Consumer

10 Nov

Demand recovery expected to continue – Bata India

Update on the Indian Equity Market:

On Wednesday, Indian benchmarks declined for the second consecutive session with NIFTY closing at 18,017 (-0.2%). Among the sectoral indices, OIL & GAS (+0.8%), AUTO (+0.5%), and PHARMA (+0.2%) were the only gainers. PSU BANK (-2.4%), METAL (-1.8%), and REALTY (-1.4%) led the laggards. Among the stocks, UPL (+3.4%), BHARTIARTL (+3.3%), and M&M (+3.0%) led the gainers, while HINDALCO (-3.4%), INDUSINDBK (-3.3%), and TATASTEEL (-2.9%) led the laggards.

Excerpts of an interview with Mr. Gunjan Shah, CEO, Bata India (Bata) with CNBC-TV18 on 8th  November 2021:

  • Bata had a tough time the last 18 months due to the 2 lockdowns. With things opening up, the company is seeing some recovery.
  • In 2QFY22, the company has seen a MoM recovery. He believes that with more stores opening up, recovery is sustainable in the medium term in terms of consumer demand perspective.
  • The immediate priority is getting the company back to pre-pandemic performance levels. Going forward, the portfolio is in line with consumer demand, towards casuals and sneakers. The company is seeing initial progress in this direction but there is a long way to go in that segment.
  • To leverage the Bata brand equity, it is looking for a franchise model in tier 3-5 towns or through multi-brand outlets. The distribution expansion is one of the big areas they are working on.
  • They are also focusing on the digital footprint. The current omnichannel strategy contributed in teens to the revenue in 2QFY22 and the company wants to increase it.
  • The company has taken significant steps towards cost reduction during the pandemic. Some of these are expected to sustain. With business coming back to normal, the quantum of cost savings may not be similar as seen during the pandemic months.
  • Sneakers are used not just for sports but also for other occasions. There is a longer-term trend that consumers will prefer to the extent the comfortable footwear usage once lockdowns are lifted.
  • Casual ranges such as Power, North Star are seeing 40% growth in demand, and the company wants to improve that further. Bata has expanded its merchandise, in casual footwear and launched open footwear.
  • It is ensuring customers connect with the Bata merchandise. For this, they have piloted a big initiative, Sneaker Studio which ensures the entire sneaker range is displayed in a cohesive form in the stores. While this initiative is currently rolled out in major metros, the Company is expanding it in the next 12 months.
  • To conserve cash, Bata had reduced its ad spend during the pandemic period. With the demand recovery, it has started investing in ad campaigns.
  • The company will witness the highest ever addition in franchise stores in FY22. It sees strong penetration potential in Tier 3-5 towns, championed through the franchise model.
  • The next stage of expansion is planned through multi-brand outlets. The company’s coverage has increased from 450 towns to over 900 towns in the last 2 years. It plans to add another 500 towns in FY23 and expects a 20% contribution to the topline from multi-brand outlets.
  • Raw material inflation is witnessed especially in synthetics and plastics. About 25-30% of the portfolio has a significant amount of synthetics and plastics which go into it, where there is significant pricing pressure.
  • It is also focusing on the premiumization story, where realizations are better.

 

Asset Multiplier Comments

  • With Bata’s revenue recovery rate reaching 85% of pre-Covid levels in 2QFY22, we are confident of the company’s performance. We think Bata’s new strategies and focus on cost reduction, omni channel, change in product mix (higher proportion of casual footwear) and calibrated expansion of retail network through asset light franchisee route would aid in providing thrust to revenue growth.
  • We expect the company to benefit from market share gains on account of store expansion in lower-tier cities where the unorganized segment is dominant and who would face pressure on passing on RM inflation through price hikes.
  • We believe a strong balance sheet with healthy cash on books and efficient working capital should support Bata through these testing times.

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

  •  The closing price of Bata India was ₹ 2,182/- as of 10-November-21. It traded at 182x/ 61x/ 50x the consensus EPS estimate of ₹ 12/ 36/ 44 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,808/- implies a PE multiple of 41x on FY24E EPS of ₹ 44/-.

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.”

