Consumer

27 May

Aim to double the number of direct outlets in 1 year – Tata Consumer Products

 Update on the Indian Equity Market:

On Tuesday, Nifty closed in the green at 15,338 (+0.2%). Among the sectoral indices, PSU Bank (+2.9%), Bank (+1.2%), and IT (+1.1%) closed higher. Realty (-1.2%), Pharma (-0.2%), and FMCG (-0.01%) closed in the red. Shree Cement (+4.1%), SBIN (+3.1%), and Bajaj Auto (+2.2%) were the top gainers. HDFC (-2.7%), ONGC (-1.5%), and IOC (-1.4%) were among the top losers.

Excerpts of an interview of Mr. Sunil D’souza, MD & CEO, Tata Consumer Products with CNBC-TV18 dated 27th May 2021:

  • Speaking about ROCE, Mr. Sunil D’souza said the aim is to achieve double-digit ROCE by end of FY22E.
  • On tea prices, he said the drought-like conditions have kept the prices up. The tea prices are up ~60% YoY. The estimates suggest the prices will start coming down in 30-60days.
  • The company will resort to gradual price hikes if tea prices do not correct. The aim will be to achieve a 33-35% EBITDA margin on Indian beverages by 2nd half of FY22E.
  • On logistical issues, he said the base tea and salt businesses are growth levers for the company. The Sampann and Soulfull brands are growing in the pantry space. The plan is to increase overall distribution. The target is to double the number of direct outlets in 1 year. The company will achieve 1mn outlets by Sept-Oct 21.
  • On Starbucks, he said it witnessed a 14% revenue growth in Q4FY21 despite operations with 50% seating.
  • Take away and delivery compensated for the affected dine-in capacity.
  • The competitors are under pressure which will benefit Starbucks. The company has added 40 additional stores in FY21 despite the pandemic. There is an expansion in cities and different formats.
  • Speaking about ad spends, he said currently it is ~6% of sales but it will increase to double-digit in the short to medium term. In the FMCG space advertising is important to build brand equity.
  • On the rural segment, he said the 2nd wave has impacted the rural segment as well. For the company it is acting as an opportunity as the share of rural for the company was smaller as compared to competitors. The target is to increase rural distribution to ~9,000 distributors from the current 2,000 distributors in FY22E.

 

Asset Multiplier comments:

  • We believe rising tea prices and increased spends in advertising might put pressure on EBITDA margins in the near term.
  • An increase in the number of direct dealers might lead to better product availability and visibility. It will also help to manage the competition.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Consumer Products Ltd was ₹ 650 as of 27-May 2021.  It traded at 53x/44x the consensus Earnings per share estimate of ₹ 12.1/14.7 for FY22E/FY23E respectively.
  • The consensus average target price is ₹ 675/- which implies a PE multiple of 15x on FY23E EPS of 14.7/-.

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 Consumer, Tata Consumer 0 Comments Read more...
04 Feb

Entry into new categories with Soulfull acquisition – Tata consumer

Update on the Indian Equity Market:

On Thursday Nifty closed 0.7% higher at 14,896. Among the sectoral indices, PSU Banks (+5.9%), FMCG (+2.5%), and Metal (+2.0%) closed higher. IT (-0.4%) was the only sector which closed in the red. SBI (+6.6%), ITC (+6.1%), and Bajaj Finance (+5.0%) closed on a positive note. Asian Paints (-1.9%), UPL (-1.7%), and Cipla (-1.6%) were among the top losers.

Excerpts from an interview of Mr. Sunil D’souza, MD & CEO, Tata Consumer with CNBC-TV18 dated 03rd February 2021:

  • Tea prices have not started to taper off and the company is confident that proper execution will deliver good results in the future.
  • Starbucks and NourishCo Beverages are showing sequential improvement.
  • On ‘Soulfull’ acquisition, he said the Company looked at strategic and financial filters. It will help to get into new categories including snacking, breakfast.
  • This will lead to entry into new consumer occasions. The company was not previously present in these segments.
  • These new products are margin accretive products. EBITDA margins for Soulful are higher as compare to the current basket.
  • Speaking about the tea business, he said the margins are a transient issue. The company has increased its share by 90 bps (Y-0-Y).
  • The company has also integrated its distributor and digitize its system.
  • The account receivables days are down 50% from where the company started.
  • On future acquisitions, he said the company is juggling around different pieces and the announcement will be made when the company gets closer to it.
  • The gross cash of the company is around Rs 2,500 crores, the company makes judicious of the cash. The company around Rs 156 crore cash for the ‘Soulfull’ acquisition.
  • The company expects double-digit growth across financials.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Consumer was ₹ 589 as of 04-February-2021.  It traded at 58x/47x/40x the consensus Earnings per share estimate of ₹ 10.2/12.5/14.7 for FY21E/FY22E/ FY23E respectively.
  • The consensus average target price is ₹ 605/- which implies a PE multiple of 41x on FY23E EPS of 14.7/-.

