Consumer

India I Equities
Update

16 January 2012

India Consumer
Wallet Watch Vol 1/12
In Dec 11, prices of most raw materials were steady. Lower inflationary expectations have resulted in fewer prices hikes. New launches have come down and some consumer brands are being re-launched. Notable launches. Dabur launched Dabur Almond Drops hair oil and Odonil air fresheners. Bajaj Corp re-launched its main brand Bajaj Almond Drops hair oil. Gillete and Emami relaunched their brands Oral B and Malai Kesar cold cream, respectively. Price hikes continued. With lower inflationary pressures ahead, the number of price hikes have slid sharply. Among the notable price hikes - ITC hiked prices of Gold Flake king-size cigarettes 15%. Nestl India and Britannia hiked prices of Dahi and Pure Magic biscuits, respectively 5% and 8%. Raw material prices. Prices of most raw materials were steady in Dec 11. The lower prices of sugar and coffee would benefit Nestl India. Stable prices of packaging materials should help all consumer companies. Higher prices of LAB and liquid paraffin would impact detergent manufacturers and personal-care-product companies. The impact of higher raw material prices in Dec 11 for Marico would be seen in the 3QFY12 results. We believe that the continuing fall in copra prices should benefit Marico ahead. Stock calls. We maintain a Buy on ITC, Nestl India, Colgate, GSK-CH, and Emami, a Hold on Dabur and Marico and a Sell on HUL, Asian Paints and Britannia. Of our mid-cap consumer universe, we maintain a Buy on Pidilite, Agro Tech, Bajaj Corp, Lovable Lingerie, Jyothy Laboratories and Zydus Wellness, and a Sell on VST Industries.
India consumer sector valuation matrix
Current market Company Rating price (`) RoE FY13e (%) RoCE FY13e (%) CAGR FY11-13e (%) Revenue EPS PE FY13e (x)

BSE FMCG: 4072 Nifty: 4874 Sensex: 16189

India consumer sector Premium/discount to 12-m-forward Nifty PE

300 270 240 210 180 150 120 90 Aug-07 Nov-01 Jan-99 Jun-00 Apr-03 Oct-04 Mar-06 Jan-09 Jul-97 Jul-10

+1 SD Avg -1 SD Nifty Dec-11

Source: Bloomberg, Anand Rathi Research

BSE FMCG vs. Sensex

BSE FMCG

120 110 100 90 80 Jan-11

Sensex

Sep-11

Mar-11

May-11

Source: Bloomberg

ITC HUL Nestl India* Asian Paints Dabur Colgate Marico GSK-CH* Britannia Emami Pidilite

Buy Sell Buy Sell Hold Buy Hold Buy Sell Buy Buy

209 386 4,000 2,740 96 952 152 2,493 443 346 146

34.2 78.8 88.8 37.6 40.9 109.2 29.9 39.8 48.6 30.5 28.2

44.6 82.9 116.8 47.9 31.2 118.5 23.2 42.9 34.8 27.0 30.9

16.1 11.5 19.9 20.1 18.5 18.2 22.0 19.0 21.2 19.6 17.2

21.9 15.0 28.3 19.9 19.6 24.3 26.2 29.3 29.3 18.4 17.2

21.4 29.5 28.2 21.7 20.5 20.8 23.9 20.9 23.3 17.2 17.3

Shirish Pardeshi
+9122 6626 6730 shirishpardeshi@rathi.com

Aniruddha Joshi
+9122 6626 6732 aniruddhajoshi1@rathi.com

Source: Bloomberg, Companies, Anand Rathi Research

*Year ending Dec

Note: Prices as of 16 Jan 12

Anand Rathi Share and Stock Brokers Limited, its affiliates and subsidiaries, do and seek to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Disclosures and analyst certifications are located in Appendix 1. Anand Rathi Research India Equities

Nov-11

Jan-12

Jul-11

16 January 2012

India Consumer Wallet Watch Vol 1/12

Fig 1 India consumer sector: financials and valuation matrix

M. Cap Company Price (`) (US$m) FY11 RoE (%) FY12e FY13e FY11 RoCE (%) FY12e FY13e Revenue CAGR FY11-13(%) EPS CAGR FY11-13 (%) FY11 PE (x) FY12e FY13e Div Yield FY12e (%)

ITC HUL Nestl India* Asian Paints Dabur Colgate Palmolive Marico GSK-CH* Britannia Emami Pidilite Agro Tech Bajaj Corp Lovable Lingerie VST Inds Zydus Wellness

