1. FMCG Sector Update
FMCG Sector Update
FMCG (monitor) - Forget the movies, action is here
November 29, 2013
Compilation of various company advertisements except brand pictures which are put, are for representation purpose only
Analyst: Chitrangda Kapur
chitrangda.kapur@rcap.co.in

2. FMCG Sector Update
Introduction
1HFY2014 was action packed for our FMCG universe. While early onslaught of monsoons
and heavy rains in most part of the country resulted in soaring vegetable prices (due to
crop destruction), which in some instances led to more than a few anecdotes (read
especially for onions) and a short spell of stock price correction (on fears that raw material
inflation will impact margins), rupee depreciation kept some companies at the edge of their
seats. Moreover, cut throat competition in select categories and companies countering
volume slowdown by increasing brand spends resulted in margin dent across the
universe. We bring you a low down.
Monsoons bring in a cheer
Though the initial spell of monsoon was destructive, the monsoon season ended with a
good spell. We observed a relief from the agri-based input costs pressure for the
companies under our coverage aided by normal monsoons, which is likely to extend to
2HFY2014. Companies pushing rural distribution network like Dabur India, ITC, Colgate –
Palmolive (India) and GSK Consumer will be the key beneficiaries of increase in sales due
to higher disposable income of farmers in the hinterlands.
Volume growth remains elusive; companies continue to give discounts
2QFY2014 witnessed price deflation in at least 2 categories as reported by the companies
under our coverage in their 2QFY2014 results including – (1) S&D category (Soaps and
Detergents) and (2) Coconut hair oils category. Below is the tabular representation of the
same as per our channel check.
Exhibit 1: Price deflation witnessed in Coconut Hair Oil category
Hair Care SKU MRP (Rs) S.P (Rs) Company Discount (%) Comments
Coconut Hair Oils
Parachute Coconut hair oil 175ml 49 45 Marico 8.2 October 2013 packaging
Parachute Coconut hair oil 500ml 120 110 Marico 8.3 In select modern retail stores
Parachute hot oil kit 190ml 197 147 Marico 25.4 Offer running for entire 1HFY2014
Vatika Hair Oil 150ml 65 55 Dabur 15.4
Vatika Hair Oil 300ml 128 100 Dabur 21.9
Other Hair Oils
Nihar 90ml 27 20 Marico 25.9
Clear Anti dandruff hair oil 150ml 80 78 HUL 2.5
Himalaya Anti dandruff 100ml 90 90 Himalaya Drug Co. -
Clinic + vita oil almond gold 150ml 75 75 HUL - New Launch
Garnier Fructis good bye damage 200ml 110 110 Garnier - New Launch
Leav-In Hair Products
L'oreal Leav-in full cream (new launch) 100ml 240 240 L'oreal - New Launch - In mini tub format
Himalaya Protein cream 100ml 125 125 Himalaya Drug Co. -
Livon 50ml 115 115 Marico -
Source: Channel Check

3. FMCG Sector Update
Exhibit 2: Price deflation witnessed in Soaps and Detergents category
Soaps and Detergents (S&D) SKU
MRP
(Rs)
S.P
(Rs)
Company
Discount
(%)
Comments
Soaps – ITC more aggressive in giving discounts than HUL
Lux strawberry and cream (3*100g) 300g 66 62 HUL 6.1
Dove (3*100g) 300g 178 156 HUL 12.4
Fiama di Wills Men offer pack (3*100g) 300g 120 35 ITC 70.8 Vivel face wash worth Rs85 free
Vivel (4*100g)-green tea 400g 88 80 ITC 9.1 At par with HUL's Lux brand
Vivel (4*100g)-vit E 400g 88 75 ITC 14.8
Fiama di wills (4*100g) 400g 168 158 ITC 6.0
Cinthol Intense Deodorant (3*125g) 375g 108 99 GCPL 8.3
Cinthol strong (3*125g)+100g 475g 139 108 GCPL 22.3
Yardley (3*100g) value pack 300g 190 140 Wipro 26.3
Priced at Rs50 (100g) in Oct 2012. Hence,
net discount (v/s year ago MRP) is ~7%
Santoor (4*125g) 150g 140 135 Wipro 3.6
Dettol skin care (3*75g) 240g 69 67 Reckitt Benckiser 2.9
Fiama di Wills gel bar 100g 32 27 ITC 15.6
Fiama di Wills gel bar (lemon grass) 125g 52 45 ITC 13.5
Fiama di Wills Men 100g 40 33 ITC 17.5
Cinthol 100g 31 27.9 GCPL 10.0 In select modern retail stores
Shower Gels
Lux shower gel 240ml 125 115 HUL 8.0 Loofa free worth Rs10
Axe shower gel 250ml 180 115 HUL 36.1 Loofa free worth Rs10
Fiama Di Wills (3 variants) 200ml 135 125 ITC 7.4
Vivel shower gel 125ml 65 55 ITC 15.4 Loofa free worth Rs10
Cinthol shower gel 265ml 230 160 GCPL 30.4 Cinthol 65ml deo worth Rs80 free
Nivea men (4 variants)-muscle 200ml 165 155 Nivea 6.1 Loofa free worth Rs10
Nivea pure impact 200ml 175 165 Nivea 5.7 Loofa free worth Rs10
Nivea energy/pull 200ml 145 135 Nivea 6.9 Loofa free worth Rs10
Detergents – discounts witnessed in higher SKU detergent bars
Vim Bar (3*200g) 600g 44 41 HUL 6.8
Vim Liq 250ml 54 54 HUL -
Vim Liq 500ml 99 99 HUL -
Dettol Kitchen Liquid 200ml 60 40 Reckitt Benckiser 33.3 Dettol Kitchen at higher discount
v/s Vim LiquidDettol Kitchen Liquid 400ml 94 94 Reckitt Benckiser -
Tide Bar (4*250g) 1kg 72 69 P&G 4.2
Tide Bar 85g 6 6 P&G -
Tide Bar 140g 10 10 P&G -
Rin Bar (4*250g) 1kg 64 62 HUL 3.1
Rin Bar 85g 5 5 HUL -
Rin Bar 160g 10 10 HUL -
Surf Excel Bar 75g 6 6 HUL -
Surf Excel Bar 100g 10 10 HUL -
Wheel Active jasmine & lemon powder 500g 22 20 HUL 9.1
TIDE + powder 500g 28 25 P&G 10.7
ARIEL Matic 1kg 216 185 P&G 14.4
Surf Exel Matic front load 1kg 216 216 HUL -
Rin Matic 1kg 115 115 HUL -
Source: Channel Check

