Consumer Staples & Discretionaryvid.investmentguruindia.com/report/2019/March/... · in our view – were Britannia (despite the narrative of market share gains from Parle in Uttar

Please refer to important disclosures at the end of this report

Equity Research March 4, 2019

BSE Sensex: 36064

ICICI Securities Limited is the author and distributor of this report

Sector update

Consumer Staples & Discretionary

Kumbh Mela – What we DIDN’T see!

Research Analysts:

Manoj Menon [email protected]

+91 22 6637 7209

Vismaya Agarwal, CFA vismaya.agarwal @icicisecurities.com

+91 22 2277 7632

INDIA

During our two-day visit to Kumbh Mela (KM) at Prayagraj, our focus was on what

we DIDN’T see and the missing brands. In our view, consumer companies

utilising platforms like KM for penetration-led growth and premiumisation is well

understood by consensus. We therefore highlight the companies that were absent

(or not prominently present) to capture eyeballs of c.100mn visitors (in just 48

days). Notable absentees at the Mela – those requiring improvement in execution,

in our view – were Britannia (despite the narrative of market share gains from

Parle in Uttar Pradesh as an important growth driver), P&G, Patanjali, all paint

companies, most building materials, private life insurers, M&M, Maruti, Bata, V-

Guard, Jyothy Labs, Bajaj Consumer, etc. Pages 5-17 have 72 photos from our KM

visit album.

What is Kumbh Mela: It is the largest religious congregation on earth – c.100mn

people expected to visit Prayagraj (a city with c.1.3mn population in Uttar Pradesh state)

– during the 48 day festival. The state government has allocated Rs42bn for the event.

We classify ‘what we saw’ into four baskets: (1) brands using KM as an advertising

platform, (2) brands sampling the products, (3) brands having immersive programs to

grab consumer attention, (4) brands having sales-oriented stalls.

Key observations:

Britannia’s absence was surprising given its focus on gaining market share from Parle

and aggressive distribution expansion in the Hindi speaking belt (Uttar Pradesh is the

largest of the four targeted states).

Another big surprise for us was the absence of Patanjali given the majority of

attendees belong to its target consumer group

On the companies that were present, HUL expectably had the largest presence across

the event. We noticed advertisements, immersive programs to grab consumer attention

and sales oriented stalls for various brands

Nestle had the next most prominent presence with immersive programs for Maggi and

sales oriented kiosks for Maggi and Nescafe brands

We were impressed with GSK Consumer’s sampling activity for Horlicks given North is

one of the weaker markets for the health food drink brand. It sampled over 30,000 cups

of Horlicks over the 48-day period.

Toothpaste category witnessed significant activity. Colgate’s sampling of Swarna

Vedshakti started 100km before Prayagraj (estimated 30mn samples distributed;

sampling cost comes to c.2% of quarterly revenue). Dabur organised an immersive

program for its Red Paste to grab consumer attention

Hair oil was the other category with high action. Dabur, Emami and Marico all had

various programs for their brands. Bajaj Consumer Care was the noticeable absentee

in the space.

We would like to point out that although we covered most of the prominent Mela

locations, we might still have missed some brands.

Consumer Staples & Discretionary, March 4, 2019 ICICI Securities

2

Brands using KM as an advertising platform:

1. ACC waterproofing products

2. Closeup (HUL)

3. Fena detergent powder

4. Havells

5. KEI wires and cables

6. Mother Dairy

7. Ponds cold cream (HUL)

8. Sprite (Coca Cola)

9. Taaza tea (HUL)

10. Tetmosol (Piramal)

11. Wheel detergent powder (HUL)

Brands sampling products

1. Colgate Swarna Vedshakti

2. Dabur Amla

3. Dabur Hajmola

4. Dabur Honitus

5. Horlicks

Brands having immersive programs to grab consumer attention

1. Dabur Red

2. Dettol

3. Fair & Lovely

4. LG Puricare (water purifier)

5. Lifebuoy

6. Maggi Safaai ke naam

7. Vim dishwash bar

8. Welspun quick dry towel stalls

Brands having sales-oriented stalls or just displays

1. Amul Dairy

2. Anmol biscuits

3. Apis India

4. Café Coffee Day

5. Emami Navratna oil

6. Emami Agrotech (unlisted) Best Choice edible oil


3

7. Eno (acidity relief product by GSK)

8. Ghadi detergent

9. Godrej No.1 soap (Godrej Consumer)

10. Godrej Nupur haircare (Godrej Consumer)

11. Godrej Protekt Mr. Magic handwash (Godrej Consumer)

12. Good Knight Power Chip (Godrej Consumer)

13. Himalaya

14. Himgange hair oil

15. Keva (S H Kelkar)

16. Kwality Walls icecream (HUL)

17. Lactalis – Anik

18. Life Insurance Corporation of India

19. Mangaldeep agarbathi (ITC)

20. Marico Nihar oil

21. Mediker shampoo (Marico)

22. Nestle – Maggi, Nescafe

23. Omnigel (Cipla)

24. Parachute Advansed

25. Parag Milk

26. Relaxo footwear

27. Sonalika Tractors

28. Sonata (watches by Titan)

29. VIP Luggage

Valuation and risks:

We value stocks on DCF (WACC and terminal growth ranging from 10-13%, 3-6%

respectively) except Godrej Consumer which we value on SoTP basis. Key upside risk

is better-than-expected gross margin due to recent correction in input prices. Key

downside risk is unexpected irrational competition due to deceleration in general

consumption demand.


