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INDIA DAILY

April 8, 2011 Contents New release Energy: Gone with the gas Update Consumer Products: 4QFY11E
April 8, 2011
Contents
New release
Energy: Gone with the gas
Update
Consumer Products: 4QFY11E preview: Profit-less growth in staples

News Round-up

Food inflation fell to a four month low of 9.18% for the week ended March 26, but this may not dampen overall inflation much since it is now shifting gears to manufactured prices. (BSTD)

After telecom, ports and refineries, foreign direct investments (FDI) in more sectors could now be put under security scrutiny. The government is planning to slap new entry route restrictions on FDI in the mining and realty sectors from a security standpoint. (FNLE)

The USFDA has taken a strong stance against Mylan, which has opposed FDA's decision to allow approval to Ranbaxy's (RBXY IN) generic version of Lipitor. (BSTD)

Vedanta Resources and Cairn Energy extended the deadline for their USD 9.6bn deal by more than a month. The earlier deadline was April 15. Cairn Energy will be free to sell the residual stake of close to 10% in Cairn India (CAIR IN) from 2012 onwards at the market price. (BSTD)

Central Bank of India (CBOI IN) raises USD 568 mn through rights issue. (BSTD)

SAIL (SAIL IN) FPO to hit market by May end. (BSTD)

Glenmark Pharmaceuticals (GNP IN) has entered into an exclusive licensing deal with Canada-based Immanence-IDC to distribute the latter's anti-aging cosmeceutical range of products in eight countries. (BSTD)

Simbhaoli Sugars (SBSM IN) announced transfer of its potable alcohol business into a wholly-owned subsidiary Simbhaoli Spirits for a consideration of USD 31 mn. (BSTD)

Unichem Laboratories (UL IN) said it has received approval from the US health regulator to market Divalproex Sodium Delayed Release tablets, indicated for disorders, in the American market. (BSTD)

Radico Khaitan (RDCK IN) has entered into an agreement with Japanese firm Suntory Liquors to launch two super premium whiskey brands in India. (BSTD)

Hotel Leelaventure (LELA IN) will launch its mid-market brand by the end of this financial year. The company also plans to take its current luxury brand overseas. To begin with, the Lela group, the Leela group has identified Maldives and Mauritius for the luxury brand. (FNLE)

Tech Mahindra (TECHM IN) bags Vodafone Australian arm's USD 250 mn IT deal. (THBL)

Source: ECNT= Economic Times, BSTD = Business Standard, FNLE = Financial Express, THBL = Business Line.

India

7-Apr

1-day1-mo 3-mo

Sensex

19,591

(0.1)

6.2

(0.5)

Nifty

5,886

(0.1)

6.6

(0.3)

Global/Regional indices

 

Dow Jones

12,409

(0.1)

1.6

6.3

Nasdaq Composite

2,796

(0.1)

1.1

3.4

FTSE

6,007

(0.6)

0.5

0.4

Nikkie

9,631

0.4

(8.5) (8.6)

Hang Seng

24,311

0.1

2.5

2.6

KOSPI

2,128

0.3

6.6

2.0

Value traded – India

 

Cash (NSE+BSE)

160

150

159

Derivatives (NSE)

742

1,171 1,600

Deri. open interest

1,246

1,255 1,259

Forex/money market Change, basis points 7-Apr 1-day 1-mo 3-mo Rs/US$ 44.2 3 (85) (118) 10yr
Forex/money market
Change, basis points
7-Apr
1-day
1-mo
3-mo
Rs/US$
44.2
3
(85)
(118)
10yr govt bond, %
8.0
(2)
2
(21)
Net investment (US$mn)
6-Apr
MTD
CYTD
FIIs
162
1,267
610
MFs
(46)
(60)
(282)
Top movers -3mo basis
Change, %
Best performers
7-Apr
1-day
1-mo
3-mo
LICHF
IN Equity
231.1
(0.8)
17.3
28.3
WLCO
IN Equity
206.6
(0.2)
13.0
23.5
YES
IN Equity
330.3
3.6
20.4
22.2
ACEM
IN Equity
151.5
0.6
21.7
17.5
BOB
IN Equity
980.0
2.1
7.4
15.4
Worst performers
IVRC
IN Equity
94.5
5.5
28.5
(22.7)
UT
IN Equity
47.8
5.3
31.9
(22.2)
RBXY
IN Equity
461.5
0.0
1.3
(21.7)
RCOM
IN Equity
110.8
(0.1)
22.2
(20.5)
UNSP
IN Equity
1104.3
0.5
2.0
(19.1)

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL.

