Sector Update | FMCG

December 12, 2011

FMCG Sector
New packaging norm to have a negative impact
Recently the Ministry of Consumer Affairs, Food & Public Distribution issued a notification on 19 consumer product categories to be sold in standardized pack sizes with effect from July 1, 2012. In our view, this regulation by the Government of India will have a negative impact on the FMCG companies in our universe. FMCG companies have always resorted to tinkering in the pack sizes to manage the slippage in operating margins during a high raw-material inflationary scenario. If this regulation is implemented, then these companies will have to stick to standard pack sizes. Also, some companies according to the notification might have to introduce new pack sizes in few product categories. We believe the impact would be more on products that come in the following price points - `1, `2, `5, `10, because companies normally do not tinker with these price points but make changes in the pack sizes in order to protect the fall in margins when witnessing high raw-material prices. Product categories where this regulation will have an adverse impact are biscuits, tea and soaps and detergents. If this regulation is implemented, FMCG companies might have to do away with these popular price points, as taking price hikes by reducing in the grammage at these price points will no more be possible. These pack sizes have become very popular among rural markets, which for all FMCG companies have become a sizeable market. We believe Britannia and HUL will have an adverse impact of this regulation, whereas Dabur, Nestle and GSKCH will largely comply with the proposed regulation.

Sreekanth P.V.S
022-39357800 Extn: 6841 sreekanth.s@angelbroking.com

Exhibit 1: FMCG Universe

Company Asian Paints Britannia Colgate Dabur GSKCHL* GCPL HUL ITC Marico Nestle* Reco Accumulate Accumulate Neutral Buy Neutral Buy Neutral Accumulate Accumulate Neutral Mcap (` cr) 27,143 5,468 13,694 16,719 10,836 12,617 83,592 151,589 8,771 40,421 CMP (`) 2,830 458 1,007 96 2,576 390 383 196 143 4,192 TP (`) 3,030 495 869 115 2,363 457 320 219 151 3,603 Upside (%) 7 8 20 17 12 6 P/E (x) FY12E 27.6 29.7 31.2 23.9 31.2 23.6 32.8 26.3 28.4 41.5 FY13E 22.4 20.3 26.7 20.8 26.2 18.1 28.8 22.1 22.5 34.9 EV/Sales (x) FY12E 2.9 1.1 5.2 3.3 3.6 3.1 3.7 5.8 2.5 5.5 FY13E 2.4 0.9 4.4 2.9 3.1 2.5 3.2 4.9 2.2 4.8 RoE (%) FY12E 39.6 37.8 111.7 44.9 32.6 36.6 87.5 32.7 30.2 91.1 FY13E 38.3 46.0 108.0 41.6 31.8 29.4 85.3 31.5 28.8 72.9 CAGR # Sales 17.3 17.3 14.9 20.5 20.1 22.9 12.7 17.6 17.2 16.1 EPS 19.8 36.0 12.9 18.8 23.9 20.2 17.1 17.4 28.0 18.9

Source: Company, Angel Research; Note: December ending; # CAGR over FY11-13; CMP as on December 12, 2011

Please refer to important disclosures at the end of this report

FMCG | Sector Update

Exhibit 2: Products and pack size according to the notification

Product Category Allowed pack sizes

Baby food Weaning food Biscuits Bread including brown bread but excluding bun. Un-canned packages of butter and margarine Cereals and Pulses Coffee Tea Edible Oils Vanaspati, ghee, butter oil Milk Powder Non-soapy detergents (powder) Rice(powdered), flour, atta, rawa and suji Salt Soaps (a) Laundry Soap (b) Non-soapy detergent cakes/bars

100g,200g,300g,400g,500g,600,g, 700 g,800 g, 900g,1 kg, 2 kg, 5 kg and 10 kg 100g,200g,300g, 400g, 500g, 600g,700g,800g,900g,1 kg, 2 kg, 5 kg and 10 kg 25g, 50g, 75g, 100g, 150g, 200g, 250g, 300g and thereafter in multiples of 100g up to 1 kg 100g and thereafter in of multiples 100g 25 g, 50 g, 100 g, 200 g, 500 g, 1 kg, 2 kg, 5 kg, and thereafter in multiples of 5 kg 100g, 200g, 500g, 1 kg, 2 kg, 5 kg and thereafter multiples of 5 kg 25g, 50g, 100g, 200g, 250g, 500g, 1kg and thereafter in multiples of 1kg 25g, 50g, 100g, 125g 250g, 500g, 1kg and thereafter in multiples of 1kg 50 g, 100 g, 200 g, 500 g, 1 kg, 2 kg, 3 kg, 5 kg and thereafter in multiples of 5 kg Below 50g no restriction, 50 g, 100g, 200g, 500 g, 1 kg and thereafter in multiples of 500 g Below 50 g no restriction, 50g, 100g, 200g, 500g, 700g, 1kg, 1.5 kg, 2 kg and thereafter, in multiples of 1 kg. 100g, 200g, 500g, 1kg, 2kg, 5 kg and thereafter in multiples of 5 kg. Below 50g in multiples of 10g, 50g, 100g, 200g, 500g, 750g, 1 kg, 2 kg, 5 kg and thereafter in multiples of 5 kg 50g, 75g, 100g, and thereafter in multiples of 50g

50g, 75g, 100g, 125g, 150g, 200g, 250g, 300g and thereafter in multiples of 100g (c) Toilet Soap including all kinds of bath soap (cakes) 25g, 50g, 75g, 100g, 125g, 150g and thereafter in multiples of 50g Aerated soft drinks, non-alcoholic beverages Mineral water and drinking water 65 ml (fruit based drinks only), 100 ml, 125ml(fruit based drinks only), 150 ml, 200 ml, 250 ml, 300 ml, 330ml(in cans only), 500 ml, 750 ml, 1 litre, 1.5 litre, 2 litre, 3 litre, 4 litre and 5 litre 100 ml, 130 ml, 150 ml, 200 ml, 250 ml, 300 ml, 330 ml, 500 ml, 600 ml, 750 ml, 1 litre, 1.2 litre, 1.5 litre, 2 litre, 3 litre, 4 litre and 5 litre.

Source: Ministry of Consumer Affairs, Food & Public Distribution, Angel Research

December 12, 2011

FMCG | Sector Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report. Disclosure of Interest Statement
Analyst ownership of the stock Asian Paints Britania Colgate Dabur GCPL GSKCHL HUL ITC Marico Nestle No No No No No No No No No No Angel and its Group companies ownership of the stock No No No No No No No No No No Angel and its Group companies' Directors ownership of the stock No No No No No No No No No No Broking relationship with company covered No No No No No No No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

December 12, 2011

FMCG | Sector Update

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December 12, 2011