4

Table 1: Valuation summary

Company CMP (Rs)

TP (Rs)

Upside (%) Rating

PE (x) EV/EBITDA (x) ADTV Market Cap

FY19E FY20E FY21E FY19E FY20E FY21E (US$ mn)

(Rs bn)

(US$ bn)

Staples

Britannia 3,077 2,500 (19) SELL 61 49 42 40 33 28 14 772 10.9 Colgate 1,246 1,550 24 BUY 46 39 34 26 23 21 10 347 4.9 Dabur 445 520 17 BUY 50 42 36 45 37 32 17 763 10.7 GCPL 679 720 6 HOLD 46 39 34 33 29 25 11 711 10.0 HUL 1,735 1,800 4 HOLD 62 52 45 42 35 31 43 3,780 53.2 ITC 278 290 4 ADD 28 25 22 19 17 15 46 3,366 47.4 Marico 335 360 8 HOLD 46 38 33 33 27 23 9 474 6.7 Nestle 10,452 12,300 18 BUY 63 53 45 37 31 27 14 1,101 15.5 Discretionary Jubilant Food 1,277 1,650 29 BUY 52 41 32 25 21 17 45 161 2.3 Page Ind. 22,247 26,000 17 ADD 59 49 40 37 31 26 20 259 3.6 Sheela Foam 1,376 1,600 16 BUY 48 36 32 29 22 19 0.2 64 0.9 Titan 1,021 1,150 13 BUY 61 49 40 41 32 26 37 863 12.2

Source: Company data, I-Sec research

Valuation summary

Company

EV/ sales (x) EV/ EBIT (x) P/BV (x) P/CEPS (x)

FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E

Staples

Britannia 6.6 5.7 5.0 44 36 31 19 17 15 54 44 38 Colgate 7.5 6.7 6.1 30 26 23 20 18 16 38 33 29 Dabur 9.1 7.9 7.0 50 41 35 14 12 10 45 38 33 GCPL 6.9 6.3 5.6 36 31 27 9 8 7 42 35 31 HUL 9.7 8.6 7.6 45 37 33 48 40 34 57 47 42 ITC 7.3 6.6 6.0 21 18 16 6 6 5 25 22 20 Marico 5.8 5.1 4.5 35 29 24 16 14 13 42 35 30 Nestle 8.7 7.5 6.6 42 35 30 27 25 23 52 45 38 Discretionary Jubilant Food 4.2 3.6 3.0 33 27 21 13 10 8 35 29 24 Page Ind. 8.3 7.0 5.9 39 33 28 31 23 18 54 46 37 Sheela Foam 3.0 2.6 2.2 26 20 18 18 15 12 37 28 25 Titan 4.5 3.8 3.1 45 35 28 15 13 10 59 44 35

Source: Company data, I-Sec research

Table 2: Key financials

Company

RoE (%) RoCE (%) CAGR (FY19-21) (%)

FY19E FY20E FY21E FY19E FY20E FY21E Revenues EBITDA PAT

Staples Britannia 31 34 36 27 30 31 15 19 20 Colgate 47 49 50 67 70 71 11 13 12 Dabur 28 30 31 18 21 21 14 18 18 GCPL 22 23 23 14 14 15 11 14 16 HUL 81 85 81 63 66 64 13 17 17 ITC 23 24 26 28 31 32 11 15 13 Marico 35 40 41 30 34 36 14 20 19 Nestle 45 50 53 25 28 29 15 17 18 Discretionary Jubilant Food 28 27 27 38 35 36 18 22 29 Page Ind. 51 54 51 44 46 44 18 19 21 Sheela Foam 21 23 21 20 22 21 14 21 23 Titan 27 28 28 35 38 39 20 27 24

Source: Bloomberg, I-Sec research


5

Hindustan Unilever – Wheel detergent powder Hindustan Unilever – Closeup toothpaste

Source: I-Sec research Source: I-Sec research

Hindustan Unilever – Brooke Bond Taaza tea Hindustan Unilever – Pond’s cold cream


Hindustan Unilever – Vim dishwash bar Hindustan Unilever – Lifebuoy liquid soap



6

Hindustan Unilever – Fair & Lovely cream Hindustan Unilever – Fair & Lovely cream


Hindustan Unilever – Fair & Lovely cream Hindustan Unilever – Kwality Walls ice cream