Energy India Gone with the gas. We see gas supply issues deraili ng the India

Energy

India

Gone with the gas. We see gas supply issues derailing the India gas story and raising concerns about the viability of new gas-based power plants, pipelines and LNG import terminals. Domestic gas supply problems and a limited ability to sell high-priced LNG in the domestic market may result in severe under-utilization of planned capacities. We rate all gas stocks under our coverage as REDUCE or SELL. ‘Pooling’ of gas may help but seems to be a highly retrograde step, in our view.

Demand exists but at the right price

We do not doubt potential demand for natural gas in India but believe that it will be sensitive to the price of gas. Current regulations preclude the use of high-priced gas in regulated sectors such as fertilizer and power, the key users of gas in India. It may be cheaper to import urea or generate power on imported coal, in our view. We see the proposed pooling of gas prices as a retrograde step in that it penalizes efficient domestic producers and covers up the poor planning of other companies.

Supply may disappoint due to poor planning and unforeseen incidents

(1) Spot LNG is not a viable option for the Indian market, particularly for bulk users, given the likely uncompetitive price of end-products, urea and power. Also, fertilizer and power plants are unlikely to commit capital or see financial closure without a firm fuel supply agreement. (2) Domestic supply may disappoint given continued delay in E&P activity in NELP blocks; also, RIL may not be able to ramp up gas production from KG D-6 block as per our expectations.

Limited amount of gas but large amount of infrastructure planned

We project gas supply to increase to 264 mcm/d in FY2015E from 179 mcm/d in FY2011E. However, this is subject to (1) RIL producing 80 mcm/d of gas from its KG D-6 block and (2) availability of sufficient spot LNG in global markets. We expect significant under-utilization of downstream assets (pipelines, LNG import terminals) with corresponding impact on companies’ earnings.

Retain REDUCE/SELL rating on gas plays

We see significant downside risks to the earnings of GAIL, GSPL and PLNG from lower-than- expected supply of domestic gas and imported LNG. In the case of GSPL and PLNG, we see risks from lower-than-expected tariffs (pipeline or re-gasification) also. Finally, in the case of RIL, we see downside risks to earnings and valuation of KG D-6 block and other prospective blocks if production figures disappoint versus our expectations and that of the Street.

CAUTIOUS APRIL 08, 2011 UPDATE BSE-30: 19,591
CAUTIOUS
APRIL 08, 2011
UPDATE
BSE-30: 19,591
Consumer products India 4QFY11E preview: Profit-less growth in staples. The March quarter will likely be

Consumer products

India

4QFY11E preview: Profit-less growth in staples. The March quarter will likely be marked with extreme results within the consumer sector, in our view—excellent results from companies operating in discretionary categories and/or having limited competition (ITC, GSK, Titan, United Spirits, Jubilant Foodworks, Nestle) whereas inability to mitigate input cost inflation in a scenario of increasing market fragmentation hurting core consumer staples (HUL, Dabur, Jyothy). We forecast 15% sales growth and 1% EBITDA growth for staples. We expect volume growth to decelerate for staples as base effect catches up and due to impact of food inflation on consumer wallet, particularly urban poor (~25% of sector demand). Our CAUTIOUS sector view since October 2010 is intact. Our preferred picks are ITC and GSK. Top sells are HUL and Colgate.

The story is intact – discretionary likely to outperform staples

Key considerations for March 2011 quarter would be (1) good growth in discretionary segments and companies operating in near-monopolistic categories, (2) deceleration in volume growth in consumer staples and (3) significant gross margin pressure in staples.

The March quarter will likely be marked with extreme results within the sector, in our view— excellent results from companies operating in discretionary categories and/or having limited competition (ITC, GSK, Titan, United Spirits, Jubilant Foodworks, Nestle) whereas inability to mitigate input cost inflation in a scenario of increasing market fragmentation hurting core consumer staples (Colgate, HUL, Dabur, Jyothy). Exhibits 1-3 give the performance of the industry as a whole, staples and discretionary, respectively.