209 386 4,000 2,740 96 952 152 2,493 443 346 146 398 100 377 1,101 429

30,691 16,034 7,415 5,053 3,214 2,490 1,789 2,018 1,016 1,007 1,417 187 284 122 326 322

30.9 86.7 110.7 41.8 50.5 118.4 33.2 32.8 44.2 34.2 30.4 12.0 49.3 16.8 39.2 48.8

33.0 86.1 101.4 38.1 44.0 120.6 29.8 38.8 46.6 31.7 28.4 16.6 29.4 16.5 43.2 43.2

34.2 78.8 88.8 37.6 40.9 109.2 29.9 39.8 48.6 30.5 28.2 19.8 26.4 17.1 42.0 42.1

40.7 86.6 149.4 51.0 38.6 121.7 25.4 36.9 18.2 26.2 27.5 14.1 52.9 21.6 46.3 67.2

43.9 89.2 134.2 48.2 31.7 126.7 21.2 41.2 24.4 27.3 28.8 21.0 29.8 16.8 53.7 55.8

44.6 82.9 116.8 47.9 31.2 118.5 23.2 42.9 34.8 27.0 30.9 24.6 28.1 17.8 49.9 52.0

16.1 11.5 19.9 20.1 18.5 18.2 22.0 19.0 21.2 19.6 17.2 16.6 17.9 31.9 14.0 19.3

21.9 15.0 28.3 19.9 19.6 24.3 26.2 29.3 29.3 18.4 17.2 48.5 16.3 46.9 15.7 23.2

31.8 39.1 46.4 31.2 29.4 32.2 38.0 35.0 38.9 24.1 23.8 50.0 14.9 44.8 17.9 28.1

26.0 34.1 35.5 27.0 25.1 25.3 30.9 26.9 30.8 20.8 20.8 31.3 12.0 25.0 14.7 23.5

21.4 29.5 28.2 21.7 20.5 20.8 23.9 20.9 23.3 17.2 17.3 22.7 11.0 20.8 13.4 18.5

1.0 1.8 1.6 1.3 1.3 2.6 0.5 1.1 1.6 1.2 1.4 0.6 2.4 0.5 4.7 1.4

Source: Bloomberg, Companies, Anand Rathi Research

Note: Prices as of 16 Jan 12; *Year ending Dec

Fig 2 Absolute and relative stock performances

Absolute price performance (%) 1m 3m 6m 12m Relative price performance to the Nifty (%) 1m 3m 6m 12m

BSE FMCG ITC HUL Nestl India Asian Paints Dabur Colgate Palmolive Marico GSK Consumer Emami Britannia Industries Pidilite Industries Agro Tech Bajaj Corp Lovable Lingerie VST Inds Zydus Wellness
Source: Bloomberg

3.3 6.7 (1.7) (4.9) 1.2 0.7 (6.4) 9.7 (1.0) (3.6) (2.8) 2.9 7.6 2.6 25.4 0.1 4.6

2.5 1.9 16.5 (4.3) (12.8) (3.6) (4.5) 0.7 6.1 (16.5) (1.4) (10.3) 0.9 1.1 (20.6) (16.7) (26.2)

1.3 3.6 17.1 (9.0) (13.7) (13.6) (5.6) (3.2) 4.7 (31.9) (7.8) (14.7) 4.9 (12.2) (8.7) (5.8) (39.9)

14.2 23.6 27.6 7.4 0.7 (4.5) 12.3 21.6 16.4 (16.7) 19.9 3.0 8.7 2.1 n/a 72.5 (28.4)

BSE FMCG ITC HUL Nestl India Asian Paints Dabur Colgate Palmolive Marico GSK Consumer Emami Britannia Industries Pidilite Industries Agro Tech Bajaj Corp Lovable Lingerie VST Inds Zydus Wellness

(1.0) 2.4 (6.0) (9.3) (3.2) (3.6) (10.7) 5.4 (5.3) (8.0) (7.1) (1.4) 3.3 (1.7) 21.0 (4.3) 0.2

8.0 7.3 21.9 1.1 (7.4) 1.8 0.9 6.1 11.5 (11.0) 4.1 (4.9) 6.3 6.5 (15.1) (11.3) (20.8)

14.4 16.6 30.1 4.0 (0.7) (0.6) 7.4 9.9 17.7 (18.8) 5.2 (1.7) 18.0 0.8 4.3 7.2 (26.9)