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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23 Oct

Demand for casual wear is consistent – Bata India

Update on the Indian Equity Market:
On Thursday Nifty closed 0.35% lower at 11,896. Among the sectoral indices NIFTY Media (+0.7%), Metal (+0.7%), and Realty (+0.4%) closed higher. Pharma (-0.9%), IT (-0.7%), and Private Bank (-0.7%) closed lower. Hero Motocorp (-3.03%), Indusind Bank (-2.99%), and ICICI Bank (-1.62%) closed on a negative note. NTPC (+4.1%), Tata Motor (+3.1%), and Bharti Airtel (+2.9%) were among the top gainers.

Excerpts from an interview of Mr. Sandeep Kataria, CEO, Bata with CNBC-TV18 dated 20th October 2020:

● Speaking about demand, Mr. Kataria said things are much better as compared to the past 3-4 months.

● There is a pick up of demand MoM. The company expects to reach normal levels with the festive season coming in.
● Speaking about stores, he said almost all the stores are opened except a few isolated ones.

● People are getting back to the office. Delhi and Gurugram are the cities where traffic is visible.
● Demand for casual wear is consistent and washable slippers.

● Q1 was weak for the company as well as the industry. He expects that the company will reach pre-covid levels towards the end of the festive season.

● Speaking about stores, the company had negotiations with landlords which was helpful. The push of the franchise store in towns below 5 lakh population is showing a good trend and there are a lot of enquires.

● The biggest cost is rentals for the company and the company is taking measures to reduce it.

● The administration and travel costs are also looked closely.

● The company has a strong balance sheet and remain cash positive, there is no worry on that front.

● On post- covid scenario, he said the company is already working on E-commerce and the focus will continue.

● He said tier 2,3 towns are showing a quick bounce back as compared to urban.

Consensus Estimate: (Source: market screener and Investing.com websites)
● The closing price of Bata was ₹ 1,362 as of 22-October-2020. It traded at 182x/ 46x/ 38x the consensus Earnings per share estimate of ₹ 7.5/29.8/35.9 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for Bata is ₹ 1293/- which implies a PE multiple of 36x on FY23E EPS of ₹35.9/-.

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 Bata, Consumer , 0 Comments Read more...
05 Oct

95% of stores have resumed operations – Bata India

Update on Indian equity market:
The optimism in markets continued as Nifty closed the holiday-shortened week at 11,415 (+1.5%). Among the index, INDUSINDBK (12.3%), BAJFINANCE (5.0%), and BAJAJAUTO (4.1%) were the top-performing stocks while DRREDDY (-1.4%), ITC (-0.5%) and ONGC (-0.5%) were the laggards. The optimism was such that all the sectors traded in the green zone on a weekly expiry day with PVT BANK (4.1%), BANK (3.6%), and MEDIA (3.1%) leading the rally.
Excerpts of an interview with Mr. Sandeep Kataria, CEO, Bata India (Bata) published on ETNOW dated 25th September 2020:
Mr. Kataria said the sales trends are changing after COVID-19. The Work-From-Home norm has affected the demand trends as the demand is moving towards comfort wear.
Footfalls are gradually increasing in the stores as the unlock is happening. 95% of the Bata stores have resumed operations.
Small towns with 1-3 lakh population are the fastest to return to pre-COVID levels. The company has seen demand from smaller towns as they choose to shop from local stores instead of traveling to cities. Stores near residencies are doing better.
The company has identified new avenues of growth in the post-pandemic era as the country gradually learns to cope with the virus. Sales via distribution channels are witnessing growth.
He said that sales via digital retail have seen dramatic growth in India during the lockdown. The company has even sold products via video calls and WhatsApp.
The company was growing between 7% and 11% for the last five years before the pandemic struck. Its revenue fell 9% in the quarter ended in March 2020. He expects FY21 to be subdued due to disruptions caused by the virus and confident of attaining growth in the following years.
Consensus Estimate: (Source: marketscreener & investing India website)
The closing price of Bata was ₹ 1,345/- as of 01-Oct-2020. It traded at 179x/ 45x/ 37x the consensus EPS estimate of ₹ 7.5/ 29.8/ 35.9 for FY21E/ FY22E/ FY23E respectively.
Consensus target price of ₹ 1,290/- implies a P/E multiple of 36x on FY23E EPS of ₹ 35.9/-.
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 Bata, Consumer 0 Comments Read more...
08 Sep