We expect sector sales growth of 17% yoy (15% for staples), flat EBITDA margins (contraction of 180 bps for staples) and earnings growth of 19% (just 3% for staples).

Good results expected from GSK, ITC, Jubilant Foodworks, Nestle and Titan. Weak results expected from Colgate, Dabur, HUL and Jyothy Labs.

Important variables to watch

Deceleration in volume growth. We expect volume growth to decelerate for most companies as base effect catches up and due to near-term impact of food inflation on consumer wallet (Exhibit 5 gives detailed break-up of company-wise volume growth for the past two years).

Where are the (meaningful) price increases? While the Street was expecting price increases by consumer companies in 2HFY11E, we highlight that the increases has been far and few. Few examples are the ~32% price hike in Parachute by Marico, ~7% increase in Rin by HUL (in South and West India) and ~4-5% hike in HUL and GCPL soaps portfolio.

Pressure on EBITDA margins (led by gross margin pressure) is a reality as companies are finding it increasingly difficult to implement price increases due to worries on (1) impact of food inflation on consumer demand, particularly for the urban poor, in our view, (2) continued interest of MNCs in India with stated objective of acquiring meaningful market shares and market positions. However, cut in adspends could likely support margins, but not enough to support earnings growth, in our view.

CAUTIOUS APRIL 07, 2011 UPDATE BSE-30: 19,612
CAUTIOUS
APRIL 07, 2011
UPDATE
BSE-30: 19,612

QUICK NUMBERS

In 4QFY11E we forecast 15% sales growth and 1% EBITDA growth for staples

We expect volume growth to decelerate in staples as base effect catches up and due to near-term impact of food inflation on consumer wallet

Our preferred picks are ITC and GSK. Top sells are HUL and Colgate

India Consumer products
India
Consumer products

HUL is expected to report ~12% volume growth. While the headline number of double- digit growth is impressive, we highlight that the current quarter (still) has favorable base effect (decline of 5% in 4QFY09 and growth of 11% in 4QFY10).

Quote from HUL’s results press release post 3QFY11 results:

“Input cost inflation continued to rise during the quarter. Cost of goods sold went up by 220 bps, as a result of steep rise in material costs, especially in commodity sensitive categories.”

We expect the trend to remain the same in 4QFY11E as well. While most of HUL’s input costs have witnessed significant inflation in 4QFY11E (palm oil 44%, LAB 12%), we find increasing willingness by the company to absorb the cost pressures. The reluctance to implement price increases is due to fear of (further) market share losses and higher competitive activity, in our view.

Growth in Amla benefits Dabur disproportionately. The biggest beneficiaries of the narrowing of retail price between coconut and other sub-segments have been amla hair oil (Dabur Amla) and light hair oil (Bajaj Almond Drops). The increase in copra price has forced Marico to effect a 32% price increase in the Parachute portfolio (including the key 100 ml pack to Rs25 from Rs21). Dabur Amla has substantially higher EBITDA margins than the average margins for the company, in our view, and any disproportionate growth in it would help it manage the portfolio profitability.

Watch for low volume growth (<5%, in our view) in Parachute as full impact of price increases could deter consumers trading up from loose oil to branded oil.

FMCG losses in ITC are a monitorable (estimate of Rs741 mn loss for 4QFY11E; an improvement of 6% yoy). We have modeled ‘Other FMCG’ loss of Rs1,221 mn (improvement of 60% over FY2011E) and profit of Rs1,339 mn for FY2012E and FY2013E, respectively. However, losses could potentially be higher given that the company may need to incur expenses to relaunch its shampoo portfolio and the Fiama Di Wills brand. Moreover, launch expenses for Yippee noodles may be higher than budgeted due to the increased activity in this segment by new entrants (GSK, HUL) as well as the market leader (Nestle).

Ramp-up in Foodles by GSK. Street will closely monitor the data-points on ramp-up in the Foodles brand including any potential capex plans.

We expect Jubilant Foodworks to post 60% sales growth aided by the Cricket World Cup (Indian team lasting the entire tournament duration of 43 days and winning it!)

