVER LTD.

Balance Sheet March 31 (in millions)
2013
Equity and Liabilities

Shareholders' Funds Rs.28,857

Long-term borrowings 84
Other long-term liabilities 4,821
Long-term provisions 7,101
Deferred tax liabilities 2,178
Non-current liabilities 14,184
Short-term borrowings 163
Trade payables 53,417
Other current liabilities 6,591
Short-term provisions 19,884
Current liabilities 80,055
Other 94,239
Total liabilities 123,096

Assets

Tangible assets Rs.23,953

Intangible assets 361
Capital work-in-progress 2,121
Intangible assets under development 103
Non-current investments 3,953
Long-term loans and advances 4,216
Other non-current assets 2,968
Deferred tax assets 4,264
Non-current assets 41,939
Current investments 18,570
Inventories 27,060
Trade receivables 9,965
Cash and bank balances 19,007
Short-term loans and advances 5,820
Other current assets 735
Current assets 81,157
123,096

FAM SESSION 20 & 22-23

HINDUSTAN UNILEVER LTD.
rofit and Loss for the year ended March 31
(In millions Rs.) Change
2013 2012 (%)
270,040 234,363 15
5,320 2,596 105
275,360 236,959 16
-230,757 -201,879 14
44,603 35,080 27
6,057 1,137 433
50,660 36,217 40
-12,267 -8,216 49
38,393 28,001 37

UNILEVER LTD.
March 31 (in millions)
2012 Change (%)

Rs.36,993 -22
0
3,317 45
6,743 5
1,968 11
12,028 18
0
48,439 10
5,643 17
12,937 54
67,019 19
79,047 19
116,040 6

Rs.22,329 7
299 21
2,173 -2
 103 0
703 462
3,808 11
0
4,068 5
33,483 25
22,519 -18
26,674 1
8,567 16
19,964 -5
4,461 30
372 98
82,557 -2
116,040 6
1) Debt-to-equity Ratio = Debt/Equity

2013 2012
247/28,857 0.01
0/36,993 0

However, one a
operating lever
leverage to judg
1.1) Liabilities-to-equity Ratio = All liabilities/Equity

2013 2012
94,239/28,857 3.27
79,047/36,993 2.14

2) Interest Cover Ratio = PBIT/Interest expense

2013 2012
44,860/257 174.55 times
35,096/16 2,193.50 times

Operating profi
Profit and Loss
used here in pla
 HUL's debt consists of
long- and short-term
borrowings. HUL's
running with low debt
is due to its products
wide fluctuations in
demand.
However, one also has to consider
operating leverage along with financial
leverage to judge overall risk.
y

It indicates HUL's
increasing dependence
on liabilities, though
mostly interest-free.

The extent of interest

cover depends on
profit, debt level and
interest rate.
As HUL has a small
amount of interest-bearing
debt, so the interest
cover ratio in both years
were extremely high.

Operating profit from the reformulated

Profit and Loss Statement can also be
used here in place of PBIT.
 HUL's Stock prices in the BSE
Mar-13 Mar-12
High Rs.473 Rs.419
Low 432 377
Average 452.8 397.65
Closing 466.1 409.9

EPS for 2013 - Rs.17.71

EPS for 2014 - Rs.12.92

Dividend per share in 2013 - Rs.18.5

Dividend per share in 2012 - Rs.7.5

Cost of equity in 2013 - 10.07%

FAM SESSION 20 & 22-23

1) Price-earnings Ratio = Market price per share/Earnings per share

2013 2012
452.8/17.71 25.57 times
397.65/12.92 30.78 times

The EPS measure is affected by accounting

method differences, one-time items and
other earnings quality issues.
Therefore, investing in a stock should be
based on a detailed analysis of the
company's business, earnings quality,
competition and larger industry and
economic trends.

2) Dividend yield = Dividend per share/Market price per share

2013 2012
18.5/452.8 4.09%
7.5/397.65 1.89%

Total return = (Change in stock price + Dividend) for the period/Stock pric

2013
(452.8-397.65)+18.5/452.8 16.27%
3) Price-to-Book Ratio = Market price per share/Book value per share

2013 2012
452.8/13.34 33.93 times
397.65/17.11 23.93 times

In 2013, HUL had a beta of 0.708 which implies that it was

a less risky investment.
gs per share

To avoid the effect of

fluctuations in stock prices
we take the average of the
high and low prices.

The significant decrease in

the PE Ratio could indicate
the market's lower faith
in HUL's growth prospects.
Also, individual stock prices
are affected by movement
in the whole market or indices namely
the SENSEX.

share

period/Stock price

HUL's shareholders earned a return

of 16.27% in 2013 which is more
higher than HUL's cost of equity of
10.07%.

Another way to look at it is to compare

with market trend. As per the stock
markets data (www.bse.com) from
April 2012 to March 2013, the BSE
SENSEX recorded a growth of only
8%, however HUL's capital appreciation
is more. So, stock HUL had outperformed
 the market during that period.

lue per share

Very high PB Ratio of HUL implies

market investors' confidence on this
stock. The stock is very expensive or
overpriced as shown by its PB Ratio.
Ratios
Mar ' 18 Mar ' 17 Mar ' 16 Mar ' 15

Per share ratios

Reported EPS (Rs) 24.19 20.75 19.12 19.95
Dividend per share 20 17 16 15
Book value per share (Rs) 32.69 29.99 29.02 17.21
Market price per share 1350.35 911.75 861.65 873.55

Industry PE 40 times 40 times 40 times 40 times

Price/Earnings ratio 55.822654 43.93976 45.06538 43.78697

Fair value (as per Industry PE) 967.6 830 764.8 798
Dividend yield 1% 2% 2% 2%

Price/Book ratio 41.307739 30.4018 29.69159 50.75828

Mar ' 14

17.88
13
15.15
605.55

40 times Underpriced

33.86745
715.2
2%

39.9703
 DUPONT ANALYSIS OF HUL

Year Profit margin Asset turnover Return on asse

2013 14.22% 2.26 times 32.11%
2012 11.95% 2.12 times 25.29%

To achieve a certain ROA, businesses can choose betwe

combinations of margin and turnover.

Separation of the effect of above two drivers and explan

Change in ROA = Change in margin at previous asset tu

Change in asset turnover at curre

Change in margin at previous asset turnover level

Change in margin in 2013 × Asset turnover in 2012

Change in turnover in 2013 × Margin in 2013
The margin and turnover effects add up to 6.80% (roun

FAM SESSION 20 & 22-23

SIS OF HUL It is evident that ROA of HUL
improved in 2013 due to
Return on assets (ROA) a combined improvement of
32.11% profit margin and asset turnover.
25.29%

can choose between various

.

drivers and explanation of the change in ROA:

previous asset turnover level + Effect of change in profit margin

turnover at current margin level Effect of change in asset turnover

urnover level

nover in 2012 2.27%*2.12 = 4.81%

in 2013 0.14*14.22% = 1.99%
up to 6.80% (rounded of to 6.82% which is the change in ROA [32.11%-25.29%]
OA of HUL

ement of
sset turnover.

profit margin
asset turnover

%
9%
11%-25.29%]