Remains financially strong and net debt free–Page Industries

Update on the Indian Equity Market:

On Monday, Nifty closed with0.35% gains at 11,374. Within NIFTY50, INFRATEL (+5.7%), HDFCLIFE (+3.2%), and DRREDDY (+2.3%) were the top gainers, while M&M (-3.6%), UPL (-2.8%), and BAJFINANCE (-2.5%) were the top losers. Among the sectoral indices, FMCG (+0.6%), IT (+0.6%), and MEDIA (+0.3%) gained the most. REALTY (-0.9%), AUTO (-0.5%), and PVT BANK (-0.3%) ended with losses.

Remains financially strong and net debt free–Page Industries

Excerpts of an interview with Mr. Chandrasekar, CFO, Page Industries, aired on ETNow dated 7th September 2020:
• Page Industries has seen significant improvement in demand. From 0 sales in April, -80% YoY in May, -40% YoY in June, -30% YoY in July to a YoY growth in August, there is a good month-on-month uptick. Outlook remains optimistic for rest of the year.
• The buildup in demand has been gradual so Mr. Chandrasekar doesn’t think it was just pent up demand. Secondary sales are more than factory sales. All indications suggest that things are getting back to normalcy.
• August sales are a pretty good indication that demand is back. But predicting full year growth rate is still difficult.
• Sales via e-commerce inJuly and August were better than the past trend. E-commerce has seen YoY growth of about 200%. Purchasing modes have changed across sectors. In terms of margins and investments for Page, e-commerceis more or less similar to other distribution channels.
• Procurement control works between a range of +/-1% so raw material cost has remained more or less the same. Page is trying to work on procurement optimization, but in the near future,raw material cost will be rangebound.
• Page has done significant optimization on the other operating expense including wages, factory overheads, selling overheads, advertising,and corporate overheads. They have managed significant reductions over 4QFY20 as well as 1QFY20.
• Page’s cash position of Rs 1,700 mn as of 1QFY21 is better than any time during the past year. They have done a lot of work across working capital. Page has not borrowed any funds and continues to remain net debt free.
• Page is also paying vendors earlier than they are asking. MSMEs need support to remain afloat at this point. It is also in the interest of Page to help the small businesses as they are trusted vendor partners. Despite that, Page has improved its cash position.
• Page hasretained all employees during this difficult time.
• A specific European fund has raised concerns that Page Industries is not following best manufacturing practices. Mr. Chandrasekar assured that Page’s manufacturing practices are based on fundamental and ethical policies. Page has published sustainability report for the past 2 years in the public domain which can be referred to address concerns. Page has been in the business long enough to know that it’s a people intensive business and the company hasto take care of its employees.
• Men Innerwear market is growing at about 11% YoY and is expected to grow to Rs 900 bn by 2028 from 350 bn currently. Women innerwear market is expected to grow at about 12.5% YoY to Rs 680 bn by 2028 from Rs 210 bn currently. Page is very small in the overall market size. Premiumization will continue to happen in the market so maintaining market share is not an issue. The issue is about increasing geographical reach and introducing new offerings in the women and kids segments.
• Page will resume capex and other business investments once the business gets back to normal levels from the covid-19 disruption.

Consensus Estimate (Source: market screener and investing.com websites)
• The closing price of PAGEIND was ₹ 18,296/- as of 7-September-2020. It traded at 91.5x/ 47.0x/ 38.7x the consensus EPS estimate of ₹ 200/ 389/ 473 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 17,617/- implies a PE multiple of 37.2x on FY23E EPS of ₹ 473/-.