Exhibit 11 gives the summary of change in earnings and target price. We have cut earnings of Colgate by 5% as we account for higher tax rates (25% in FY2012E and 27% in FY2013E). We have cut earnings of Jyothy by 7% in FY2012E and 9% in FY2013E as we model lower volume growth in Ujala and impact of crude-linked input cost inflation. Continued buoyant demand conditions, particularly in discretionary spending, augur well for Titan. Every 10% increase in gold price increases Titan’s margins by 50 bps. Accordingly, we have increased our earnings estimate by ~14% for FY2012E and FY2013E. We have cut our earnings estimate in UNSP by ~14% for FY2012E and FY2013E as the fall in raw material cost (spirit and molasses) was lower than expected.

There is no change to our rating on any stock. Our CAUTIOUS sector view since October 2010 is intact. Our preferred picks are ITC and GSK. Top sells are HUL and Colgate.

Consumer products India
Consumer products
India
   

Consumer demand is not parabolic!

 

We highlight that the past three years have seen a confluence of factors which have likely aided incremental spends on consumer products, (1) higher outlay on NREGA, (2) wealth effect due to higher land prices, (3) benefits of farm loan waiver, (4) some benefits of the sixth pay commission and (5) higher minimum support prices for agricultural produce. As we look into FY2012E, we highlight that most of these positive factors are in the base and lower incremental spends have a potential to hurt demand for consumer products.

Consumer market is fragmenting

 

Given the long-term attractiveness of Indian consumer categories, brand proliferation has been accelerating, in our view. There are ~5, 000 new Home & Personal Care brands (including variants) and ~900 new Food & Beverage brands launched in the past two years. In turn, this proliferation raises adspends (Exhibit 8). Incumbents, particularly, are compelled to spend more to maintain their market shares and relative market positions.

Relative price/relative performance of the sector makes us cautious

 

Our analysis of relative earnings and the relative price between the sector and BSE-30 Index indicates that either the sector valuations are running ahead of fundamentals or we could see significant earnings upgrades. We believe it is the former. Exhibit 12 shows the consumer sector (KIE coverage universe) relative price and earnings momentum versus BSE- 30 Index. Relative price is the index of our consumer sector coverage versus BSE-30 Index; relative earnings are the indexed earnings of our consumer sector coverage versus BSE-30 Index (with April 1993 as Base 100).

Exhibit 1: Overall industry performance is aided by the strong growth in discretionary companies Key financials of 14 consumer companies under our coverage

   

Rs mn

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11 E

Change yoy

         

(bps)

Sales

164,218

170,002

179,339

183,296

191,122

197,222

219,318

214,586

 

Gross profit

84,018

88,172

93,015

92,552

98,335

102,117

109,076

104,969

 

EBITDA

34,207

35,937

37,904

35,642

38,634

40,335

42,998

41,565

 

PBT

33,051

35,222

37,879

34,700

38,823

41,132

43,979

41,529

 

PAT

23,744

25,365

27,469

25,115

28,208

29,788

31,547

29,968

 

Effective tax rate (%)

28

28

27

28

27

28

28

28

 

Margins (%)

         

Gross profit

51.2

51.9

51.9

50.5

51.5

51.8

49.7

48.9

(158)

 

EBITDA

20.8

21.1

21.1

19.4

20.2

20.5

19.6

19.4

(8)

PBT

20.1

20.7

21.1

18.9

20.3

20.9

20.1

19.4

42

PAT

14.5

14.9

15.3

13.7

14.8

15.1

14.4

14.0

26

Growth (%)

         

Sales

   

16.4

16.0

22.3

17.1

 

Gross profit

   

17.0

15.8

17.3

13.4

 

EBITDA

   

12.9

12.2

13.4

16.6

 

PBT

   

17.5

16.8

16.1

19.7

 

PAT

   

18.8

17.4

14.8

19.3

 

Source: Company, Kotak Institutional Equities estimates

   
India Consumer products
India
Consumer products

Exhibit 2: We expect weak performance in consumer staples

   

Key financials of consumer staple

companies under our coverage

Rs mn

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11 E

Change yoy

         

(bps)

Sales

72,858

71,395

74,890

71,640

79,491

78,881

84,448

82,704

 

Gross profit

36,102

35,959

38,632

36,861

39,776

39,519

41,667

39,963

 

EBITDA

11,896

11,175

12,492

10,577

11,555

11,166

11,376

10,723

 

PBT

11,873

11,900

13,017

11,256

13,273

12,624

12,879

11,942

 

PAT

9,427

9,381

10,283

8,848

10,579

10,113

10,181

9,066

 

Margins (%)

         

