Consumer

19 Feb

Planning for double-digit revenue growth in FY21E: Page Industries

Update on the Indian Equity Market:

Following its Asian peers, the markets continued the downward trajectory on Tuesday with Nifty closing 53 points lower at 11,993. With the majority of result season wrapped up by last Saturday, the focus has been shifted to the global macros. Within the sectoral indices, only two indices, Media (1.9%) and IT (0.6%) ended the day higher while METAL (-1.2%), AUTO (-1.0%) and REALTY (-0.9%) were the highest losers. Among the index stocks, COALINDIA (2.9%), ZEEL (2.7%) and BPCL (2.3%) were the gainers whereas INFRATEL (-11.3%), YESBANK (-6.3%) and TATAMOTORS (-3.9%) brought the index lower.

Excerpts from an interview with Mr. Chandrasekhar K., CFO – Page Industries published in ET NOW on 14th February 2020:

  • Commenting on the 3QFY20 result, Mr Chandrasekhar said that there is a temporary dip in PAT because of investments that company has made in sales, marketing, people and technology. This is the only way for company to drive sustainable growth in the future.
  • The growth in revenues for 3QFY20 as well as for 9MFY20 was at 7%. This was lower than what the company had expected. He said that if the company had volume growth in mid-teens, all of the above stated expenses would have been fully absorbed and the company would have maintained the margins. Whenever the demand returns, the margins will be back to the historical levels.
  • He said that the company operates in an under-penetrated premium apparel market and there are multiple opportunities for growth. The company is expanding its presence and distribution in exclusive business outlets and continue to invest in technology.
  • The street is expecting the industry to grow at 10% in FY21E. The company is also expected to achieve double-digit growth. He said that FY21E should be better than FY20.
  • Instead of looking at market share, the company focuses on the penetration levels in the industry. The company has a penetration of 20% into the premium men’s innerwear market. The company has penetration levels of 6-8% in women’s market as well as in athleisure which is an activewear segment.
  • The company enjoys a strong consumer base. It has a reach of more than 63,000 retail outlets and the company is able to withstand the slow phase. The company currently operates through 720 Exclusive Business Outlets (EBO) and has a target of reaching more than 1,000 EBOs by FY21E.
  • The company has aggressively ramped up the kids’ clothing portfolio. The acceptance has been pretty good in the market. The segment has grown almost 45% this year and the company has created a separate channel for kids. The company is also planning to open exclusive Jockey junior EBOs in the coming quarter.

Consensus Estimate: (Source: market screener website)

  • The closing price of Page Industries was ₹ 22,689/- as of 18-February-2020.  It traded at 63x/ 51x/ 44x the consensus earnings estimate of ₹ 362/ 445/ 520 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price for Page Industries is not available on market screener website.
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31 Dec

‘Hindustan Unilever’s offer to pay tax benefit amount back to the government was unprecedented’

Update on the Indian Equity Market:

On Monday, Nifty closed 0.1% higher at 12,261. Among the stocks, Tata Motors (+4.3%), Eicher Motors (+2.6%) and UPL (+1.8%) were the gainers. Yes Bank (-1.2%), ICICI Bank (-0.9%), and SBI (-0.8%) ended in the red. Auto (+1.5%), Metal (+1.2%) and Media (+0.7%) were the top sectoral gainers. PSU Banks (-1.2%) was the top loser.

Excerpts from an interview with Mr Sudhir Sitapati, Executive Director:Foods & Refreshment, Hindustan Unilever Ltd