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08 Nov

Expect Revenues to go up due to easing travel restrictions – VIP Industries

Update on the Indian Equity Market:

On Monday, NIFTY closed at 18,068 (+0.9%) led by PSU BANK (+2.2%), CONSUMER DURABLES (+2.1%), and OIL&GAS (+1.8%). Those in red were PRIVATE BANK (-1.0%), PHARMA (-0.7%) and HEALTHCARE (-0.6%). Top gainers in NIFTY50 were TITAN (+4.5%), IOC (+4.5%), and BAJAJFINS (+4.2%). The top losers were INDUSIND BANK (-10.5%), DIVIS LAB (-5.2%), and M&M (-1.4%).

Excerpts of an interview with Mr. Dilip Piramal, Chairman, VIP Industries with CNBC-TV18 on 02nd November 2021:

  • The company had a sales budget of Rs 5000 mn in the 1QFY22. However, 1QFY22 performed poorly due to the second wave of the covid-19 pandemic but things improved in September due to the opening up of restrictions.
  • During the first 15 months of the pandemic, there were hardly any sales, hence the company did not import from China. In 1QFY21 company had more inventory than what they sold in FY20.
  • Supply has been disrupted very badly, till pre covid levels the company was dependant on China heavily. The Chinese supply has become very uncertain and expensive and hence the company is facing a lot of issues concerning supply in the market. It intends to reduce its dependence on China for raw materials.
  • There is a lot of turbulence in the market from the supply side due to higher freight costs and inflation, problems with imports of, both, raw materials and finished goods from China.
  • Freight costs have gone up, which affects the company significantly as luggage being a voluminous product, freight is a considerable cost.
  • Usually, the 3rd quarter is the best quarter for the company with the wedding and travel season in full swing. With the gradual opening up of economies and travel, the company expects good revenues going forward.
  • The company is positive and expects 3QFY22E will be better than the 3QFY21. The company expects revenue to be in the range of -10% to +10% from the 3QFY19 levels which is Rs 4,300mn.
  • The company hasn’t taken any price hikes as of now but they would be looking at taking price hikes very shortly. Revenues on an MoM basis should be better than in earlier months.
  • All the manufacturing of the hard luggage which accounts for 47% of the 2QFY22 revenue is done in India. Not too much manufacturing in India for soft luggage.
  • Mass and premium segment bags were affected since a majority of sales occurred in the malls and malls were badly affected in the pandemic.

Asset Multiplier Comments

  • The Ministry of Civil Aviation removed restrictions on domestic flight capacity and allowed to operate flights at full capacity. Luggage being the proxy to the travel and tourism industry we think VIP Industries is well placed to meet the increasing demand.
  • Looking at the capex plans of expanding the capacity of Bangladesh and Nashik plants, price hikes, margins delivery, and product launches we expect VIP Industries to perform well going ahead.

Consensus Estimate (Source: market screener website)  

  • The closing price of VIP Industries was ₹ 634/- as of 08-November-21. It traded at 111x/50x/37x the eps estimate of ₹ 5.7/12.6/17.1 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 646/- implies a Price/earnings multiple of 33x on FY24E EPS of ₹ 19.6/-.

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.”

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01 Nov

Choosing volume over short-term margins – Marico

Update on the Indian Equity Market:

On Monday, market witnessed some swift recovery. NIFTY closed at 17,930 (+1.5%) led by REALTY (+4.0%), METAL (+3.1%), and MEDIA (+2.6%). There were no sectors in red. Top gainers in NIFTY50 were INDUSINDBK (+7.5%), HINDALCO (+4.5%), and BHARTIARTL (+4.2%). The top losers were UPL (-2.6%), BAJAJFINSV (-1.6%), and M&M (-0.4%).

Choosing volume over short-term margins – Marico

Edited Excerpts of an interview with Mr. Saugata Gupta, Chief Executive Officer and Managing Director, Marico with ETNOW on 29th Oct, 2021:

