Consumer | Assetmultiplier

30 Jun

Monsoon – One of the key growth drivers of the Indian economy?

Southwest monsoon arrives early in the mainland of India and it covered many Indian states and union territories but many of those states have received deficit rainfall in early June.

But wait, why does it matter to us, how the excess or deficit rainfall is going to affect the Indian economy and Investors? So, let’s discuss

In India, the monsoon season starts in June and lasts till September. India receives more than ~70% of rainfall in this period. India is an agrarian economy and more than half of the workforce is engaged in agriculture and the allied sector. The farm sector also has a double-digit contribution to India’s GDP.

*LPA – Long Period Average

Here is the equation – Good monsoon = Good farm output = Strong consumer demand and vice versa

The monsoon has a direct relationship with the agricultural and allied sectors. Approximately half of India’s total food output is contributed by Kharif crops that are largely dependent on monsoon. A good monsoon season accelerates the farm output and boosts the income of the farmer community. This improves the spending power of rural areas which leads to strong demand sentiments. There is a hidden part of the above equation which is “Inflation”. Normal monsoon and bountiful harvest keep inflation under control since food contributes ~45% in the consumer Price Index (CPI). That is why a normal monsoon is a crucial factor for the inflation.

If we record deficit and a drought-like situation, it will directly weaken the farm production and lowers the income of the farmers. This reduces the consumption demand. At the same time, we get a hit from inflation as lower food production accelerate the food inflation. The government may have to spend towards import of food and adversely impacts the overall economy.

Sectors that have a large exposure to monsoon –

Consumer –India’s rural market contributes a significant share of the revenue of the Indian companies. Many Indian consumer companies are expanding their reach and significantly stepping up direct distribution in rural markets. The normal monsoon will improve the purchasing power of the rural population and may revive the sluggish rural demand and drive revenue growth.
Automobiles and farm equipment – Tractor companies have a direct relationship with the monsoon. A good monsoon improves the farmers’ spending capacity for better farm equipment. This will effectively result in better crop yields. Major Indian 2W makers derive ~50% of their revenue from the rural areas. This demand is again dependent on the agricultural growth.
Agro chemicals and fertilizers – Agrochemicals and fertilizers business directly depends on farmers’ income and agricultural growth. Companies derive their major revenues during the monsoon period. As the good monsoon sentiments enable farmers to spend more on crop care protection chemicals and fertilizers.

In the short, we need a normal monsoon for the smooth economic activity, especially in rural areas, So, let’s hope and pray for a good and normal monsoon every year.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Pratik Talvatkar Agro chemicals, Auto, Consumer, FMCG 0 Comments Read more...

06 Jun

Aims to reach Revenue of Rs 50,000 mn by FY25E: Bata India

Update on the Indian Equity Market:

On Monday, the Nifty failed to close in the green, despite recovering much of its intraday losses. Nifty closed at 16,530 (-0.1%). METAL (+1.1%), OIL & GAS (+0.6%), and PRIVATE BANKS (+0.2%) were the top sectoral gainers. MEDIA (-1.3%), REALTY (-0.8%), and CONSUMER DURABLES(-0.6%) were top losing sectors.

The top losers were SHREECEM (-3.1%), BPCL (-2.6%), and ASIANPAINT (-2.5%) while BAJAJAUTO (+4.0%), JSWSTEEL (+2.7%), and TATACONSUM (+1.7%) were the top gainers.

Aims to reach Revenue of Rs 50,000 mn by FY25E: Bata India

Edited excerpts of an interview with Mr. Gunjan Shah, MD & CEO, Bata India with ET NOW on 2^nd June 2022:

4QFY22 has been a robust quarter for Bata. Revenue grew by 13% YoY and EBITDA grew by 45% on the back of price hikes and improved product mix.
When asked why the volume growth has been weak, are these metrics likely to continue, the CEO replied that the company has proactively worked towards margin expansion through different levers:
- First, improving the product mix. The movement towards casualization and sneakerization has aided the effort. In 4QFY22, sneakers contributed ~20% of the total revenue.
- Second, bringing cost efficiencies in different operations.
- Third, price hikes.
Short-term bounce back has been seen in the market. There is a normalization of consumer behavior after distortion of almost 2 years. Reopening of schools and offices and marriage season is pushing the fashion and formal footwear sales.
Longer-term trends lie in “sneaker-isation” and “casualisation’ as people now want to take comfort out of home as well. Bata is making sure that its portfolio is in line with these trends and has been backed by the latest launched campaign of 24/7 casual collection along with Brand Ambassador Disha Patani.
Bata aspires to reach Rs 50,000 mn revenue by FY25E with the help of the following levers:
- Ensuring portfolio in line with the faster-growing categories (Sneakerization),
- Footprints expansion through deeper penetration into the Tier 3&4 cities to tap the rural and middle India which is ramping up at a faster pace,
- Digital Footprint expansion, and
- Keep looking into the inorganic opportunities.
Bata delivered ~24% EBITDAM in 4QFY22. Management commented that they are just nearing the pre covid levels and have worked on cost efficiencies to aid margin expansion and will try to keep the margins stable.
The company is looking to increase the market share in smaller towns aggressively by adding new stores. It expects consumer preference to shift from an unorganized market to an organized market.
The promoters sold ~2.8% stake in the company through a block deal on 1^st Jun 2022 on which the CEO commented that it doesn’t impact the majority control the promoter has over the operations. It was a minor dilution which was in line with the restructuring of the family trust.

Asset Multiplier Comments

We think Bata is striking the right chord to bring in revenue growth. Strong market leadership, the revival of formal footwear along with strong growth in casual portfolio and various distribution initiatives would help the company reach rich dividends.
Continuous focus on cost savings across rentals & operations, manufacturing and driving efficiencies in its value chain, and improving product mix will aid margin expansion.

Consensus Estimate (Source: market screener website)

The closing price of Bata India was ₹ 1,829/- as of 06-June-2022. It traded at 54x/44x the consensus EPS estimate of ₹34.2/41.9 for FY23E/FY24E respectively.
The consensus target price of ₹ 1,980/- implies a PE multiple of 47x on the FY24E EPS estimate of ₹ 41.9/-.

By Richa Varu Rathod Bata 0 Comments Read more...

17 May

Strong growth expected in Navratna, Kesh King and Fair & Handsome – Emami

Update on the Indian Equity Market:

On Tuesday, the shares of Life Insurance Corporation of India Ltd (LIC) got listed on the bourses and it closed at an 8% discount to its issue price of Rs949.

NIFTY closed 2.6% higher at 16,259, led by HINDALCO (+9.8%), TATASTEEL (+7.7%), and COALINDIA (+7.6%). There was no NIFTY stock that ended in the red. METAL (+6.9%), OIL & GAS (+3.7%), and MEDIA (+3.0%) led the sectoral gainers and no sector ended in the red.

Excerpts of an interview with Mr. NH Bhansali, CEO – Finance, Strategy & Business Development, and CFO, Emami published in the Economic Times on 16^th May 2022:

New age channels like modern trade and e-commerce are growing very strongly for Emami. These contributed 15% and 13% to domestic sales in 4QFY22 and FY22 respectively.
The company has taken price hikes of ~4.5% and may take further hikes in case the need arises. Due to price hikes, strategic procurements, and other cost optimisation initiatives, the gross margin contraction was limited to 30bps and it was 62.4% in 4QFY22.
There has been significant inflation for key materials like crude derivatives, vegetable oils, camphor, and packaging materials. Geo-political uncertainty and high inflation is impacting input costs adversely.
4QFY22 witnessed unprecedented inflation which hurt consumer wallets across rural and urban areas, which impacted volumes. With a good monsoon season and an uptick in government initiatives to boost rural income, the management expects the slowdown to fade away.
The Company’s rural distribution initiatives like Project KHOJ have continued to progress with ~8,000 rural towns being added in FY22 taking the total tally to 40,000 rural towns which will aid rural growth.
Notwithstanding the pandemic-related challenges and inflationary pressure, Emami managed to increase its leadership position and increased household penetration for most of its brands.
The Company expects gross margin pressure of ~200bps in 1QFY23.
Despite the high base in the pain management portfolio, it expects a strong growth in Navratna, Kesh King, and Fair and Handsome, which have been impacted for the last 2 years due to the pandemic. This would help maintain the double-digit growth rate momentum.
The company is expanding its distribution footprint across markets and channels to supplement the growth targets.
Emami maintains a bullish view on digital businesses- Zanducare or e-commerce. Through the D2C model, it is connecting directly with consumers and generating superior consumer insights leading to higher offtakes.