Gross profit

49.6

50.4

51.6

51.5

50.0

50.1

49.3

48.3

(313)

 

EBITDA

16.3

15.7

16.7

14.8

14.5

14.2

13.5

13.0

(180)

 

PBT

16.3

16.7

17.4

15.7

16.7

16.0

15.3

14.4

(127)

 

PAT

12.9

13.1

13.7

12.4

13.3

12.8

12.1

11.0

(139)

 

Growth (%)

         

Sales

   

9.1

10.5

12.8

15.4

 

Gross profit

   

10.2

9.9

7.9

8.4

 

EBITDA

   

-2.9

-0.1

-8.9

1.4

 

PBT

   

11.8

6.1

-1.1

6.1

 

PAT

   

12.2

7.8

-1.0

2.5

 

Source: Company, Kotak Institutional Equities estimates

Note: Includes Colgate, Dabur, Godrej Consumer, HUL, Jyothy, Marico, Tata Global Beverages

 
 

Exhibit 3: Discretionary companies are likely to show strong growth Key financials of consumer companies operating in discretionary and/or near-monopolistic categories

 

Rs mn

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11 E

Change yoy

         

(bps)

Sales

91,360

98,607

104,449

111,657

111,631

118,341

134,870

131,882

 

Gross profit

47,916

52,213

54,384

55,691

58,559

62,598

67,409

65,006

 

EBITDA

22,312

24,763

25,412

25,064

27,079

29,169

31,623

30,841

 

PBT

21,179

23,322

24,862

23,444

25,550

28,509

31,100

29,586

 

PAT

14,317

15,985

17,185

16,267

17,630

19,675

21,366

20,901

 

Margins (%)

         

Gross profit

52.4

53.0

52.1

49.9

52.5

52.9

50.0

49.3

(59)

 

EBITDA

24.4

25.1

24.3

22.4

24.3

24.6

23.4

23.4

94

PBT

23.2

23.7

23.8

21.0

22.9

24.1

23.1

22.4

144

PAT

15.7

16.2

16.5

14.6

15.8

16.6

15.8

15.8

128

Growth (%)

         

Sales

   

22.2

20.0

29.1

18.1

 

Gross profit

   

22.2

19.9

24.0

16.7

 

EBITDA

   

21.4

17.8

24.4

23.0

 

PBT

   

20.6

22.2

25.1

26.2

 

PAT

   

23.1

23.1

24.3

28.5

 

Source: Company, Kotak Institutional Equities estimates

Note: Includes Asian Paints, GSK Consumer, ITC, Jubilant Foodworks, Nestle, Titan, UNSP

 
Consumer products India
Consumer products
India

Exhibit 4: Company-wise sales growth, (%)

 

Company

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11 E

Asian Paints

26

17

19

27

18

28

6

37

26

Colgate

16

15

18

17

13

13

13

14

16

Dabur

21

27

23

19

16

19

15

17

17

Godrej Consumer

30

22

27

16

2

-7

-3

8

15

GSK Consumer

31

25

17

26

20

14

24

21

19

Hindustan Unilever

6

8

5

13

8

7

11

12

15

ITC

0

5

16

20

28

18

16

19

11

Jubilant Foodworks

NA

NA

NA

50

68

59

67

58

59

Jyothy

NA

21

49

14

31

27

11

10

6

Marico

21

17

14

8

6

13

13

22

25

Nestle

16

17

18

24

17

21

26

24

23

Tata Global Beverages

27

34

32

18

178457

 

Titan

7

9

5

30

49

42

34

47

29

United Spirits

20

23

20

31

38

18

25

46

17

Source: Company, Kotak Institutional Equities estimates

   

Exhibit 5: We expect deceleration in volume growth due to base effect and impact of food inflation Company-wise volume growth, (%)

   

Company

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11 E

Asian Paints

20

15

19

23

18

19

(2)

30

15

Colgate (toothpaste)

15

14

18

13

11

14

12

12

13

Dabur

14

16

14

14

13

17

12

10

9

Godrej Consumer

   

- Domestic soaps

30

20

20

10

(8)

(8)

(10)

6

6

- Domestic hair colour

10

10

20

9

5

3

12

(1)

5

GSK Consumer

15

12

12

16

13

10

19

12

14

Hindustan Unilever

(5)

2

1

5

11

11

14

13

12

ITC

(3)