  • There was a pipeline filling as the opening up happened last year and this year. Slight moderation of growth in rural areas was witnessed. Exponential growth was witnessed in e-commerce earlier. As things have opened up, modern trade is recovering as some of the demand is getting transferred to organised modern trade.
  • Inflation is a cause of concern because of two factors:
    • It leads to price increases and impacts the total share of wallet for an FMCG.
    • It affects demand. There has been a slight moderation in demand which was seen towards the second half of 2QFY22.
  • The company has already experienced significant inflation in FY21 as a large portion of input cost was copra led. Now that has moderated.
  • Marico had significant pressure even in the 1QFY22 but now from 2QFY22 onwards, gross margins are improving QoQ.
  • Company will continue to see gross margins improving in 2HFY22E. Marico is expecting moderation from both vegetable oils and crude based raw materials which is more likely to happen in 4QFY22E.
  • Once the input costs normalize, EBITDA margins are expected to start improving from 4QFY22E.
  • Company should be able to get back to medium term aspirations from 1QFY23E.
  • Considering continued inflation and price increases, company will choose volume over short-term margins. Continued inflation could have some impact on the consumption situation. But some moderation is expected to start happening in the 4QFY22E.
  • In India business, 24% value growth and 8% volume growth was seen in 2QFY22. So, 16% was inflation. Company is in wait and watch mode. The biggest uncertainty for the company is crude as crude impacts raw material and packaging costs. The only reason there could be further price hikes could be because of crude.
  • In the immediate term, company has taken some price increases. So, another round of price increases is not expected at least in 3QFY22E. 15% price increase has already been taken in Saffola because of the significant increase in vegetable oil prices.
  • In 2QFY22 rural growth was slightly higher than urban but currently company is witnessing moderation of rural growth. It could be because of inflation or pent-up demand of other non FMCG categories as the economy is now opened up.
  • Marico is looking for organic and inorganic growth both. Beardo is expected to touch Rs 1000 mn by Dec-21. If Just Herbs continued its momentum of growth, it will be a potential Rs 1,000 mn core brand. Company aims to grow more from organic stable.
  • Marico is a supportive and strong strategic partner in the growth of these brands in terms of supporting capabilities and other things. But it still will continue to look at inorganic opportunities in this sector.

Asset Multiplier Comments

  • We think the new engines of growth i.e. food portfolio and digital first brands are tracking well. As the prices of copra is normalizing, we expect margins improvement going forward.
  • Management’s guidance of double-digit topline growth and improvement in gross margins going forward will help company to earn good returns.

 

Consensus Estimate (Source: market screener websites)

 

  • The closing price of Marico was ₹ 574/- as of 01-Nov-21. It traded at 56.5x/47.9x/42.1x the consensus EPS estimate of ₹ 10.1/11.9/13.5 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 601/- implies a PE multiple of 44.5x on FY24E EPS of ₹ 13.5/-.

 

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.”

 

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07 Oct

Expects 2 Year Revenue CAGR to be in double digits: Godrej Consumer Products

Update on the Indian Equity Market:

On Thursday, NIFTY closed higher at 17,800(+0.9%). Top gainers in NIFTY50 were TATAMOTORS (+12.6%), TITAN (+10.5%), and M&M (+4.9%). The top losers were ONGC (-4.4%), DRREDDY (-1.3%), and COALINDIA (-0.96%). The top gaining sectors were REALTY(+6.2%), CONSUMER DURABLES (+5.2%), and AUTO (+4.4%), while OIL & GAS (-0.3%) was the only losing sector.

Edited excerpts of an interview with Mr. Sameer Shah, Chief Financial Officer, Godrej Consumer Products with CNBCTV18 on 6th October 2021:

  • The company expects high single-digit growth in 2QFY22E and a gradual recovery in 2HFY22E.
  • The company is witnessing consumer offtakes for stapes and discretionary relatively strong.
  • At the beginning of the year, Company had laid out the ambition of double-digit sales growth. It is on track and expects to see the same for 2HFY22E.
  • Staples continued its growth momentum and discretionary or out-of-home categories continued to see an uptick.
  • The hygiene category is expected to normalise at levels much higher than pre-COVID, but not at the peak of COVID levels.
  • The company expects rural consumption and its growth momentum to be strong for the medium term. More importantly, the consumer offtake is looking robust.
  • The company expects international performance to be mixed. Challenging macro-economic variables are impacting the performance.
  • In countries like Indonesia the vaccination is picking up but the recovery is slow as compared to countries like India. The overall consumption has been relatively muted. Gradual recovery is expected for the rest of the year and over a period of time to reach double-digit growth.
  • In Africa, double-digit growth is seen since the last 5-6 quarters and the company expects this growth momentum to continue in the medium term.
  • The commodities prices are at their peak especially the agri-commodities. The prices of Palm oil which is a key ingredient for the personal wash category and crude which is an indirect derivative and key ingredient for packaging material are at their peak.
  • The company believes the input cost is transient, it is taking calibrated price increases and working on cost-saving programs. It thinks scale leverage and premiumization should mitigate the high input cost impact partly if not fully.
  • On an annual basis, the company expects margins to be marginally lower than 21% levels.
  • The company plans to focus on double-digit sales growth. Once revenue growth is achieved and input cost normalizes, margins are expected to move up.
  • Mr. Sudhir Sitapati to take over as Managing Director and Chief Executive Officer on 18-Oct-21.
  • The company wants to stretch its play in the personal care space, some steps are already taken by the company in this direction, and wants to continue to expand in the next 3-4 years.
  • Advertisement costs would be a mix of digital and traditional mass-market media like television and print.
  • The advertisement spends are in the range of 10-12% in India, another growth pivot has always been innovation which needs a lot of awareness among consumers. Directionally, the company does believe the ad spends could go up.
  • New launches drive premiumization and the company sees an increase in budgets of ad spends in the next 12-18 months.