Asset Multiplier Comments

High inflation and a weak rural sentiment are expected to weigh on the short-term outlook for the company. Unprecedented levels of inflation are leading to downtrading across markets. The impact of downtrading is expected to be lower for Emami as it generates 24% from smaller SKUs.
A severe summer season across India and rural recovery post a good monsoon season could act as a tailwind for the company.

Consensus Estimates: (Source: Market screener website)

The closing price of Emami was ₹ /- as of 17-May-2022. It traded at x/ x the consensus earnings estimate of ₹ 16.7/ 20/- for FY23E/FY24E respectively.
The consensus target price of ₹ 565/- implies a P/E Multiple of 28x on the FY24E EPS estimate of ₹ 20/-

By Maitreyee Vaishampayan Consumer, Emami crude oil, FMCG 0 Comments Read more...

10 Mar

‘Experience of the Future’ stores next big thing – Westlife Development

Update on the Indian Equity Market:

On Thursday, NIFTY50 ended in the green for the 3^rd straight session at 16,595 (+1.5%). The trends for five state assembly elections may have aided the sentiment as the ruling BJP led in the majority of the seats in India’s largest state of Uttar Pradesh.

Among the sectoral indices, FMCG (+3.0%), PSU BANK (+2.3%), and METAL (+2.3%) led the gainers while IT (-0.1%) was the only sectoral index that closed in the red. Among the NIFTY50 stocks, HINDUNILVR (+5.2%), TATASTEEL (+4.3%), and GRASIM (+4.1%) led the gainers while COALINDIA (-3.8%), TECHM (-1.5%), and DRREDDY (-1.2%) led the losers.

Excerpts of an interview with Mr. Amit Jatia, Vice Chairman, Westlife Development published in Financial Express on 10^th March 2022:

India has an inflationary tendency, so cutting costs is a part of the Company’s DNA. Vice-Chairman believes sales growth should be accompanied by a 100-250bps cost reduction YoY to survive.
If a certain cost increased, the company finds a reduction in some other avenue to maintain the balance. He doesn’t believe this policy will change in the next three to five years.
He believes inflation is here to stay. The company takes a 3-5% price hike every year and CY22 will not be any different.
Currently, there are a total of 316 McDonald’s outlets out of which 248 have McCafe inside them, which are proper coffee shops.
The company is working on accelerating the expansion of its network and plans to have over 500 stores in the next 3-5 years. This will require an investment of over Rs 8bn.
The expansion strategy will also be aligned to the company’s omnichannel strategy with a robust portfolio of ‘experience of the future’ (EOTF) stores, drive-throughs, and stores with separate take-out windows. The company will be doubling its drive-throughs within India. Menu innovation, omnichannel presence, and network expansion will continue to be the key levers for Westlife.
The EOTF stores are a big thing now, as the company is trying to change the way the QSR industry will operate in the future.
There are no favorites when one talks about the McDonald’s brand. Offerings like McAloo Tikki, McChicken, McSpicy, McVeggie are all consumer favourites, and the company is not dependent on one product.
The eating behaviour of customers has changed tremendously. Earlier, consumers were focused on snacking when eating out at a QSR, now they are looking at a complete meal. As a result, the Company’s focus has shifted towards larger opportunities which are meals.
In the last 2 years, the company has pivoted to become an omnichannel brand wherein the digital channels are accelerated at a phenomenal rate for McDonald’s. Its drive-through, contact-less take-away, on-the-go service ensured continuity of operations. Also, as stores were reopened delivery continued to grow. So, both in-store dining and delivery have provided an impetus to revenue and profitability growth. In 3QFY22, as most of the dine-in restrictions were eased, revenue from convenience channels grew 55% YoY with McDelivery reporting its highest ever revenue so far.
The new range of burgers along with the Fried Chicken platform and McCafe helped accelerate the average unit volume growth by 30% without any significant capex investment.