  • HUL has been around for 100 years and there have been major ups and downs. So regardless of what the situation is emerging, every year is different in India. It is not unique to this year or last year. Every year has its challenges, but HUL has always got some trick up its sleeves somewhere to compete in the market.
  • Taxes on a lot of products were reduced with GST but they were not able to implement the price reductions on the day on which the taxes were reduced because they had stocks in the factory, in the warehouse and they, cannot be transporting stocks all over this country.
  • What HUL did was it calculated the tax benefit that it would get that it could not pass on to the consumers and voluntarily Sanjiv Mehta, chairman, offered to pay that amount to the government.
  • It was meant to be passed on to the consumers. As they couldn’t pass it on to the consumers and what they couldn’t pass on doesn’t belong to them is what they thought and it goes back to the government.
  • Through the history of HUL, it has balanced between top-line growth and bottom-line growth depending on the circumstance.
  • HUL is famous for being a marketing powerhouse. What is less known about HUL is that it’s a cost powerhouse. As long as there is cost, it’s their job to go after it. Margins are a consequence of that.
  • The company’s philosophy has been to chase consumer value and to do it in the most efficient manner and they reckon that fixed costs are roughly half the cost and half the costs are variable. So the more you grow volumes the more your margins expand.
  • The fundamental reason for GSK consumer acquisition is different. The real reason is that the HFD category’s penetration is 25% if we take the weighted average penetration of HUL today and it goes back to the question on what the mix of growth for HUL is. Sometimes it has been top line, sometimes it has been bottom-line. If we take categories and their penetration on one side and the growth on the other, the general rule of thumb in consumer goods marketing is that the lower the penetration, the faster the growth.
  • In the ’90s when their personal products were the engine of growth, they were all 25-sub 30% penetration. Now all those categories are 80-90% penetration. So the primary thing that GSK does is it takes down the weighted penetration.
  • It is not about getting extra distribution, it is not about the cost-saving. All that will happen. It is about the fact that the weighted average penetration of HUL will come down with such a large category. That is the real reason for GSK acquisition.
  • HUL has been doing extremely well for the last decade at least and the milestones or the goals that they have continued to remain the same. They continue to grow fast, markets have ups and downs. This is not the first down or up they have seen in the market. So life is normal for them.

Consensus Estimate: (Source: market screener, investing.com website)

  • The closing price of HUL was ₹ 1,939 /- as of 30th December 19. It traded at 58x/ 49x/ 42x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 33.2/39.7/46.0 respectively.
  • Consensus target price of ₹ 2,137/- implies a PE multiple of 46x on FY22E EPS of ₹ 46.0/-.

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23 Dec

Over 10% growth in both revenue and profit in Q3: KRBL (One of the largest Basmati exporters in India)

Update on Indian Equity Market:
Indian markets closed the week with muted gains on Friday. Nifty closed the day 12 points higher at 12,272. The best performers within the index were TITAN (3.5%), TATASTEEL (3.4%) and UPL (3.1%) whereas Vedanta (-2.7%), KOTAKBANK (-2.0%) and TATAMOTORS (-1.5%) were the worst performers. Within the sectoral index, PSU BANK (2.3%), MEDIA (1.2%) and METAL (0.6%) led the gains while AUTO (-0.4%), PHARMA (-0.3%) and FMCG (-0.1%) were the laggards.

Key takeaways from the interview of Mr Anil Mittal, Chairman and Managing Director, KRBL Ltd; dated 20th December 2019.
 About the promoter shareholding in the company, Mr Mittal mentioned that the promoters intend to increase the shareholding to 63-64% from current levels of 58.8%. The promoters have bought 450,000 shares from the open market recently. However, he added that it also depends on the price of the stock.
 In 2Q, the results were lower than expectations. This was because of an order worth 32,000 tonnes of rice were stuck at the ports on account of delay of LCs. He mentioned that the company has shipped all the material in 3Q. Despite the slowdown, he is confident of having robust 3Q. He highlighted that the management is expecting the revenue and profit to grow more than 10% in the 3QFY20E.
 There was one case in which the Enforcement Directorate froze one of the properties valued at about ₹ 150 mn. This case has come before the High Court and it will take 2-3 years to finalize this issue. The total amount involved is ₹150 mn. He is confident that the verdict will be in the company’s favour. It will come through a legal process.
 In terms of the brands, the company’s flagship brand, India Gate, is in great demand in the international market as well as in Domestic market. In the category of India Gate classic, there is virtually no competition for this SKU. This particular brand is fetching the highest price in the entire world, including India. Five years ago, the company developed a new brand called Unity to exclusively cater to middle-class families. This brand has picked up momentum and is doing well, much beyond the company’s expectations.
 Iran has been a concern for the company since last 6-7 months in terms of payments and orders. There has been no demand from the country for last 4 months. For the orders previously received and executed, the payments are stuck and exporters are having a hard time. However, the company expects that this market will open up by the first week of January.
Consensus Estimate (Source: market screener website)
 The closing price of KRBL was ₹ 281/- as of 20-December-19. It traded at 11x/ 10x the
consensus EPS estimate for FY20E/ FY21E of ₹ 25.2/ 29.3 respectively.
 Consensus target price of for KRBL is not available.