Asset Multiplier Comments

  • We think the company has been performing consistently well in various large categories. New product launches, premiumization and increasing advertisement spends will likely support the sales and margin growth.
  • We believe the company continues to focus on multiple building blocks and will be able to drive profitable and sustainable sales growth in the medium term.

 

Consensus Estimate (Source: market screener websites)

 

  • The closing price of Godrej Consumer Products was ₹ 1,030/- as of 07-Oct-21. It traded at 54x/46x/40x the consensus EPS estimate of ₹ 19/22.1/25.2 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,093/- implies a PE multiple of 43xon FY24E EPS of ₹ 25.2/-.

 

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.”

 

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21 Sep

Focusing on expanding ‘ready to eat’ product portfolio- Tata Consumer Products

Update on Indian Equity Market:

On Tuesday, the benchmark Nifty 50 index ended at a record closing of 17,562 (+0.9%). The top gainers on the index were JSWSTEEL (+6.0%), ONGC (+5.2%), and BAJAJFINANCE (+5.1%). The laggards were led by MARUTI (-2.5%), BPCL (-1.47%), and HEROMOTOCO (-1.2%). Among the sectoral indices, REALTY (+3.6%), METAL (+2.6%), and IT (+1.9%) led the gainers while AUTO (-0.5%), CONSUMER DURABLES (-0.2%), and PSU (-0.1%), led the losers.

Excerpts of an interview with Mr. Sunil D’Souza, MD & CEO, Tata Consumer Products on 20 September 2021 with Economic Times:

  • Tata Consumer is seeing a month-over-month recovery in its packaged and out-of-home businesses on the back of higher consumer confidence and people venturing out. Packaged and out-of-home businesses are expected to recover to pre-pandemic levels.
  • Tata Consumer translates about 75% of their costs into the price. As the curve on cost starts coming down, margins will improve. The improvement will be visible on a quarter-on-quarter basis which is already visible in Q1FY22 vs Q4FY21.
  • The company is committed to delivering double-digit growth through portfolio growth, brand strengthening, and cost synergies. The company will maintain a tight focus on costs. This strong top-line growth will be driven by portfolio mix, pricing power, market share, cost reduction which then will translate into the bottom line.
  • Tea prices in September-20 were roughly 70% – 80% higher than September-19 during the disruption. As things settled down tea prices declined. The second spike in tea prices was observed in June-21.
  • Tea is a big part of the business; the company expects a gradual shift from unbranded to branded tea on the back of rising consumer income. In India, over 30-40% of the tea is unbranded. They aim to double their direct reach in 12 months and indirect reach in 36 months. They are on track to deliver of doubling their reach in 12 months. By end of September 2021, the company will be north of a million outlets covering directly.
  • The company has increased focus on brand strengthening by increasing ad & promotion expenditure by 50% YOY in 1QFY21 creating consumer pull towards the brands.
  • The company has initiated a series of launches with the most recent being Chakra Care and Gold care.
  • Tata Sampann products offer quality nutrition for which they are priced at a premium, providing a good price-value equation to the consumer.
  • Currently, the share of ‘ready to eat products’ is 5% of the revenue. As Convenience is a huge factor, Tata Consumer is looking forward to expanding their ‘ready to eat’ product portfolio by launching differentiated products in the organic and inorganic categories.
  • Tata consumer bought Soulfull as there is a huge opportunity to expand it. Soullfull has a great brand built and they have mastered how to treat millets and make great products out of millets. After the acquisition, the number of outlets that they used to service has increased to 50,000 from 10,000 outlets.
  • E-commerce sales were 2.5% of the total revenue pre-pandemic which grew to 5% in Mar-21 and 7% in June-21.
  • The company has launched its flagship stores in Mumbai and Delhi. They are trying to perfect the whole mix. Once they perfect it they’ll launch it across India.
  • In FY21 Starbucks added equal number of outlets as in FY20 and expects to continue the momentum. They were severely impacted by both the waves during the pandemic. However, the last 2 months were better and the company is already starting to see growth beyond pre-pandemic.