Asset Multiplier Comments

With increased focus on hygiene due to the pandemic, customers’ preference has shifted towards branded products. We believe McDonald’s (Westlife Development) is well-placed to benefit from this opportunity due to its brand recall, strong network, and variety of products.
With the new launches such as Fried chicken, the company is evolving from being just a burger company and providing tough competition to its peers.
With the entry into adjacent spaces such as Gourmet burgers and Fried chicken without incremental capex, the company will be able to improve its margins and provide better returns to shareholders.

Consensus Estimate: (Source: Marketscreener website)

The closing price of Westlife Development was ₹ 478 /- as of 10-March-2022. It traded at 76x/ 52x the consensus earnings estimate of ₹ 6.3/9.2 for FY23E/FY24E respectively.
The consensus target price of ₹ 629/- implies a P/E multiple of 68x on FY24E EPS estimate of ₹ 9.2/-

By Maitreyee Vaishampayan Consumer, Westlife development new launches, new stores, price hike 0 Comments Read more...

08 Mar

Will comfortably sail through the near-term headwinds – Page Industries

Update on the Indian Equity Market:

On Tuesday, NIFTY50 ended at 16,013 (+0.95%) as it closed near the day’s high. Among the sectoral indices, REALTY (+3.3%), MEDIA (+2.8%), and IT (+2.7%) were the top gainers, whereas METAL (-1.5%), and OIL&GAS (-0.7%) were the only losers. Among the stocks, IOC (+4.2%), SUNPHARMA (+4%), and TATACONSUM (+3.8%) were the gainers while HINDALCO (-4.6%), ONGC (-4.4%), and TATASTEEL (-2%) were the losers.

Excerpts of an interview with Mr. Chandrasekar K, CFO, Page Industries (PAGEIND) with Bloomberg Quint on 7^th March 2022:

In 3QFY22, Page Industries clocked in 28% growth YoY in revenue and a 25% growth in volumes.
The company is experiencing uniform growth across metros as well as tier 2,3 & 4 cities.
The company’s current performance is way ahead of pre pandemic numbers in all aspects as 4 of the best quarters in the company’s history have come from the last 5 quarters.
An overall strong performance in calendar year 2021 was largely driven by growth in athleisure wear. The usage of athleisure wear has grown over the years but the lockdown and work from home situation acted as a catalyst for a spurt in demand.
In CY21, raw material prices have moved up by 20%. Page Industries has taken a price hike of 5% in Q1 and further hike of 8% recently. However, since the end of Q3, the raw material prices have weakened a bit, hence, no more price hikes have been planned. The company is targeting its full year EBITDA margins to be at its long run average level of 20%
The company has added 40,000 multi brand outlets (MBOs) in the last 2 years and the total store count now stands at 1,10,000 stores. The sales per store in smaller towns is almost similar to the stores in larger cities. Along with that, the company’s digital transformation started around 3 years back and as a result of that, E-commerce sales are at 8-9% of total revenues.
The company is looking for growth opportunities by increasing the penetration of premium apparel category which currently stands at 12% and athleisure wear which is in single digit. To capture these markets, the company has been actively hiring and investing in people is sales and in backend, even during the pandemic.

Asset Multiplier Comments

As the raw materials prices have moved up, all the apparel manufacturers have been forced to take much more frequent price hikes. These price hikes can hurt the smaller players much more in terms of loss of revenue due to lower demand from price sensitive customers.
Page Industries being a manufacturer of premium category products and having sufficient pricing power, may take price hikes if required and is likely to have no pressure on the margins, without any material impact on the top line.

Consensus Estimate: (Source: TIKR and Investing.com websites)

The closing price of Page Industries was ₹ 39,406/- as of 08-March-2022. It traded at 89x/66x/56x the consensus earnings estimate of ₹ 445/593/705 for FY22E/FY23E/FY24E respectively.
The consensus target price of ₹ 40,805/- implies a P/E multiple of 58x on FY24E EPS estimate of ₹ 705/-

By Pranav Mahajan Page Industries apparels, innerwear 0 Comments Read more...

