investors eye

sector update

FMCG
Sector Update

Prices of key inputs remain stable; freebies galore

Key points Prices of key inputs stabilising: The prices of the key inputs for the fast moving consumer goods (FMCG) industry, such as palm oil, copra, kardi oil, coffee and HDPE, have corrected from their highs and seen some downward momentum in recent months. Palm oil prices, on an average, are down by 3% to MYR2,280 a tonne compared with the Q4FY2013 average of MYR2,362 a tonne. Copra prices are down by 7% to Rs43/kg in May 2013 compared with the average price in Q4FY2013. The other key inputs such as HDPE and LABFS have also seen some correction in recent months (refer to the charts at the end of the note). If the prices of these raw materials continue to see a downward trend, then it will be positive for the FMCG companies, as they can continue to focus on improving their sales volume in a tough environment where consumer sentiment has been dampened by sustained inflationary pressures. Promotional add-ons and freebies with new offerings: Our channel checks suggest that the FMCG companies including Hindustan Unilever Ltd (HUL), Procter and Gamble (P&G), Marico and Britannia Industries have opted for promotional add-ons/freebies to lure consumers into buying their products. We have seen higher offers on soaps, detergents and shampoos, which are highly competitive categories in the domestic market. With kardi oil and sunflower oil correcting in the past few months, we might see promotional offerings on Saffola oil brands in the coming months. Also, a price cut on the Saffola edible oil brand cannot be ruled out as it will help in reducing the pricing premium that Saffola enjoys over the other brands in the market. Sustained focus on new product addition: Against the backdrop of dampened consumer sentiments, the FMCG companies have remained aggressive in introducing new products in the domestic market (refer to the New product launches table). The companies have maintained their thrust on entering the lowpenetrated premium categories which could be one of the key drivers of their growth in the long run. A large number of new products were seen in the domestic personal care segment (especially in the skin
Sharekhan

care and hair care categories) during our channel checks. HUL appears to have been very aggressive in launching new products in the domestic market in recent months. The products have been launched largely in the premium personal care segment. Normal monsoon would be a positive: The monsoon season has started on a positive note arriving on the coastal regions of Kerala on schedule and then spreading around the country. The rainfall from June 1 to 12 was 23% above average and covered around half of India as per the India Meteorological Department (IMD). This triggered early planting of summer crops, including rice, oilseeds and cotton, in many parts of the country. The IMD is expecting normal rainfall in the ongoing monsoon season. However, we believe its early days yet to comment on it. The July-September rainfall is important for the agricultural production in India (especially the kharif crop). A normal rainfall in the key crop producing states would result in a higher income in the hands of the rural population, which would help in improving the rural demand for the FMCG companies (the rural market contributes 30-35% of their revenues). Also, a higher agricultural production would result in the cooling off of some agri-commodities prices, which act as the key inputs for some FMCG companies. Outlook and view: With the inflationary pressures moderating, we could see an improvement in the sales of the FMCG companies in the coming quarters. However, a substantial improvement in the volume growth of the FMCG companies could be seen from the second quarter of FY2014. The monsoon has begun on a positive note and a normal monsoon would further help in trimming down the inflationary pressures in the coming months. Having said that, the sharp depreciation in the rupee against the dollar in the recent past would act as a dampener for the FMCG companies, which have a large amount of dollardenominated debt on their books and also import large quantities of the key inputs in dollars. Remaining selective while selecting stocks, we prefer ITC in the large-cap space and Bajaj Corp and Jyothy Laboratories in the mid-cap space.
6
June 14, 2013

Home

Next

investors eye

sector update

Valuations CMP (Rs) Companies HUL ITC GSK Consumer GCPL Marico TGBL Bajaj Corp Zydus Wellness Mcleod Russel Jyothy Lab
Note: ** Price target revised

EPS (Rs) FY2013 FY2014E 16.6 11.4 124.7 25.7 7 7.3 13.8 28.7 33.8 4.2 FY2015E 18.4 13.7 143.3 32.5 8.6 8.4 17.7 35.3 40.3 8.3 FY2013 39.9 34.9 54.6 38.4 39.5 22.2 23.5 24.9 12.5 161.7 14.9 9.4 103.9 20.4 5.7 6.3 11.3 25.4 25.1 1.2