Asset Multiplier Comments

  • Tata consumer has been expanding into different FMCG segments with differentiated premium products giving it an advantage over its competitors.
  • A strong digital presence and product customization to meet the demands of diverse geographies will fuel future revenue development in the coming years.

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

  • The closing price of Tata Consumer Products was ₹ 860/- as of 21-Sept-2021. It traded at 72x/61x/48x the consensus EPS estimate of ₹ 12/14/18 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 779/- implies a PE multiple of 43x on FY23E EPS of ₹18/-

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 Tata Consumer 0 Comments Read more...
13 Sep

Will keep investing to grow the household insecticides market – Godrej Consumer

Update on the Indian Equity Market:

On Monday, NIFTY closed 0.1% lower at 17,355. Top gainers in NIFTY50 were COALINDIA (+3.9%), HINDALCO (+3.3%), and KOTAKBANK (+1.7%). The top losers were RELIANCE (-2.3%), ICICIBANK (-1.8%), and SBILIFE (-0.9%). The top gaining sectors were MEDIA (+1.3%), METAL (+1.3%), and IT (+0.9%) while the top sectoral losers were BANK (-0.6%), PRIVATE BANK (-0.5%), and PSU BANK (-0.4%).

Will keep investing to grow the household insecticides market – Godrej Consumer

Excerpts of an interview with Mr. Sunil Kataria, CEO- India & SAARC at Godrej Consumer Products (GODREJCP), aired on CNBC TV18 on 9th September 2021:

  • Input cost inflation has not slowed down against the expectation that the inflation would come down in the July-August period. Current inflation pressures may remain for another 6 months.
  • Demand is holding steady currently. Rural demand was strong even in the 1st wave of covid-19. The positive thing now is that urban demand has also seen a sharp recovery.
  • Discretionary demand has come back strong. Provided the festive season does not get disrupted and continued ramp-up of vaccination, further growth should be possible.
  • GODREJCP is taking calibrated price increases in some products to mitigate the higher input cost prices. Further mitigation is being done via overhead cost control. GODREJCP has taken 7%-8% price hikes so far in FY22.
  • Management expects to maintain EBITDA margins in the 25%-26% band. This operating performance will be delivered without compromising on ad spends. Ad spends are an important investment in brand building.
  • The core business of soaps and household insecticides had strong tailwinds in FY21 and did not suffer due to the covid-19 disruption.
  • Discretionary items like hair color and hair care faced a challenge in 1HFY21 but came back strongly in 2HFY21.
  • Management expects both- core and discretionary categories to perform well going forward. Mr. Kataria expects overall double-digit growth across all categories.
  • GODREJCP is seeing big momentum in personal wash and hygiene so increasing capacity additions there. But capex outlay is not an issue for a cash-rich FMCG business.
  • Being the market leader in household insecticides, GODREJCP will undertake continued investments in increasing product portfolio and brand building in household insecticides.

Asset Multiplier comments:

  • Consumer staples, as well as discretionary companies across board, have been taking price hikes to mitigate the impact of input cost pressure. However, all managements are taking a calibrated approach as demand is still a bit fragile in some product baskets due to the economic impact of lockdowns.
  • How the rural demand shapes up from here remains to be seen as the covid-19 2nd wave has impacted rural India more than the 1st

Consensus Estimate: (Source: market screener websites)

 

  • The closing price of GODREJCP was ₹ 1,119/- as of 13-September-2021.  It traded at 59x/51x/44x the consensus earnings estimate of ₹ 19.0/22.0/25.2 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 1,058/- which trades at 42x the earnings estimate for FY24E of ₹ 25.2/-

 

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.”