GSK Consumer – Horlicks health food drink (HFD) GSK Consumer – Horlicks HFD



7

GSK Consumer – Horlicks HFD GSK Consumer – Eno acidity relief


Nestle - Maggi Nestle - Maggi



8

Nestle – Maggi Nestle – Maggi


Nestle – Maggi Nestle – Maggi


Nestle – Nescafe Nestle – Everyday Chai



9

Nestle – RTDs Nestle – Munch


Nestle – NesPlus Nestle – Outlet


Godrej Consumer – Godrej No 1 soap Godrej Consumer – Good Night power chip



10

Godrej Consumer – Nupur hair dye Godrej Consumer – Mr Magic Protekt handwash


Colgate – Swarna Vedshakti toothpaste Colgate – Swarna Vedshakti toothpaste



11

Colgate – Swarna Vedshakti toothpaste Dabur – Red Toothpaste


Dabur – Hajmola Dabur – Honitus


Dabur – Amla Emami – Navratan



12

Emami – Navratan Emami – Navratan


Marico – Parachute oil Marico – Nihar oil


Marico – Mediker ITC – Mangaldeep agarbatti



13

Titan – Sonata watches Titan – Sonata watches


Ghadi detergent Fena detergent


Reckitt Benckiser – Dettol Himalaya



14

Anmol Industries Emami Agrotech (unlisted) – Best Choice edible oil


Lactalis – Anik Apis India


Relaxo Footwear S H Kelkar – Keva



15

Amul dairy Parag Milk


Mother Dairy Himgange Cooling Oil



16

Café Coffee Day ACC – Gold Water Shield


Havells VIP luggage


Welspun LG water purifier



17

Piramal – Tetmosol Cipta – Omnigel


Coca Cola – Sprite KEI wires


Life Insurance Corporation of India Sonalika tractors



18

Price charts

Britannia Colgate Dabur GCPL

800

1,300

1,800

2,300

2,800

3,300

Mar-

16

Au

g-1

6

Fe

b-1

7

Au

g-1

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Feb-1

8

Au

g-1

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b-1

9

(Rs)

600

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800

900

1,000

1,100

1,200

1,300

1,400

Ma

r-16

Au

g-1

6

Ma

r-17

Au

g-1

7

Fe

b-1

8

Au

g-1

8

Feb-1

9

(Rs)

160

200

240

280

320

360

400

440

480

520

Mar-

16

Au

g-1

6

Fe

b-1

7

Au

g-1

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Feb-1

8

Au

g-1

8

Fe

b-1

9

(Rs)

320

420

520

620

720

820

920

1,020

Ma

r-16

Au

g-1

6

Mar-

17

Au

g-1

7

Fe

b-1

8

Au

g-1

8

Fe

b-1

9

(Rs)

HUL ITC Jubilant Foodworks Marico

300500700900

110013001500170019002100

Ma

r-1

6

Aug-1

6

Ma

r-1

7

Aug-1

7

Feb

-18

Aug-1

8

Fe

b-1

9

(Rs)

150

200

250

300

350

400

Ma

r-1

6

Au

g-1

6

Mar-

17

Au

g-1

7

Feb-1

8

Au

g-1

8

Feb-1

9

(Rs)

0200400600800

1,0001,2001,4001,6001,800

Ma

r-16

Au

g-1

6

Fe

b-1

7

Au

g-1

7

Feb-1

8

Au

g-1

8

Fe

b-1

9

(Rs)

150

200

250

300

350

400

450

Ma

r-16

Au

g-1

6

Ma

r-17

Au

g-1

7

Feb-1

8

Au

g-1

8

Fe

b-1

9

(Rs)

Nestle Titan Page Industries Sheela Foam

4,000

5,0006,0007,000

8,000

9,00010,00011,000

12,000

13,000

Ma

r-16

Au

g-1

6

Ma

r-17

Au

g-1

7

Fe

b-1

8

Au

g-1

8

Feb-1

9

(Rs)

150250350450550650750850950

1,0501,150

Mar-

16

Au

g-1

6

Ma

r-17

Au

g-1

7

Fe

b-1

8

Au

g-1

8

Fe

b-1

9

(Rs)

10,000

20,000

30,000

40,000

Mar-

16

Au

g-1

6

Ma

r-17

Au

g-1

7

Feb-1

8

Au

g-1

8

Feb-1

9

(Rs)

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Dec-1

6

Ju

n-1

7

Jan

-18

Jul-1

8

Fe

b-1

9

(Rs)

Source: Bloomberg


19

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specific report for that company.”

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BUY: >15% return; ADD: 5% to 15% return; HOLD: Negative 5% to Positive 5% return; REDUCE: Negative 5% to Negative 15% return; SELL: < negative 15% return

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Documents

Consumer Staples & Discretionaryvid.investmentguruindia.com/report/2019/March/... · in our view – were Britannia (despite the narrative of market share gains from Parle in Uttar