PE (x) FY2014E 35.8 28.8 45.5 30.5 32.1 19.2 19.2 22.1 9.3 46.2 FY2015E 32.3 23.9 39.6 24.1 26.2 16.7 15.0 17.9 7.8 23.4

Reco. Hold Hold Hold Hold Hold Hold Buy Buy Buy Buy

Price target 600 342 Under review 845** 241 168 303 741 405 254

594 328 5,678 783 225 140 265 633 315 194

Latest promotional offerings by FMCG companies Latest promotional offerings and freebies Cinthol pack of 5 soaps @ Rs189 Surf Excel quick wash 1kg pack Dabur's Odonil pack Garnier Fructis shampoo 2-in-1 Parachute coconut oil (500ml) @ Rs120 Hair & Care value-added hair oil (100ml and 200ml ) Britannia Good Day (Cashew) Rs15 pack Britannia Good Day (Butter) Rs10 pack P&G: Thank you, mom offer 1) Arielsave Rs125 on 3kg pack vs Ariel Oxyblu 1kg at MRP (inclusive of all taxes) 2) PampersRs625 instead of MRP of Rs765 inclusive of all taxes for 52 diapers 3) Head and ShouldersRs115 instead of MRP of Rs135 inclusive of all taxes for 170ml bottle 4) PanteneRs109 instead of MRP of Rs129 inclusive of all taxes for 180ml bottle 5) Oral bRs109 instead of MRP of Rs138 inclusive of all taxes for 2 toothbrushes Freebies Cinthol deo free of Rs120 200ml Comfort free Odonil air freshner gel sample free Free Garnier gentle face wash 50gm worth Rs42 20% extra offer on pack 20% extra offer on pack 20% extra offer on pack 23% extra offer on pack

Sharekhan

June 14, 2013

Home

Next

investors eye

sector update

New product launches in the domestic market in recent months

Sr. No. 1 New product Pond's White Beauty BB+ fairness cream (one shade, SPF 30 PA ++, UVA/UVB protection) Description Pond's White Beauty BB+ fairness cream gives instant natural coverage and advanced sunscreen protection, in addition to superior skin lightening and brightening benefits Price of the product For 18gRs125 Competitors Garnier B-B Cream Miracle Skin Perfector (1 shade, SPF 24 UVA/UVB protection) Maybelline Clear Glow BB cream (3 shades SPF 21 PA +++) 2a Lakms Clean-Up Nourishing Glow face wash This face wash removes visible dirt, excess sebum and impurities preparing your skin for a deep cleansing experience For 25gRs40 For 50gRs80 For 100gRs145 Everyuth Clean & Clear Neutrogena deep clean Garnier light fairness 2b Lakms Clean-Up Nourishing Glow scrub This scrub unclogs pores, removes blackheads and other deep seated impurities For 50gRs99 For 100gRs199 Everyuth Clean & Clear daily scrub Neutrogena deep clean scrub Garnier pure active scrub 2c Lakms Clean-Up Nourishing Glow mask The absorbing power of clay, the strawberry extracts and vitamin B3 present in the mask help reduce pore size, seal in the nourishment and lighten skin tone respectively For 50gRs99 For 100gRs199 Everyuth Golden peel off Ponds White instant peel off Himalaya neem face pack Lotus fruit pack 3 Daburs Oxy Life gel bleach with aloe vera Oxy Life gel bleach offers modern-day woman a skincare solution that gives her instant glow while making her skin soft It would be mildest skin bleach available in the market, suitable even for sensitive and problem prone skin 4 Garniers Fructis GoodBye Damage shampoo This unique shampoo with amla helps provide a shield against harmful factors like the heat, dust and dirt With fruit vitamins and fruit extracts this shampoo helps smoothen and strengthen your hair For 80mlRs65 For 175mlRs120 For 340ml Rs210 For 8gRs35 For 24gRs80 For 330gRs375 VLCC herbal bleach FEM milk and pearl bleach Oxy Glow herbal Competitors price Rs99 for 18g and Rs199 for 40g Market size Indian premium skin care market: Rs800 crore; CAGR of 18%

Rs199 for 18g

Rs90/100g Rs80/100ml Rs170/100ml Rs140/100g

Face wash market in India: Rs500 crore; CAGR of + 25%

Rs105/100g Rs99/80g Rs210/125ml Rs149/100g

Face scrub market in India: Rs40 crore; CAGR of +25%

Rs95/90g Rs99/50g Rs115/100g Rs225/120g Rs45/27g Rs39/26.4g Rs65/50g

Face mask/ pack market in India: Rs30 crore; CAGR of +25%

India skin bleach market: Rs300 crore

Garnier Fructis fortifying normal Pantene Long Black shampoo Loreal Total Repair 5 shampoo Dove Damage Therapy