 

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08 Sep

Recovery on cards, high volume growth ahead – Marico

Update on Indian Equity Market:

On Wednesday, markets ended flat with Nifty closing 9 points lower at 17,354. KOTAKBANK (+3.6%), POWERGRID (+1.8%), and GRASIM (+1.6%) were the top gainers on the index while DIVISLAB (-2.4%), NESTLEIND (-2.4%), and WIPRO (-1.7%) were the top losers for the day. Among the sectoral indices, BANK (+0.8%), PRIVATE BANK (+0.7%), and CONSUMER DURABLES (+0.7%) were the top gainers, while IT (-0.8%), MEDIA (-0.6%), and AUTO (-0.5%) were the laggards.

Excerpts of an interview with Mr. Saugata Gupta, MD, and CEO at Marico on CNBCTV18, dated 07th September 2021:

  • Marico’s portfolio is concentrated on items of daily use, which saw a faster recovery in June itself. The entire FMCG sector is witnessing volume recovery due to its inherent nature and the company expects 8-10% volume growth for H2FY22. 
  • The company expects a muted 3rd wave if it occurs on the back of rapid vaccinations and an adequate monsoon which will help demand to improve significantly.
  • The only issue that the company expects to face is rising inflation in its input costs. However, the company believes this won’t persist beyond Q3FY22 and that it will see an eventual softening in raw material prices.
  • The company expects that it’ll meet its revenue targets of Rs. 4.5-5 bn in FY22 and double them to Rs. 8.5-10 bn by FY24 on the back of strong growth drivers like diversification and premiumisation. 
  • The company is on track to meet its diversification targets, with the discretionary food segment demonstrating robust recovery. Now the company plans to focus on premiumisation in Personal Care and digital brand growth.
  • Digital Brands are an important segment for the company. Its recent acquisition of Beardo Brand is now fully integrated, and the company plans to expand into a couple of more digital brands either organically or inorganically.
  • The worst margin pressure for the company is over as Copra prices (a key raw material for the company) have settled down. The company expects vegetable and other oil prices to cool off towards Q3FY22 and EBITDA margins to reach a comfortable 19-20% level.

Asset Multiplier Comments:

  • The food and FMCG Industry has adapted to the pandemic imposed changes. Despite the pandemic, the volumes have improved and may recover sharply soon with further unlocking. With an expanding product portfolio, the growth rates may be significantly higher.
  • Marico has an established portfolio, brand awareness with consumers, and a focus-induced approach to premiumisation which it can leverage to expand volumes to grow further and deliver value to shareholders.

Consensus Estimates (Source: market screener website): 

  • The closing price of Marico was ₹563/- as of 08-September-2021.  It traded at 56x/47x/40x the EPS estimates of ₹10/ 12/ 14  for FY22E/23E/24E.
  • The consensus price target is ₹ 600/- which trades at 43x the EPS estimate for FY24E of ₹ 14/-

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.”

 

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05 Aug

Expects double-digit growth in India foods biz – Tata Consumer

Update on the Indian Equity Market:

On Thursday, NIFTY closed 0.2% up at 16,295. Top gainers in NIFTY50 were BHARTIARTL (+3.9%), EICHERMOT (+3.5%), and ITC (+3.1%). The top losers were SBIN (-3.3%), INDUSINDBK (-2.3%), and ICICIBANK (-1.8%). The top gaining sectors were METAL (+1.3%), IT (+0.8%), and FMCG (+0.6%) while the top sectoral losers were PSU BANK (-2.2%), MEDIA (-1.6%), and REALTY (-1.1%).

 

Expects double-digit growth in India foods biz – Tata Consumer

Edited Excerpts of an interview with Mr. Sunil D’Souza, Managing Director and Chief Executive Officer, Tata Consumer Products with CNBCTV18 on 4th Aug, 2021:

  • Tata Consumer delivered a decent 1QFY22 results led by strong domestic business performance. The gross margins were primarily affected due to high tea prices.
  • Even though the tea prices are high, management is comfortable going forward as the spike in tea prices is once in 5-10 years phenomena.
  • In 2QFY21 the prices were at peak and thereafter the prices have started to normalize. This gets reflected in margins of India Tea Business as it has improved from 19% in 2QFY21 to 26% in 1QFY22 and will continue the uptrend for couple of quarters.
  • The combination of price hike taken and tea prices going down will keep the company in good shape. The basic building blocks put in place and execution parameters lead the company to greater confidence.
  • Working capital is down by 2 days, free cash flow is 101% of EBITDA (excluding one offs), company has 8,20,000 direct outlets and plans to take the number to 1 mn by Sep-21.
  • The advertisement and promotion expenses are up 41% YoY as company plans to focus and strengthen the India brand building.
  • Expects strong double-digit growth for India food business on the back of Salt and “Sampann” portfolio.
  • The market share of Salt is 33-34% as compared to other players still at low single digit. The premium portfolio grew by 34% YoY and the mass category is expected to grow in South market where it is underpenetrated.
  • On margin front, India beverages business is under pressure because of high tea prices. With tea prices normalizing and price increases taken, company expects the margins to improve significantly sequentially.
  • Company is confident of coming out much stronger on the back of stronger share, stronger premium portfolio and better systems on execution in the market.
  • Tata Consumer was formed to fulfill the aspirations of Tata group in the FMCG space. Last 12-15 months have been focused on putting the systems together, building execution systems and getting distribution panel in order.
  • Company plans to expand the portfolio both organically and inorganically. Tata Consumer had acquired NourishCo which has performed well even during lockdowns. Integration of Soulfull has been completed in 1QFY22. The Company is in a strong position with net cash of Rs 21bn available for integration/acquisitions.
  • The contribution of E-commerce to total sales have increased from 2% to 7% currently in 15-18 months’ time. Company expects it to touch double digit soon.
  • Tata Consumer added 45-50 Starbuck stores in FY21 and has an ambitious target for FY22E as well.

 

Asset Multiplier Comments

  • Store expansion, acquisitions & premiumization strategy in salt & tea in India market is expected to drive sales & margins.
  • We believe the company is taking a step in the right direction by increasing the distribution reach, especially to rural areas. Increased distribution coupled with product launches will act as key growth drivers.

 

Consensus Estimate (Source: market screener websites)

 

  • The closing price of Tata Consumer was ₹ 768/- as of 5-Aug-21. It traded at 61x/ 50x/ 42x the consensus EPS estimate of ₹ 12.3/15.1/18.1 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 743/- implies a PE multiple of 41x on FY24E EPS of ₹ 18.1/-.

 

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.”

 

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03 Aug

Volume recovery on cards, Margins to improve in H2FY22: Marico

Update on Indian Equity Market:

On Tuesday, markets ended higher with Nifty closing 246 points to close at 16,130. TITAN (+4.0%), HDFC (+3.8%), and INDUSINDBK (+3.5%) were the top gainers on the index while JSWSTEEL (-0.8%), SHREECEM (-0.3%), and BAJAJ-AUTO (-0.3%) were the top losers for the day. Among the sectoral indices,  FMCG (1.7%), FINANCIAL SERVICES (1.7%), and AUTO (1.6%) were the top gainers, while MEDIA (-0.8%), METAL (-0.1%) were the only losers.

Excerpts of an interview with Mr. Saugata Gupta, MD & CEO, Marico on CNBCTV18 dated 2nd August 2021:

  • 1QFY22 began with the momentum that was handed over from the last quarter of FY21. May sales were affected due to the 2nd wave of lockdown. Recovery was seen in June, and supply-side issues are slowly improving.
  • Growth rates are improving drastically in the South, which is the company’s stronghold. Barring major disruptions, the company expects to deliver 8-10% volume growth.
  • Gross margins declined both sequentially and YoY. This was due to raw material costs pressure, both in copra and vegetable oil-based products. The company took price hikes which resulted in less pressure on margins.
  • The company expects Copra prices to come down and some deflationary easing on margins and hopes to record 19%+ margins for the rest of the year. 
  • The company makes lower gross margins in the food business and expects margins to improve with scale. The company expects volumes to grow in soya, honey and oodles, and add around 100 crores to the top line.
  • The company’s focus is to add volume growth and expects margins to grow with scale. However, the company expects more product diversification over the next 4-5 years.