5

8

8

10

(3)

-

2

2

Jyothy

   

- Ujala

NA

NA

2

(2)

18

35

4

(7)

(5)

- Maxo

NA

10

30

17

34

18

(9)

(22)

(20)

Marico

   

- Parachute

7

14

10

8

10

14

10

5

5

- Saffola

5

13

22

18

13

18

18

13

15

Nestle

10

12

13

18

16

20

20

17

16

Tata Global (domestic)

-

4

4

5

2

2

(2)

1

-

Titan (jewelry)

4

33

13

4

45

33

13

25

15

Source: Company, Kotak Institutional Equities estimates

   

Exhibit 6: Input cost inflation to impact gross margins Company-wise gross margin, (%)

   

Company

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11 E

Asian Paints

39.3

45.6

44.2

44.4

44.3

43.5

44.7

40.5

42.5

Colgate

56.0

56.2

57.4

57.2

70.1

62.8

60.1

61.3

63.2

Dabur

53.2

52.8

55.0

54.4

54.7

52.6

52.9

51.6

52.2

Godrej Consumer

47.7

55.1

52.8

55.9

59.4

50.2

53.4

51.4

51.2

GSK Consumer

60.3

63.3

62.3

66.2

60.5

62.3

62.8

64.9

60.5

Hindustan Unilever

47.8

48.4

49.3

51.1

48.6

49.0

49.1

48.9

46.5

ITC

62.7

60.3

63.3

63.2

56.9

62.8

63.4

62.4

57.4

Jubilant Foodworks

73.9

75.7

75.3

75.3

74.8

75.5

75.2

74.5

75.7

Jyothy

44.1

55.3

43.0

46.8

40.4

51.2

46.8

46.7

43.4

Marico

49.6

49.5

52.7

52.5

56.1

49.0

50.2

47.3

47.5

Nestle

52.8

52.4

52.2

51.8

50.2

51.0

50.9

52.4

51.2

Tata Global Beverages

46.0

42.8

40.4

42.0

43.8

42.8

40.7

37.7

40.9

United Spirits

46.0

42.2

45.4

43.4

45.1

45.4

46.7

41.0

40.3

Source: Company, Kotak Institutional Equities estimates

   
India Consumer products
India
Consumer products

Exhibit 7: Pressure on EBITDA margins is a reality as companies find it difficult to effect price increases Company-wise EBITDA margin, (%)

   

Company

Mar-09

 

Jun-09

Sep-09

Dec-09

 

Mar-10

 

Jun-10

 

Sep-10

Dec-10

Mar-11 E

 

Change yoy

           

(bps)

Asian Paints

14.2

21.0

20.0

 

20.4

 

17.6

 

20.2

 

19.6

17.2

 

16.6

 

(103)

Colgate

21.4

26.2

22.7

 

24.7

 

27.9

 

30.2

 

23.5

16.7

 

24.7

 

(315)

Dabur

17.7

15.1

20.7

 

19.0

 

19.1

 

14.9

 

20.9

19.4

 

19.0

 

(9)

Godrej Consumer

20.1

20.0

19.9

 

19.7

 

24.8

 

19.6

 

21.2

18.2

 

18.6

 

(623)

GSK Consumer

22.0

15.9

15.9

 

8.7

 

20.5

 

16.6

 

15.5

11.5

 

19.9

 

(64)

Hindustan Unilever

14.4

15.4

14.4

 

16.0

 

12.3

 

12.5

 

12.0

12.4

 

10.7

 

(163)

ITC

32.0

32.8

35.3

 

36.1

 

30.5

 

33.4

 

35.3

36.1

 

33.5

 

304

Jubilant Foodworks

15.6

14.2

15.6

 

16.6

 

15.5

 

18.5

 

18.2

17.3

 

18.0

 

249

Jyothy

19.0

24.1

12.5

 

13.6

 

16.1

 

20.8

 

10.8

11.3

 

12.3

 

(375)

Marico

13.3

14.5

15.6

 

16.4

 

14.3

 

14.5

 

13.8

13.4

 

12.0

 

(227)

Nestle

24.5

21.6

20.3

 

17.6

 

20.5

 

20.0

 

19.7

19.7

 

20.6

 

5

Tata Global

6.1

15.6

7.3

9.7

 

8.3

 

11.6

 