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 Page Industries 0 Comments Read more...
17 Aug

85% of stores are open – Bata India

Update on the Indian Equity Market:
On Friday, Nifty closed 1.1% lower at 11,178. Among the sectoral indices PSU banks (-2.3%), Auto (-2.6%) and Bank (-2.3%) closed lower. Pharma (+1.4%) and Metal (+1.1%) closed on a positive side. Eicher Motors (-7.2%), Tata Motors (-4.8%) and M&M (-3.3%) closed on a negative note. JSW Steel (+2.6%), Coal India (+2.3%), and Sun Pharma (+2.0%) were among the top gainers.

Excerpts from an interview of Mr. Ashwani Windlass, Chairman, Bata India with Business Line on 13th August 2020:

• The market place is still uncertain. There are intermittent lockdowns happening and the pandemic is surging in different places.

• Consumers are still not going out as they use to go before and that puts a question in terms of demand.

• Categories like sports, chappals, sandals and casuals are more popular and are moving faster, as opposed to formal footwear.
• This behaviour is also justifiable with the current scenario as there are not many social gatherings and people are not going to offices.

• The company is responding to the trends through offerings in stores and also on digital campaigns.

• Markets are opening up but the footfall is less. Factories are also working with staff limitations.

• Key metros like Delhi, Mumbai, Chennai are showing positivity.

• The company is hopeful that after the current ‘End of Season’ sale, some demand will be back in festival season

• Tier-I towns in India, including metros, are more congested, and they witnessed a different level of surge first. Now, the spread is into tier-II or tier-III towns. For example, the tier-II towns in Karnataka and Kerala were doing well before the surge happened there.

• The impact in smaller cities will not be as much as what it is in the metros that has the bulk of the demand.
• At this moment, Bata is supplying what customer wants.

• On new store openings, Bata adds 50 retail outlets which are company-owned and at least 50 which are franchisee-owned in a normal year. However, this year the company will focus on cash conservation and look for franchisees.

Consensus Estimate: (Source: market screener & Investing.com websites)
• The closing price of Bata India was ₹ 1,234/- as of 14-August-2020. It traded at 218x/40x/34X the consensus earnings per share estimate of ₹ 5.6/30.5/35.9 for FY21E/FY22E/FY23E respectively.
• The consensus average target price for Bata India Ltd is ₹ 1,296/- which implies a PE multiple of 36x on FY23E EPS of ₹ 35.9/-.

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 Bata, Consumer , 0 Comments Read more...
22 Jul

Demand momentum could stay for 6-9 months – Britannia

Update on the Indian Equity Market:

On Tuesday, Nifty ended 1.3% higher at 11,170. The top gainers for Nifty 50 were Power Grid (+6.4%), IOC (+5.7%), and BPCL (+5.4%) while the losing stocks were Bajaj Finance (-4.0%), Bajaj Finserv (-3.5%), and Britannia (-2.4%). Sectoral gainers for the day were PSU Bank (+2.1%), Bank (+2.1%) and Financial Services (+2.0%) while the losers were Pharma (-1.5%) and FMCG (-0.8%).

Edited excerpts of an interview with Mr Varun Berry, MD, Britannia Industries Ltd; dated 21st July 2020 from Economic Times:

  • Britannia started completely on the back foot. They were not sure where they were going because factories were closed, and distribution systems were in a disarray.
  • It was everyone with their shoulder to the wheel, executing at a rate which was outstanding.
  • The demand for food that human beings eat is about the same. It is just that there was no out of home or on-the-go consumption happening during this time. It was all home consumption and that gave them an advantage, he added.
  • There was some amount of larder stocking but that was at the beginning of this pandemic. Thereafter, it has been regular consumption for most consumers.
  • The demand momentum is going to continue, albeit at a slightly slower pace as they go through the year.
  • In the last seven years, Britannia has done a lot of work in rural areas and that is keeping them in very good stead as far as the numbers are concerned. The rural trends are a lot more aggressive than urban trends. Even the pandemic has not hit the rural consumers as much as what they are seeing in the urban centres. From 21,000 rural distributors in February, they have been able to take this up to 22,000 distributors in June.
  • He doesn’t think that 21% margin is sustainable but they are going to make sure that they try and see whatever they can get out of it, there will be almost 50% of this will go right back because advertising and sales promotion will get back to normal as soon as they have a full product out in the market. Similarly, there are certain other costs which will get back but Britannia is looking at every possibility of getting as much out of this period so that it can get as many savings out of this.
  • Britannia is not seeing inflationary trends as far as the raw materials are concerned. On all of the raw materials, it has been a very reasonable level of inflation at about 3% and Britannia sees that to continue through the year.
  • The distance travelled by Britannia’s biscuits has come down from 370 km to 320 km during the last quarter so shortening supply chains, getting products domestically all of that is becoming important.
  • There was a huge surge in modern trade in the past three-four years, modern trade was growing at almost 2-2.5 times the growth of the traditional trade business but during this pandemic, people are depending more on their neighbourhood stores and hence traditional trade has started to see a huge rebound. Britannia has to make sure that it takes that into its plans as well.
  • Their bread business has outgrown its overall bakery business, not just in terms of top-line but also in the bottom-line sense. Similarly, their cheese business has grown almost two times the overall growth. He is of a strong opinion that these are not sustainable growth numbers because they are one-off, but it is just giving them a very clear outlook about the opportunities and areas they can concentrate on.
  • There is down-trading happening as people are not going out and eating in restaurants. Biscuits are the cheapest form of the snack and it comes from a highly trusted company and a highly trusted brand. Within the category, for Britannia, there has been no downgrading. He has heard from a competitor that there is serious down-trading in their portfolio but from Britannia’s product portfolio, it has been the premium products which are holding sway.
  • The R&D centre is working overtime on the kind of products that the consumers are looking for. The first objective for Britannia was to match the core but beyond that, they have gotten into categories and a lot of work is happening in those categories. Market research, insights work, could not happen during the four-month period of lockdown and that has delayed the rollout of some of their products. But they are going to be back with a bang as far as category growths and new innovation of products are concerned. Britannia is also working on some immunity products and is doing research to make sure that it brings in absolutely the right products which give the consumers the genuine results they are looking for.

Consensus Estimate: (Source: market screener website)

  • The closing price of Britannia Industries was ₹ 3,883/- as of 21-July-2020. It traded at 50x/47x/41x the consensus EPS estimate of ₹ 78/82/95 for FY21E/FY22E/FY23E respectively.
  • The consensus target price of ₹ 4,064/- implies a PE multiple of 43x on FY23E EPS of ₹ 95/-.

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 Jun

Not looking at a huge change in distribution : Britannia

Update on the Indian Equity Market:

On Thursday, the indices ended lower after a six-day gaining streak. The Nifty ended slightly lower at 10,029. Among the sectors, Media (+4.1%), Pharma (+2.2%), and IT (+1.9%) were the top gainers. Private Bank (-3.1%), Financial Services (-2.6%), Bank (-2.6%) led the losers. VEDL (+7.7%), BHARTIARTL (+5.7%), and ZEEL (+5.5%) led the gainers while ASIANPAINT (-4.6%), BAJFINANCE (-4.0%), and HDFC (-4.0%) ended in the red.

Britannia recently declared its fourth-quarter results. In a post-result interview, Britannia Industries MD, Mr. Varun Berry discussed distribution network, market share, and margins. Here are the edited excerpts of his interview with ET Retail on 4th June 2020:

  • Britannia has a reach of about 5.5 million outlets. During the lockdown period, e-commerce has witnessed a massive 300% growth, which is about a percentage of their total sales. In the time to go, it is expected to grow from 1% to 2% to 5%.
  • Though e-commerce is growing exponentially, there is a huge base of the supply chain pyramid which has to be kept serving. Hence, he does not believe that distribution strategies are going to change in a hurry.
  • It will remain to be a situation where you will have to service kirana stores because they are so entrepreneurial in their way, they operate that they service their own markets wherever they are in a way e-commerce would do in a large city. As long as they have the infrastructure, kirana stores will be serviced by companies like Britannia.
  • There are some strong brands where they will prefer taking a pull strategy, rather than a push strategy. A couple of years back, they had adopted a modified pull strategy which has a disastrous impact.
  • Since they are not looking at adopting the strategy in a hurry, they will continue to have direct distribution to 2.5 million-odd retailers. The strategy of servicing the wholesalers will continue. There will be a disproportionate focus and nurturing of modern trade, e-commerce, and alternate channels, but the base strategy will not change.
  • A lot of freebies have been cut out due to the lack of availability. A lot of costs from the sales and marketing system have been cut down. They will continue doing that going forward.
  • Ad spends have been cut till now. Once a normal stocking of brands starts, normal ad spends will resume. This month itself, they will get back to advertising for some of the brands once they have enough product, which will be a temporary phenomenon.
  • They will continue to nurture and build brands for the future. Since it seems everyone is sitting at home and watching television, Mr. Berry is of the opinion that it is the right time to advertise and they will start doing that.
  • Investments will be made in creating new brands and launching new products. But there is the labor shortage issue. Since migrant workers have gone back, Britannia is operating at a lower capacity in every factory. Due to this, prioritization has become important and thus they are staying away from innovations. As soon as there are sufficient workers, they will start unleashing some of the innovative products.
  • Britannia is at the operating leverage cusp and has witnessed a disproportionate jump in margins in the last quarter results. However, its sustainability after a period of time will have to be looked at. The focus will be on unearthing opportunities and making the business efficient going forward.
  • From a 4% margin seven-eight years ago to around 15% now, operating margins have certainly improved. There will certainly be progress on the margin but in a slow and steady fashion.

Consensus Estimate: (Source: market screener website)

  • The closing price of Britannia was ₹ 3,458/- as of 4-June-2020. It traded at 51x/ 45x the consensus earnings estimate of ₹ 68.0/76.8 per share for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 3,540/- implies a PE multiple of 46x on FY22E EPS of ₹ 76.8/-.

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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04 May

We are dipping our toes into the health and hygiene segment: Marico CEO

Update on the Indian Equity Market:

On Thursday, Nifty ended April higher at 9,860 (+3.2%). The top gainers for Nifty 50 were Tata Motors (+19.9%), UPL (+14.5%) and ONGC (+13.1%) while the losing stocks for the day were Sun Pharma (-2.4%), HUL (-1.2%) and Cipla (-1.0%). Sectoral gainers were Metal (+7.9%), Auto (+6.4%) and IT (+5.1%). The worst performing sectors were Pharma (-0.6%) and Media (-0.5%).

Edited excerpts of an interview with Mr Saugata Gupta, MD & CEO of Marico Ltd.; dated 28th April 2020. The interview was published in Retail ET.com.

 

  • Significant changes in terms of shopping and consumption habits expected in next financial year according to Mr Saugata Gupta.
  • He said things have started improving. With a lot of permissions, advisories and clarifications from the Central Government and Ministry of Home Affairs, things have started to streamline.
  • Most of the factories are operational for the Company but with the reduction in labour force, the supply chain is still to be settled.
  • In sum of the parts (SOTP) breakdown, there is enough demand for the food part as per the Company but there are supply-chain issues.
  • The premium category of the portfolio, which is discretionary in nature, forms a significantly smaller part of Marico’s portfolio which hardly makes a difference to the Company in terms of demand and supply.
  • The Company has started to explore opportunities in the health and hygiene products. Recently the Company has launched sanitizers in this category. They might also look for opportunities in some new areas in foods as well.
  • In a post Crisis world, Mr Gupta sees a significant change in the consumption basket. A certain part of the Company’s portfolio will be challenged; at the same time there are opportunities to be tapped in some other part of the portfolio.
  • Post crisis, there will be a significant movement into staples, health and hygiene, immunity and items of daily consumption. There will also be a shift to safety into known brands. Therefore leader brands will have to take pole position and gain market share, especially those with strong distribution and equity.
  • There will be a significant shift from out-of-home consumption to in-home consumption. Therefore, even things like ready-to-eat, ready-to-cook products are likely to be consumed far more. One of the things that happened during the crisis outbreak was that people with comorbidities or conditions like diabetes were more affected by the infection. So, people are likely to take health and hygiene far more seriously, as per Mr. Gupta.
  • Consumption is likely to get impacted in sectors like eating out, entertainment, travel, home improvement and autos as people will spend less on them.
  • There will be a significant opportunity at the bottom of the pyramid and down trading will be more prevalent as people could have less disposable income in the immediate quarters post the crisis. So, pricing and providing value to the consumer will be extremely important for the Companies.
  • Marico have been extremely aggressive in terms of cutting extra cost like travel. Company has cut down on out-of-home advertising and some part of A&P. The Company has enough opportunities for cost rationalisation. There will be no loss of jobs and will support the third party ecosystem in terms of payment on time to protect their cash situation and working capital.
  • To get back into a 100% business, it will take some time after the lockdown gets relaxed. So, the ramp up will be gradual because it is not just raw material, it is a question of supply chain trucks as well. Raw materials and logistics availability both go hand in hand. In any case, the Company will continue to maintain social distancing and strict controls in their factory and therefore will have to work with a lower percentage of people and rotating those people as and when things open up fully.
  • FMCG is the category which is based on economic growth. It is based on increasing penetration and there could be some short term hiccups. But he doesn’t think there is anything to concern in this industry. Market leaders with distribution networks, strong brands and who have shown fragility and resilience in these times will emerge stronger.
  • The fringe players who have immediate working capital concerns, weaker brand equity, inability to invest in automation and digital and new ways of doing work, might suffer in the short term.
  • There are huge opportunities and therefore in a lot of categories, one will see a V-shape recovery.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Marico Ltd was ₹ 287/- as of 30-April-2020. It traded at 35.0x/ 32.3x/ 28.8x the consensus EPS estimate of ₹ 8.2/ 8.9/ 9.9 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of ₹ 342/- implies a PE multiple of 34.3x on FY22E EPS of ₹ 9.9/-.