 

Asset Multiplier Comments:

  • The food and FMCG Industry has adapted to the pandemic imposed changes. Despite the pandemic, the volumes have improved and may recover sharply soon with further unlocking. With expanding product portfolio, the growth rates may be significantly higher.
  • Marico has an established portfolio and brand awareness with consumers which it can leverage to expand volumes to grow further and deliver value to shareholders.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of Marico was ₹544/- as of 03-August-2021.  It traded at 54x/45x the EPS estimate of ₹10/₹ 12 for FY22E/23E.
  • The consensus price target is ₹ 560/- which trades at 47x the EPS estimate for FY23E of ₹ 12/-

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.”

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08 Jul

Decline in palm oil prices is a positive–Godrej Consumer Products

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 1% down at 15,728. Top gainers in NIFTY50 were TECHM(+1.4%), SBILIFE (+0.9%), and EICHERMOT (+0.8%). The top losers were TATAMOTORS (-3.5%), JSWSTEEL (-3.1%), and HINDALCO (-2.7%). The only sector to gain was IT (+0.1%) while the top sectoral losers were METAL (-2.2%), PSU BANK (-2.0%), and BANK (-1.4%).

Decline in palm oil prices is a positive–Godrej Consumer Products

Excerpts of an interview with Mr. Sameer Shah, Head- Finance & Investor Relations, Godrej Consumer Products (GODREJCP), aired on CNBC TV18 dated 6th July 2021:

  • GODREJCP released their 1QFY22 business update where they have seen high teens growth in the India business. The growth has been broad-based. There was not much gap between volume and value growth.
  • GODREJCP saw marginal price-led growth due to the Personal wash and Hygiene segment. This segment forms around 40% of India business. GODREJCP is the No. 2 player in the bar soaps category. The market share gain trend in this category has played out in the last few years. There is still some opportunity left to gain more share in the next many years as well.
  • New age formats in Hygiene segments such as handwash, and sanitizers are doing well. There will be some change in consumer habits and there will be a reset in the category size going ahead. GODREJCP has innovative products at attractive price points in this category.
  • As a result of these factors, Personal wash and Hygiene will be an important growth segment for GODREJCP.
  • Household Insecticides form 40% of India business for GODREJCP where the company is a dominant market leader. This segment had double-digit YoY growth in 1QFY22 on a very high base. Management expects the strong momentum to continue in this segment.
  • International business forms 45% of GODREJCP’s overall revenue. In 1QFY22, the performance was mixed across regions. Revenue was flattish in Indonesia due to the 2nd wave of Covid-19. Management remains bullish on gradual recovery through the rest of FY22. The regions of the Middle East, Africa & the USA have shown robust performance for the past 4-5 quarters with a double-digit 2-year CAGR. Regions of LATAM and SAARC which form a smaller 4-5% share also have strong double-digit growth.
  • There is a significant opportunity to increase penetration and market share in rural India. GODREJCP plans to increase its presence in rural India not just through improving distribution but also through affordable products having superior utility.
  • In addition, GODREJCP plans to increase urban reach, increase productivity, and focus on growing currently smaller channels like E-commerce, B2C, and B2B.
  • For inorganic opportunities, GODREJCP will be open to the wider household & personal care space in India, and existing or adjacent to existing categories in Indonesia.
  • Management expects India business to have a 2-year CAGR of low double-digit going ahead.
  • Palm oil prices have declined around 20%+ from the peak. If the trend continues, GODREJCP will not take further price increase which will favorably impact consumption.
  • On the margins front, 1QFY22 India margins could be impacted due to higher palm oil prices during the quarter and lag of passing on costs. However, the margin pressure will be offset by export performance. Going ahead, with palm oil price coming down, operating leverage, and a favorable category mix, management remains optimistic of margin maintenance and possible expansion.

 

Asset Multiplier comments:

  • Several consumer companies have plans to focus and expand their reach in rural India. There is increasing demand from the aspirational middle class in non-metro cities and towns.
  • Reduction in palm oil prices will be a big relief to GODREJCP as their gross margins were affected in the last few quarters due to input cost inflation.
  • A silver lining of the input cost pressure was that GODREJCP managed to gain market share from the smaller unorganized players as they stayed away in the high inflationary environment.

 

Consensus Estimate: (Source: market screener website)

 

  • The closing price of GODREJCP was ₹ 963/- as of 8-July-2021.  It traded at 52x/ 45x the consensus earnings estimate of ₹ 18.7/ 21.4 for FY22E/23E respectively.
  • The consensus price target is ₹ 946/- which trades at 44x the earnings estimate for FY23E of ₹ 21.4/-

 

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.”

 

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