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13 Dec

Benefits of lower commodity cost are passed on to the consumers- Tata Global Beverages

Update on the Indian Equity Market:

On Thursday, NIFTY closed 0.5% higher. Among sectoral indices NIFTY Metal (+2.4%), NIFTY PSU Bank (+2.2%), and NIFTY Auto (+1.3%) closed higher. NIFTY IT (-1.0%) closed on a negative note. The biggest gainers were Tata Motors (+6.9%), Yes Bank (+5.8%), Vedanta (+3.7%), whereas Infosys (-2.6%), TCS (-1.9%) and ONGC (-1.6%) ended with losses.

Excerpts from an interview of L. Krishnakumar – Executive Director and Group Chief Financial Officer with CNBC- TV18:

  • Mr Krishnakumar said the company is exploring synergies between the consumer business of Tata Chemicals and Tata Chemicals business, and the integration as a larger Food & Beverage company is exciting.
  • The merger will give an opportunity to build scale, both in the existing portfolio that they have in tea, and expand the salt and pulses portfolio of Tata Chemicals.
  • The distribution strength of both the companies will come together to have a direct and indirect reach. It gives an opportunity to cross-sell different products.
  • It will help to innovate and bring new products, as it comes with a lot of intellectual property and people with research and development (R&D) experience in the F&B space.
  • The volume growth in India is strong; it is growing more than 8%. Tea is doing well. In overseas markets, Tetley as a brand had share gains. Teapigs, which is a premium brand, continues to do well.
  • New product launches such as Cold Infusions, has got about 25% market share in the UK. Overall in developed markets, the company is growing in single digits. In India, the growth rate is much higher, at more than 8%.
  • The commodity environment is soft. While volumes are growing, there is no price action that the company is taking. The realisations are lower than in the previous year. The price benefits of lower commodity cost are passed on to the consumers.
  • Commodity cost, especially for tea, is similar to what it was in the first half of the year. Coffee prices in the recent weeks have seen an upward trend. Overall the commodity environment, at this point, is pretty much similar to what it was in the earlier part of the year.
  • Tata Gluco Plus is doing well and it is growing in double digits. It was recently launched in the Eastern markets and it is successful in Odisha, as well as the markets in the North. There are opportunities to scale up the product.
  • The acquisition of Dhunseri Tea and Kalaghoda is doing well.
  • Speaking about Starbucks, Mr Krishnakumar said the stores are more than 160 in number and it is growing at about 30%. Increasing trend of delivery-based sales is improving profitability. The business is growing very fast and company plans to reach to 180-190 stores by the end of financial year.

Consensus Estimate (Source: market screener website)

  • The closing price of Tata Global Beverages was ₹ 323/- as of 12-December-2019. It traded at 37.5x/ 32.6x/ 29x the consensus EPS for FY 20E/ FY 21E/ FY 22E of ₹ 8.6/ 9.9/ 11.1 respectively.
  • Consensus target price of ₹ 308/- implies a PE multiple of 27.7x on FY22E EPS of ₹ 11.1/-.

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28 Nov

Bata to use multi-channel retail strategy to reach more customers: Sandeep Kataria, CEO, Bata India

Update on the Indian Equity Market:

On Wednesday, NIFTY50 closed 0.5% higher. NIFTY50 gainers include Yes Bank (+8.3%), Ultratech Cement (+3.1%), and SBI (+2.9%). NIFTY50 losers include Infratel (-3.2%), Cipla (-2.2%), and L&T (-1.7%). Realty (-0.6%) and Media (-0.4%) were the only losing sectors while PSU BANK (+1.8%), Auto (+1.3%), and Metal (+0.9%) were the top gaining sectors.