28 Feb

Tea prices not going up further – Tata Consumer Products

Update on the Indian Equity Market:

On Monday, Nifty closed in the green at 16,794 (+0.8%) near the intraday high of 16,816. METAL (+4.9%), OIL & GAS (+2.6%) and IT (+1.1%) were the sectoral gainers, while AUTO (-0.7%), BANK (-0.6%), and FINANCIAL SERVICES (-0.5%) were the sectoral losers for the day. Among the NIFTY 50 stocks, HINDALCO (+7.2%), TATASTEEL (+6.3%), and POWERGRID (+5.6%) were the top gainers and HDFCLIFE (-3%), DRREDDY (-2.7%), and AXISBANK (-2.2%) were the top losers for the day.

Edited excerpts of an interview with Mr. Sunil D’Souza, MD and CEO, Tata Consumer Products (TCPL), with ET NOW on 25^th February 2022:

3QFY22 was a decent quarter for the company. Despite a high base of 3QFY21 TCPL delivered ~6%/28%/22% YoY growth in revenue/ EBITDA/ net profit respectively. The cash generation was up by ~30% and the working capital also improved by 14 days.
TCPL has seen good volume growth in India as well as market share gains across the beverage and food segment. The company increased its number of outlets and continues to focus on brand building. The advertising and promotional spending has increased. Strong growth in the food volumes was due to its focus on expanding Sampann which is the company’s foray into the pantry of Indian consumers.
The company is seeing a little bit of pressure on demand due to inflation but the company has different businesses and they are playing out differently. The company also tackled the demand situation in various ways, but the stress on the semi-urban and rural consumers dragged the demand under pressure.
The company seeing demand pressure on brands that cater to the mass markets, but the mass premium brands are performing well. Lower volume SKUs are doing better than higher volume SKUs.
TCPL continues to focus on the medium to longer-term to build a large food and beverage and FMCG business as well as company focusing on geographical expansion.
In the beverage segment, TCPL has good opportunities to gain market share and premiumise their portfolio and this is primarily driven by distribution, innovation, and brand building process. in the food business, TCPL launched lots of new products to cater to the market and Sampann will the big growth lever in the food business. The NourishCo which operates in ready to drink segment also growing more than ~100%.
Starbucks also performed well in 3QFY22 and delivered positive EBITDA from the last several quarters and in 3QFY22 posted positive EBIT and PAT. PBT reached breakeven levels. As the omicron wave subsides, the company expects Starbucks will grow at a good pace.
Despite all disruptions, volatility, and inflationary pressures the company delivered volume growth of 5% in tea.
Over the last 18-24 months company saw huge volatility in the tea prices, the prices were up by ~70%. The tea prices came down but it’s still higher by ~15%-20% from the pre-covid levels due to the droughts in Assam in May and November-20.
The company doesn’t expect the tea prices to go up further. After the 1^st half of the year, one can expect to see softening in prices as the entire crop comes in. The company expects to be in a stable environment.
As the situation gets back to normal, the company expects good volume growth visibility and it has a clear focus on market share gaining and premiumization and aims of outperformance.
The international business delivered good margins in 3QFY22 despite the inflationary pressure of tea and coffee prices. To maintain its margins the company alters the prices as per the input costs trends accordingly.
Extended monsoons are impacting the salt drying process that leading to pushing up the prices. Oil-related inflation is affecting the food business but the company took price hikes of ~15% between August to November. As the volumes are starting to come back to normalcy company expects that they will maintain margins over there.
The company is in a comfortable space as they don’t expect any huge deviation in tea prices and is well placed in a good position on packaging, freight, and oil front.

Asset Multiplier Comments

We think the new products launches including premium and mass premium products will strengthen the product portfolio of the company. It is expected to drive the demand and open newer markets and growth opportunities for the company. TCPL is expected to maintain its leadership position in the salt business and focusing on strong selling and distribution channel will be the key positive for the company.
We belives that the company’s focus on Tata Sampann will strengthen its position in the underpenetrated Indian branded food industry and lead to gaining market share.
We think the commodity cost will continue to be an area of concern for the company because the Agri commodities such as tea, coffee, spices, and pulses have huge exposure to natural disasters, seasonality and market cyclicality and the unavailability of the raw material also might be a threat for the company.
The current Russian-Ukraine crisis affects the Indian tea exporters as Russia is the largest buyer of tea from India. The imposition of sanctions on Russia, depreciation of the Russian ruble, and increasing fuel cost badly affect the Indian tea planters and exporters.