Rs120/200ml Rs129/180ml Rs135/180ml Rs120/200ml

Indian shampoo market: Rs4,694 crore

contd....
Sharekhan

June 14, 2013

Home

Next

investors eye

sector update

New product launches in the domestic market in recent months

Sr. No. 5 New product Garniers Fructis GoodBye Damage conditioner Description The conditioner with amla strengthens the hair and works beautifully to calm flyaways, detangles hair and also adds glossy shine to reinvent dull-looking, frizzy and damaged hair Price of the product For 80mlRs69 For 175mlRs130 Competitors Garnier Fructis normal hair conditioner Pantene hair fall control conditioner Loreal Total Repair 5 conditioner Dove Intense Repair hair conditioner 6 Garniers Fructis GoodBye Damage oil A unique blend enriched with 3 oils: coconut + almond + olive On the inside, nourishes your scalp and hair, making it soft and smooth On the outside, oil protects the hair fibre and makes your hair softer, shiny and manageable For 100mlRs75 For 200mlRs110 Dabur special light hair oil Bajaj Almond Drops non-sticky Loreal smooth intense argan oil Competitors price Rs130/180g Market size Indian hair conditioner market: Rs302 crore

Rs120/175ml

Rs150/180g

Rs132/170ml

Rs86/200ml

Rs95/200ml Rs240/100ml

Indian hair oil market: Rs7,870 crore; CAGR of about 19%

Dove dryness Rs185/90ml lavender and olive oil NA Amul cheese spread Britannia cheese spread classic Go Cheese spread tub Kissan creamy spread cheesy garlic Rs63/200g Rs85/180g Rs70/200g Rs79/250g Indian cheese market: Rs625 crore; CAGR of 20%

Nutralite cheese spread with Omega 3

Nutralite now with cheese and Omega 3 will enhance the taste buds while taking care of the cholesterol level

B'lue

Danones B'lue is a delicious, water-based drink that restores body, mind and mood, anytime anywhere! B'lue is enriched with vitamins and minerals that provide essential nutrients, its stimulating fruit flavours and aroma awaken the mind and uplift one's mood

For 500mlRs30

Tata Gluco Plus (in orange, lemon and mango)

Rs8/200ml

Indian bottled water market: Rs8,000 crore; CAGR of 19%

Sharekhan

June 14, 2013

Home

Next

Rs / 100kg

MYR \ Tonne 4000.0 3800.0 3600.0 3400.0 3200.0 3000.0 2800.0 2600.0 2400.0 2200.0 2000.0 1800.0

investors eye

Trend in copra prices

Trend in palm oil prices

7500.0 7000.0 6500.0 6000.0 5500.0 5000.0 4500.0 4000.0 3500.0 3000.0 2500.0

Rs / 10 kg 1600.0 1500.0 1400.0 1300.0 1200.0 1100.0 1000.0 900.0 800.0 700.0 600.0 500.0 400.0 300.0 200.0

Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13

Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13

Trend in key edible oil prices

Sharekhan
RS/KL 53000.0 50000.0 47000.0 44000.0 41000.0 38000.0 35000.0 32000.0 29000.0 26000.0 23000.0 20000.0

Sun Flow er

10
Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13

Rs / Kg 112 108 104 100 96 92 88 84 80 76 72 68 64

Kardi Oil

Trend in HDPE prices

Trend in LAB (feed stock) prices

June 14, 2013

Ric e Bran

Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13

Home

Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13

sector update

Next

investors eye

sector update

New product launches in the domestic market in recent months

Danone Blue Ponds BB+ cream

Lakm Clean-Up Nourishing Glow range

Garnier Fructis Goodbye Damage shampoo

Nutralite cheese spread with Omega 3

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Sharekhan

11

June 14, 2013

Home

Next

Disclaimer This document has been prepared by Sharekhan Ltd.(SHAREKHAN) This Document is subject to changes without prior notice and is intended only for the person or entity to which it is addressed to and may contain confidential and/or privileged material and is not for any type of circulation. Any review, retransmission, or any other use is prohibited. Kindly note that this document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue of their receiving this report. The information contained herein is from publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (SHAREKHAN and affiliates) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. We do not represent that information contained herein is accurate or complete and it should not be relied upon as such. This document is prepared for assistance only and is not intended to be and must not alone betaken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Affiliates of Sharekhan may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject SHAREKHAN and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. SHAREKHAN & affiliates may have used the information set forth herein before publication and may have positions in, may from time to time purchase or sell or may be materially interested in any of the securities mentioned or related securities. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. Any comments or statements made herein are those of the analyst and do not necessarily reflect those of SHAREKHAN.

Sharekhan

26

September 21, 2011

Home

Next