Excerpts from an interview with Mr Sandeep Kataria, CEO, Bata India, published in the Economic Times dated 27th November 2019:

  • Bata will continue its growth journey in India with the multi-retail channel approach along with the e-commerce platform to reach out to as many customers as it can.
  • The company has a retail network in 450 towns and wishes to further expand by adding new stores in smaller towns through the franchise route.
  • Bata has been using three engines – a) their own stores, b) franchise partner store, which is a big drive for them in tier III & IV, and c) multi-brand outlets.
  • To add to all this is their E-commerce channel, whether through their own website or through other marketplaces, that helps them to get as many customers as they can.
  • The Company will strengthen its presence by adding 500 stores in the next five years, focusing mainly on small markets as it has identified tier II, III and IV cities where it has plans to broaden its sales network through the franchise model.
  • India is much bigger and Bata’s brand image is also bigger. So, they have decided to expand their reach to as many Indians and take advantage of their equities.
  • Online channels are providing opportunities in multiple ways to reach consumers. Bata can use digital channels to increase the productivity of their stores and enhance the satisfaction of their consumers.
  • Bata is working hard to reconnect with the country’s millennials. Bata India has a whole battery of brands in Bata as North Star, Bata Red Label, Marie Claire and Footin which talk to millennials. The Company does not have to rely on Bata as the main brand.
  • When asked whether Bata has any plans to introduce new brands from its global fold, Mr Kataria said the Company is not very keen to do that as there is a huge opportunity for them to play with the brands which they have here. The Company has a license for the manufacture and sale of several global brands as Hush Puppies and Naturalizer. Bata has introduced outdoor brand shoes from Caterpillar in its top selected outlets this season.

Consensus Estimate (Source: market screener website)

  • The closing price of Bata India Ltd was ₹ 1,615/- as of 27-November-19. It traded at 52x/ 44x/ 36x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 30.8/ 36.9/ 44.3 respectively.
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08 Nov

“Titan’s market share gain story intact”- S. Subramaniam, chief financial officer, Titan Co. Ltd.

Update on the Indian Equity Market:

On Thursday, NIFTY closed 0.42% higher at 12,016. Infratel (+3.5%), Sun pharma (+3.4%) and IndusInd Bank (+2.8%) were the top NIFTY50 gainers. UPL (-7.8%), Yes Bank (-3.6%) and GAIL (-3.5%) were the top NIFTY50 losers. Among the sectors, NIFTY METAL (+1.1%), NIFTY REALTY (0.9%) were the sectoral indices that closed positive. NIFTY PSU banks (-1.5%) and NIFTY AUTO (-0.2%) were the worst performing sectors.

Excerpts from an interview with S. Subramaniam, chief financial officer, Titan Co. Ltd broadcasted on CNBC on 7th November 2019.

  • June onwards it has been really tight and the entire industry has been in turmoil. As far as are we are concerned, our market share gains story is intact but it is unfortunately in a very declining jewellery market.
  • Even from Dussehra to Diwali, which is the festive season, for 33 days they have grown 10%.
  • They are in tough times. Gold prices have been high but, importantly, consumer sentiment has not been encouraging. consumers are trying to save money. They don’t want to invest too much.
  • Gold coins sales being little higher, which means that people who are investing in the category also are looking at it more from the savings perspective rather than actually spending money on jewellery as adornment.
  • They are now looking at 11-13% growth in second half. They also have a higher base but 10% in the festive season was not bad at all under the circumstances.
  • Typically when gold prices do go up there is pent up demand when it comes to the wedding part of the segment, people do have to finally end up investing. So, to some extent we could see a shift on a month-on-month or quarter-on-quarter basis.
  • Even the millennials when they get married, they have exactly the set of jewellery that otherwise would have been bought and if anything the design quotient is much higher these days.
  • They have seen east do quite well, they have seen south do relatively quite well, but the region that gets impacted the most has been west.
  • FY20 is expected to be a fairly bad year. They are not going to meet their 20% target and they have given that guidance also now. Their goal for the next six months is 11-13%.
  • One of the biggest drivers in the last three years has been the gold exchange programme. Today it accounts for almost 40% of the revenues. They need more growth drivers like that.
  • They do not want to have any quarter where they have less than 10% margin. They are well within their own internal plans as far as the margin for the watch business is concerned.
  • They are trying to even it out better than having 18% in the first half and then going down to 7-8% in the second half. So, in FY20, we should look at second half to be more than 10%. So, it is a conscious decision and, therefore, it is not really a fall.

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

  • The closing price of Titan was ₹ 1,166/- as of 7th November 2019. It traded at 63x/ 48x/ 39x the consensus EPS for FY 20E/ FY 21E/ FY 22E of ₹ 18.6/ 24.4/ 29.7 respectively.
  • Consensus target price of ₹ 1,246/- implies a PE multiple of 42x on FY22E EPS of ₹ 29.7/-.
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