Consensus Estimate (Source: market screener website)

The closing price of Tata Consumer Products was ₹ 716/- as of 28-February-2022. It traded at 62x/50x/42x the consensus EPS estimates of ₹ 11.5/14.4/16.9 for FY22E/FY23E/FY24E respectively.
The consensus target price of ₹ 843/- implies a P/E Multiple of 50x on the FY24E EPS estimate of ₹ 16.9/-.

By Pratik Talvatkar Consumer, Tata Consumer 0 Comments Read more...

17 Feb

Expect Demand to reach 100% of the pre-covid level in FY23E – VIP Industries

Update on the Indian Equity Market:

On Thursday, Nifty closed lower at 17,304 (-0.1%) led by PSU BANK (-1.2%), PRIVATE BANK (-1.2%), and BANK (-1.1%) which were the top losers while the only gainers were OIL & GAS (+0.8%) and FMCG (+0.3%).

Among the Nifty50 constitutents, the top losers were ICICIBANK (-2.2%), AXISBANK (-2.0%), and ULTRACEMO (-1.9%) while TATACONSUM (+2.7%), HDFC (+1.9%), and ONGC (+1.7%) were the top gainers.

Edited excerpts of an interview with Mr. Dilip Piramal, Chairman of VIP Industries with Economic Times on 16^th February 2022:

The Company took a staggered 5% price hike in FY21 and is planning to take another 5% price hike in Mar/Apr 22.
Hard luggage is the fastest-growing sector because it is slightly cheaper than the upper end of soft luggage.
In hard luggage, there are two types – the polypropylene molded luggage and the Poly-Carbonate Acrylonitrile Butadiene Styrene and polypropylene is cheaper which is selling extremely well.
In soft luggage, backpacks are one category that had the least growth because schools have not opened up fully. The school segment is very big for backpacks and hence the sales are low. However, uprises and full trolleys and the rest are doing comparatively well.
1^st quarter of the year is usually the best for the company; however, they have missed these in the last 2 years in FY21 and FY20 due to the pandemic. The company is hopeful that 1QFY23E will be in full swing and the company should be back to the pre-Covid level.

Asset Multiplier Comments

We believe that the 3QFY22 earnings were a decent performance despite omicron restrictions from VIP Industries. We expect a demand revival from 1QFY23E due to the pent-up travel demand, reopening old schools and colleges, reduction in COVID-19 restrictions for international travel.
With demand green shoots visible, we expect VIP Industries to be a key beneficiary of the increased movement of leisure and business tourists both domestically and internationally. We are positive about the stock.

Consensus Estimate (Source: market screener website)

The closing price of VIP Industries was ₹ 657 /- as of 17-February-2022. It traded at 109X/51x/ 37x the consensus EPS estimates of ₹ 6/ 13/ 18 for FY22E/FY23E/FY24E respectively.
The consensus target price of ₹ 766 /- implies a P/E Multiple of 43x on FY24E EPS estimate of ₹ 18/-.

By Rujuta Tamhankar VIP Industries 0 Comments Read more...

10 Feb

Expect the food business to clock Rs 8,500 to 10,000 mn revenues by FY24E – Marico

Update on the Indian Equity Market:

On Wednesday, Nifty closed higher at 17,463 (+1.1%) led by Auto (+2.2%), MEDIA (+1.9%), and METALS (+1.9%) while the only losers were PSU BANK (-0.6%) and OIL & GAS (-0.2%).

Among the NIFTY components, the top losers were ONGC (-1.5%), BPCL (-0.6%), and ITC (-0.5%) while COALINDIA (+5.6%), MARUTI (+4.2%), and IOC (+3.3%) were the top gainers.