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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15 Apr

Testing times with zero revenue and major fixed costs – Sandeep Kataria, Bata India

Update on the Indian Equity Market:

On Monday, the Nifty closed 1.3% lower at 8,993 amid reports that the 21-day lockdown to contain the spread of the virus which ends on Tuesday might be extended. Pharma (+2.8%) and Metal (+1.9%) were the only sectoral gainers. Realty (-4.9%), Media (-3.3%), and Financial Services (-3.1%) were the top losing sectors. Among the stocks, the biggest gainers were Larsen & Toubro (+6.4%), Hindalco (+6.0%), and Bharti Airtel (+4.5%). Bajaj Finance (-10.3%), ZEEL (-8.4%), and Bajaj Finserv (-6.9%) led the losers.

Testing times with zero revenue and major fixed costs – Sandeep Kataria, Bata India

Excerpts of an interview with Mr. Sandeep Kataria, CEO, Bata India published in Mint on 13th April 2020:

  • As per the Union and State government guidelines, Bata India has closed both, the retail and online stores and factories. As a result, they are looking at a zero-revenue situation for the entirety of the lockdown period.
  • In the short-term, the revenues will be impacted but will recuperate slowly once the markets are allowed to open. Should the lockdown continue, it would be a difficult time for the company as there are major fixed costs to be paid. A government stimulus is needed soon, else managing the costs without revenues would become very difficult.
  • They have refrained from layoffs and are ensuring timely payment of salaries. This cannot continue for a long time. Landlords and mall owners have their own problems too. Hence, Bata is requesting the government to allow a moratorium on its debts in the short term. This might help the landlords pass some relief to the company as well.
  • Second, they request a wage subsidy from the government. The leather and footwear industry employs approximately 4.5 million people and Bata wants to make sure that there is no job loss as a result of the crisis. Hence, they are seeking a job support subsidy at 50 percent of the minimum wages from the government for at least four months.
  • Additionally, the industry has sought relaxation of statutory payments such as the goods and service tax (GST), provident fund and income tax.
  • Bata India has started production of masks and face shields at their Batanagar factory in Kolkata and donates these to the local hospitals, Police authorities, and communities. Additionally, the washable shoe range can help essential services staff stay safe.
  • They request the policymakers to classify footwear in the essential category of items and allow them to operate e-commerce delivery, and stores for limited hours to begin with.
  • Bata employs more than 10,000 people and salary cuts and layoffs are something they are looking to avoid. They need government support to ensure it does not come to that.

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

  • The closing price of Bata India was ₹ 1,198/- as of 13-April-2020.  It traded at 40x/ 34x/ 29x the consensus EPS estimate of ₹ 30.1/ 35.4/ 40.7 for FY20E/ FY21E/ FY22E respectively.
  • The consensus average target price of ₹ 1,767/- implies a PE multiple of 43x on FY22E EPS of ₹ 40.7/-

 

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