6.9

4.7

 

6.9

 

(146)

Titan

7.1

9.0

9.4

8.1

 

7.7

 

8.9

 

11.3

10.0

 

9.9

 

226

United Spirits

16.0

17.9

18.0

 

16.4

 

14.5

 

19.2

 

16.2

14.1

 

14.0

 

(52)

Source: Company, Kotak Institutional Equities estimates

   
 

Exhibit 8: Brand proliferation likely leading to faster market fragmentation Number of brands, category-wise, 2007-08 and 2009-10

 

1,600

 

1,500

 
1,600   1,500   2007-08   2009-10  

2007-08

 
1,600   1,500   2007-08   2009-10  

2009-10

 
   

1,100

     
 

1,200

 
         

900

900

 

800

       
   

550

 

400

 

400

 

300

     

300

 
   

200

200

   

150

   

150

     

160

     

50

       
 

0

 
 

Skin

 

Hair care

Skin creams

Talcum

Deodorants

 

Washing

 

Detergent

 

cleansing

 

powder

 

powder

 

bars

 
 

Source: HUL presentation, Kotak Institutional Equities

 
Consumer products India
Consumer products
India
 

Exhibit 9: Cutting adspends may not be the solution to support earnings growth

 

Company-wise adspends as % of

sales, (%)

 

Company

Mar-09

 

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11 E

Change yoy

         

(bps)

Colgate

15.4

12.5

16.9

15.3

16.1

13.1

14.3

21.6

15.4

(70)

 

Dabur

13.2

16.0

14.2

14.6

13.6

16.4

12.5

12.5

12.5

(113)

Godrej Consumer

4.1

8.5

6.8

7.1

10.0

8.6

7.2

9.1

9.3

(63)

GSK Consumer

11.2

15.9

16.3

20.6

15.2

13.9

17.6

17.7

14.6

(53)

Hindustan Unilever

11.3

12.5

13.5

14.1

14.5

15.7

13.8

14.8

14.0

(52)

Jyothy

3.6

6.2

4.9

8.1

6.4

6.3

11.9

10.3

8.4

206

Marico

9.6

12.1

13.4

12.7

7.2

11.9

12.2

11.0

11.5

423

Titan

4.2

5.0

4.5

4.5

4.2

5.0

4.0

4.6

4.3

13

United Spirits

8.8

7.1

7.7

8.9

12.0

9.5

11.5

9.9

10.3

(162)

Company

 

2005

2006

2007

2008

2009

2010

2011E

Asian Paints

 

3

3

3

4

4

4

5

Colgate

 

14

18

16

17

16

15

15

Dabur

 

14

12

13

13

12

15

14

Godrej Consumer

 

11

10

10

10

9

12

9

GSK Consumer

 

12

13

13

13

13

16

16

HUL

 

8

9

11

11

11

14

15

ITC

 

23

15

13

13

14

13

13

Jubilant Foodworks

 

7

6

6

6

5

4

4

Jyothy Laboratories

 

12

9

9

8

5

6

9

Marico

 

10

13

14

13

11

14

12

Nestle

 

6

6

5

5

5

6

6

Tata Global Beverages

 

9

9

9

9

7

8

8

Titan

 

7

7

6

5

5

5

5

United Spirits

 

8

14

13

12

10

11

11

Source: Company, Kotak Institutional Equities estimates

   

Exhibit 10: Pressure on earnings to sustain Company-wise PAT margin, (%)

   

Company

Mar-09

 

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11 E

Change yoy

         

(bps)

Asian Paints

9.0

14.1

13.4

14.0

12.1

13.5

13.3

11.8

11.2

(91)

Colgate

17.4

21.2

17.8

20.7

23.3

22.2

17.6

11.5

18.1

(521)

Dabur

14.4

11.6

16.6

14.9

15.7

11.7

16.5

14.3

13.7

(196)

Godrej Consumer

20.1

 

17.7

20.8

17.8

22.4

53.8

24.0

19.4

19.1

(323)

GSK Consumer

15.6

11.8

12.1

8.1

14.8

13.4

12.8

10.5

14.7

(17)

Hindustan Unilever

12.6

12.5

12.0

13.3

9.8

10.7

11.4

11.7

9.3

(48)

ITC

20.5

 

21.5

23.2

24.9

20.3

22.2

24.6

25.5