Edited excerpts of an interview with Mr. Saugata Gupta, MD & CEO of Marico with CNBC TV18 on 7^th February 2021:

Gross margins expanded sequentially due to falling copra prices which are currently in the deflationary phase. In terms of EBITDA margins, the company expects crude inflation to continue.
The management expects gross margins to rise in 1QFY23E. In the long-term, the company expects 19 percent plus EBITDA Margins. The company has significant innovation capabilities in food and digital.
On the demand side, due to rising food inflation, which is down-trading, rural demand has slowed from a high base. However, the management anticipates that, in the future, demand will begin to improve as a result of direct benefit transfers, MSP, and a successful monsoon season.
There was a broad-based growth in foods, where Marico maintained market share and penetration. The company intends to enter two or more food business categories by 4QFY22E or 1QFY23E. By FY22E, the management forecasts the food industry to be worth about Rs 5,000 mn, with a target of Rs 8,500 to 10,000 mn by FY24E, implying a CAGR growth of 25% to 30%.
The company has greater competence in terms of food innovation pipeline execution, and the company is confident that the food sector will become one of its primary growth drivers, as the revenue goals and aspirations are well within reach.
The Company plans to grow its total addressable market by entering categories such as infant care, colors, and shampoo, as well as repeating its success in Bangladesh into countries like Vietnam, the Middle East, and North Africa. In India, the non-core product portfolio, which includes skincare and male grooming, is forecast to contribute to overall revenue in the mid-teens to high teens range by FY25E, which is currently in the single digits in terms of contribution.

Asset Multiplier Comments

The slow pace of recovery in rural demand post-COVID remains an important challenge for Marico. High growth premium segments are helping the company sustain its high EBITDA margin levels (~19-20%).
Digital Brands like Beardo and Just Herbs allow Marico to add to its topline and decrease its reliance on its traditional coconut oil business.

Consensus Estimate (Source: market screener website)

The closing price of Marico was ₹ 505 /- as of 9-February-2022. It traded at 51x/42x/ 39x the consensus EPS estimates of ₹ 10/ 12/ 13 for FY22E/FY23E/FY24E respectively.
The consensus target price of ₹ 579 /- implies a P/E Multiple of 45x on FY24E EPS estimate of ₹ 13/-.

By Rujuta Tamhankar Marico 0 Comments Read more...

01 Feb

Expect cost inflation of 4-5% to continue – Diageo India (United Spirits)

Update on the Indian Equity Market:

On Tuesday, Nifty closed higher at 17,576 (+1.4%). METAL (+4.5%), PHARMA (+2.3%), and HEALTHCARE (+2.2%) were the top gainers while AUTO (-0.8%), OIL & GAS (-0.7%), and PSU BANK (-0.6%) were top losing sectors.

The top gainers were TATASTEEL (+7.5%), SUNPHARMA (+6.9%), and INDUSINDBK (+6.1%) while BPCL (-4.5%), IOC (-2.8%), and TATAMOTORS (-2.6%) were the top losers.

Edited excerpts of an interview with Ms. Hina Nagarajan, Managing Director, and Chief Executive Officer, Diageo, India with CNBC TV18 on 31^st January 2022:

The company’s management is focused on sustaining the present demand momentum, and it is dedicated to providing a sustained double-digit growth rate in terms of volume.
The management expects cost inflation of 4-5 percent to continue in the future. The company experienced 2.5 percent portfolio inflation, which was offset by a favorable product mix, and operational savings. The ethanol blending pricing strategy and grain price rises have had an influence on extra neutral alcohol (ENA), which was previously flat.
The company is in the process of submitting price raise proposals to state governments in order to combat inflation.
Through the value chain, revenue management levers of the mix, and trade efficiency, the organization is focusing on productivity.
On the EBITDA margin front, which is now in the 16-17 percent range, management is sticking to its mid to upper teen guidance. In the long run, the company aims to achieve and maintain high teen margins.
The company is confident in its ability to attain mid-high teen margins and is unwilling to accept any levels below those specified.
In terms of competition, the company is doing well in their super-premium portfolio, but there is some aggressiveness from their competitors. However, management claims that the company is well-positioned to take advantage of the premiumization trend and that the portfolio’s innovation and renovations will drive growth for the category.
Consumers have reacted well to their innovations and renovations in the signature and Blackdog categories, and the launch of Royal Challenger American Pride, an American bourbon-based whiskey, has received excellent feedback.
The scotch category, which accounts for 20 to 24 percent of overall sales, is rapidly expanding. Scotch is expected to be a major growth driver in the future.