28.3 37.8 41.8 21.5 14.8 9.6 26.5 35.7 30.6 (2.5) 34.0 17.2 22.9 16.3 n/a 86.7 (14.2)

Note: Prices as of 16 Jan 12

Anand Rathi Research

16 January 2012

India Consumer Wallet Watch Vol 1/12

Launches and Pricing

Dabur launched Almond hair oil and Odonil air fresheners for cars and aromatic candles. Bajaj Corp and Emami re-launched their brands Bajaj Almond drops and Malai Kesar cold cream. Gillette relaunched Oral B toothbrushes, roping in Madhuri Dixit as brand ambassador. The number of price hikes has slid sharply due to expectation of lower inflation ahead. ITC hiked prices of cigarettes ahead of Budget 2012. Britannia and Nestl India hiked prices of Pure Magic biscuits and Dahi, respectively, to pass on higher raw material costs. Launches and re-launches Dabur launched Almond hair oil to compete with Bajaj Almond Drops hair oil. It also launched Odonil air freshening products such as car fresheners and aromatic candles. Reckitt Benckiser introduced Dettol handwash in a new format. Bajaj Corp re-launched its Bajaj Almond drops brand with a new brand ambassador Kangna Ranaut. Emami re-launched Malai Kesar cold cream with a sharper focus on fairness and winter care. Gillete too re-launched its Oral B toothbrushes.
Fig 3 Major launches and re-launches in Dec 11
Company Launch Re launch

Dabur Gillette/ P& G Reckitt Benckiser Emami Bajaj Corp

Dabur Almond hair oil Odonil aroma products - car fresheners and aromatic candles Oral B toothbrushes Dettol no-touch hand-wash Malai Kesar cold cream Bajaj Almond Drops hair oil

Source: iSource, Companies

Pricing in Dec 11 As seen in earlier months, the number of price hikes have slid sharply. With lower inflationary pressures most consumer companies are not hiking prices regularly. Ahead, we do not see aggressive price hikes by consumer companies. Major price hikes were: ITC, prices of Gold Flake king-size cigarettes hiked 15% (from `96/20 sticks to `110/20 sticks) prior to the budget. Britannia hiked prices of Pure Magic biscuits 8%. Due to higher milk prices, Nestl India hiked its Dahi prices ~5%.
Fig 4 Price hikes / cuts in Dec 11
Company Brand Hike (%) Cut (%)

The number of price hikes have slid sharply due to lower inflationary pressures ahead

ITC Britannia Nestl India

Cigarettes - Gold Flake king-size Pure Magic biscuits Dahi

15.0 8.0 5.3

Source: iSource, Companies

Anand Rathi Research

16 January 2012

India Consumer Wallet Watch Vol 1/12

Raw material prices

Mom, in Dec 11 prices of most raw materials held steady. However, the increase in prices of LAB and liquid paraffin would affect detergent and personal-care-product companies. No change in packaging-material costs should help most consumer companies. We expect Marico to be hit the most by the rise in prices of safflower and liquid paraffin despite the fall in prices of copra in Dec11. The benefit of the fall in copra prices should be seen ahead. Most raw materials prices were steady in Dec 11 compared to Nov 11. Lower agri-product prices should benefit food companies. There was no change in packaging material prices. Packaging material makes up ~10% of net sales. Prices of other crude-oil derivatives (LAB and liquid paraffin) were higher and would affect detergent and personal-care-product companies.
Fig 5 Monthly prices of major raw materials
Commodity Units Dec-10 Nov-11 Dec-11 % chg mom % chg yoy

Most raw material prices were stable in Dec 11

Sugar Coffee Wheat Soda ash Copra LAB PE* Palm oil Sunflower oil Safflower oil Liquid paraffin

`/quintal `/50kg `/quintal `/kg `/100kg `/kg `/kg US$/ton `/10kg `/10kg `/litre

2,947 9,919 1,337 976 5,585 91 72 1,188 662 741 52

3,002 14,333 1,177 1,000 5,549 113 82 1,029 633 923 67

2,992 14,117 1,237 1,000 5,383 116 82 1,025 653 993 68

(0.3) (1.5) 5.1 (3.0) 2.7 (0.4) 3.1 7.6 1.5

1.6 42.3 (7.5) 2.4 (3.6) 27.4 14.8 (13.7) (1.4) 34.0 30.8

Source: CMIE, RIL, Bloomberg, Companies

*Packaging material

Marico would be hit due to higher prices of safflower and liquid paraffin. Benefit of fall in copra prices will be seen ahead.

Impact on consumer companies Higher prices of sugar and coffee should help Nestl India. Wheat would eat into the margins of Britannia and Nestl India. Lower prices of copra would help Maricos profitability. Unchanged packaging-material prices would help all consumer companies. Higher LAB prices would impact HUL and Jyothy Labs. Higher prices of liquid paraffin would impact hairoil companies Marico and Emami.

Fig 6 Raw-material prices and their impact on consumer-goods companies

Commodity Company (raw material costs as percentage of net sales FY11) mom (%) yoy (%) Positive Negative

Sugar Coffee Wheat Soda ash Copra LAB PE* Palm oil Safflower oil Liquid paraffin

Britannia (6), Nestl India (2), GSK-CH (2), Dabur (1), ITC (1) Nestl India (5), HUL (1) Britannia (15), Nestl India (4), GSK-CH (3), ITC (4) HUL (12) Marico (30) HUL (9) HUL (10), Nestl India (8), Dabur (12), Colgate (9), Marico (10), GCP (6), GSK (10), Britannia (5), Emami (9) HUL (7), GCP (22), Britannia (10), Nestl India (4), Dabur (4), ITC (1) Marico (10) Marico (8), Emami (4)
*Packaging material

(0.3) (1.5) 5.1 (3.0) 2.7 (0.4) 7.6 1.5

1.6 Britannia, Nestl India 42.3 (7.5) 2.4 (3.6) 27.4 14.8 (13.7) 34.0 30.8 Marico Nestl India

Britannia, Nestl India HUL Marico Marico, Emami

Source: CMIE, Bloomberg, RIL, Companies, Anand Rathi Research

Anand Rathi Research

16 January 2012

India Consumer Wallet Watch Vol 1/12

Fig 7 Price trends major raw materials

Sugar
(`/quintal) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 Aug-07 Jul-08 Jul-09 Jul-10 Dec-10 Dec-11 Jan-08 Jan-09 Jan-10 Jun-11 48 38 28 Jan-08 Jan-09 Jan-10 Aug-07 Dec-10 Jun-11 Jul-08 Jul-09 Jul-10 Dec-11 (`/kg) 78 68 58

Liquid Paraffin
(`/50kg) 15,500 14,000 12,500 11,000 9,500 8,000 6,500 5,000 Aug-07 Jul-08

Coffee

Jul-09

Jul-10

Dec-10

Wheat
(`/quintal) 1,500 1,400 1,300 1,200 1,100 1,000 900 Jul-08 Jul-09 Aug-07 Jul-10 Dec-10 Dec-11 Jan-08 Jan-09 Jan-10 Jun-11 (`/50kg) 1,350 1,250 1,150 1,050 950 850 May-08

Soda Ash
(`/100kg) 7,000 6,100 5,200 4,300 3,400 2,500 Jan-09

Copra

Jan-10

Jan-11

Feb-10

Feb-08

Jan-11

Oct-08

Jul-08

Jul-09

Jul-10

Mar-09

Jul-11

Sep-09

Aug-10

Aug-07

Jul-11 Jun-11

LAB
(`/kg) 125 115 105 95 85 75 65 Jan-08 Jan-09 Jan-10 Jun-11 Jul-08 Jul-09 Jul-10 Aug-07 Dec-10 Dec-11 (`/kg) 95 85 75 65 55 45 Jan-08

PE (Packing Material)
(US$/ton) 1,300 1,150 1,000 850 700 550 400 Jan-09 Jan-10 Jun-11 Jan-08

Dec-11

Palm Oil

Jan-09

Jan-10

Jul-08

Jul-09

Jul-10

Jul-08

Jul-09

Aug-07

Aug-07

Dec-10

Dec-11

Jul-10

Dec-10

Source: Bloomberg, CMIE, RIL, Company, Anand Rathi Research

Anand Rathi Research

Dec-11

Dec-11

Dec-11

Jan-08

Jan-09

Jan-10

Jun-11

Appendix 1
Analyst Certification The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. Anand Rathi Ratings Definitions Analysts ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described in the Ratings Table below. Ratings Guide Large Caps (>US$1bn) Mid/Small Caps (<US$1bn) Buy >20% >30% Hold 5-20% 10-30% Sell <5% <10%

Anand Rathi Research Ratings Distribution (as of 15 December 2011) Buy Anand Rathi Research stock coverage (136) 72% % who are investment banking clients 6%

Hold 15% 5%

Sell 13% 0%

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