Asset Multiplier Comments

We expect improving regulatory environment, investment in ad spends, adoption of home delivery trend will help bring in topline growth.
Improved product mix due to premiumization and cost saving efforts will help achieve company’s EBITDAM guidance of mid to high teens.

Consensus Estimate (Source: market screener website)

The closing price of UNSP was ₹ 884 /- as of 1-February-2022. It traded at 68x/ 55x/ 44x the consensus earnings estimates of ₹ 13/ 16/ 20 for FY22E/FY23E/FY24E respectively.
The consensus target price of ₹ 954/- implies a P/E Multiple of 48x on FY24E EPS estimate of ₹ 20/-.

By Rujuta Tamhankar united spirits 0 Comments Read more...

22 Nov

Increasing prices of products a last resort – ITC

Update on the Indian Equity Market:

On Monday, NIFTY closed in the red at 17,417 (-2.0%). The top gainers in NIFTY50 were BHARTIARTL (+3.8%), JSWSTEEL (+1.6%), and ASIANPAINT (+1.0%). The top losers were BAJFINANCE (-5.6%), BAJAJFINSV (-4.8%), and TATAMOTORS (-4.6%). Sectoral losers were PSU BANK (-4.5%), REALTY (-4.2%), and MEDIA (-3.9%). There were no sectoral gainers for the day.

Excerpts of an interview with Mr. B Sumant, Executive Director, ITC with Business Standard dated 22^nd November 2021:

Responding speedily to some of the emerging trends, ITC launched 120 products in FY21 and many of them were first to market products. These included sanitization products, such as Savlon disinfectant spray and for ease of cooking, the ITC Master Chef frozen snacks, pastes, and gravies were launched.
Innovations of ITC are crafted based on long-term consumer trends. ITC expects the demand for smart cooking solutions to be sustainable in the longer term and health and nutrition products gain strength with increasing awareness among people.
To enhance accessibility from the lower end of the market, ITC come up with low-unit-price products across segments like deodorants, ghee, and hygiene.
The demand for top-end innovative products as well as low-unit-price products from top-end people continued as they have money in their hand, they are looking for avenues to spend.
Raw material inflation affected the entire industry in 2QFY22. ITC did not pass the effect of raw material price hikes to consumers, as increasing the prices of the products is the last option. Rather than price hikes, ITC is focusing on effective cost management, premiumization, favourable business mix to mitigate costs and enhance efficiency.
The urban demand recovered faster after the 2^nd Covid wave; it has moved from -5% to 14% for the industry as well as rural demand also increased from 1% growth to 17% growth over the FY21.
For ITC, the rural percentage has gone up even further, the share of rural sales has increased from 28% to 29%, while the urban share is around 71%. ITC has a steady focus on driving distribution penetration into rural India by various strategies.
Out of total sales, 7% of sales comes from E-Commerce. The modern sales also seeing a resurgence after the 2^nd Covid wave because all outlets are opened. all other channels are higher than pre-Covid levels, but the wholesale which was impacted by the restrictions in inter-state movement during the pandemic.
ITC is witnessing encouraging results in supply chain optimization and cost efficiency due to the digitalization and use of technology. ITC leveraged digital technology across every node of supply chain.
ITC E-Store has been an effective platform to gain consumer insights and ITC reconstruct their entire strategy for E-Commerce.

Asset Multiplier Comments

Hygiene products such as sanitisers and disinfectant sprays gained prominence during CY20 when the spread of the virus was rampant. Now, as the economy is returning to normalcy, demand for these products has reduced.
Rising commodity costs, freight rates and logistical challenges are the headwinds facing the industry and company.

Consensus Estimate: (Source: market screener and Tikr.com websites)

The closing price of ITC was ₹ 231/- as of 22-November-2021. It traded at 19x/17x/15x the consensus earnings estimate of ₹ 12.2/13.8/15 for FY22E/23E/24E respectively.
The consensus price target is ₹ 270/- which trades at 20x the earnings estimate for FY23E of ₹8/-

By Assetmultiplier Consumer, FMCG, ITC 0 Comments Read more...