4. FMCG Sector Update
Notable launches that made competitors sit up straight and take notice
The numero uno significant launch that immediately saw increase in competitive intensity
this fiscal year was the national launch of Saffola Masala Oats by Marico (soft launch was
done in 2011 in South India). While Quacker and Bagrry’s have been present in the oats
category for a longer duration of time than Marico, Marico was the first in India to launch
flavored oats at a competitive price (40g SKU for Rs15) which suited the Indian taste
palate. Oats has traditionally been considered as horse feed (for which it was originally
grown), has bland taste and was cooked in a sweetened form in milk, which did not appeal
to Indian taste, as Indians prefer savory breakfast to sweet breakfast. Soon afterwards,
Pepsico and Kelloggs (India is the only market for Kelloggs in which they have launched
ready-to-cook breakfast cereals) also launched flavored oats nationally, which were priced
at Rs10 per pack (26g). However, despite this, Saffola Oats has grabbed second spot in
the oats category (Quacker is the leader) with an estimated value market share of ~16%.
Exhibit 3: Breakfast category with growth rate of 16% yoy is now a lucrative category (estimated size of Rs870cr) for companies
Breakfast category SKU Price (Rs) Company Discount (%) Comments
Museli category size estimated at ~Rs100cr
Saffola Muesli nutty crunch 25g 10 Marico -
Saffola Muesli 400g 170 Marico 4.7
Bagrry’s Muesli 400g 170 Bagrry’s -
Bagrry’s Muesli 490g 190 Bagrry’s -
Bagrry’s Jar (Muesli) 1Kg 390 Bagrry’s -
Kelloggs Muesli 550g 229 Kelloggs -
Kelloggs Muesli 275g 119 Kelloggs -
Kelloggs Muesli No added sugar (new) 275g 119 Kelloggs -
Oats category size estimated at ~Rs200cr
Saffola Oats 40g 15 Marico -
Saffola Oats (3*40g) 120g 45 Marico 6.7 3 for Rs42
Saffola Oats 400g 62 Marico -
Saffola Oats 1kg 140 Marico 22.1
Kelloggs oats 26g 10 Kelloggs -
Kelloggs oats 255g 99 Kelloggs -
Kelloggs oats 2kg 149 Kelloggs -
Quacker oats jar 500g 105 Pepsico -
Quacker oats 26g 10 Pepsico -
Quacker oats 400g 62 Pepsico -
Quacker oats 1kg 149 Pepsico 10.1
Quacker oats 1.5kg 173 Pepsico -
Source: Channel Check

5. FMCG Sector Update
A spill over of FY2013 launch impact in FY2014 was the launch of Reckitt Benckiser’s
Dettol Kitchen Liquid. Dettol Kitchen Liquid made its debut in February 2013 and was
followed by fierce competition between HUL (Vim liquid) and Reckitt Benckiser. Our
channel check observation was that significant market share erosion took place for Vim
liquid in Dettol’s initial launch however, for 1QFY2014, HUL’s Vim recorded double digit
growth. This may be attributed to the fact that Dishwashing is ~Rs2,000cr category with
bars constituting the bulk (Vim is a leader with over 50% value market share), while liquids
is a small Rs300cr category. HUL has launched a new variant of Vim liquid – Vim Anti-
Germ to counter the competition. While the final verdict of Dettol v/s Vim is not yet out, so
far it seems both the companies have hung their gloves. According to Euromonitor, the
Dishwash liquid category is expected to quadruple by 2020, aided by entry of Reckitt
Benckiser into the space and innovation of dishwashing liquids to multi-surface cleaning
products (both utensils and kitchen surfaces) which will appeal to the budget minded
Indian consumers.
Further, possibly the most awaited and most important launch was P&G’s foray into the
toothpaste category in India through its popular Oral-B brand. P&G’s launch in India was
impending for a long time and the speculations were rife since 2010, hence, we believe,
companies in India (Colgate, Dabur, HUL and GSK Consumer) had enough time to ramp
up their distribution network and spend on developing strong brand equity amongst
consumers. In step with our analysis, the launch of Oral-B turned out to be a ‘non event’
with the brand garnering only 0.2% of market share in the first couple of months of its
launch. However, marketing spends for Colgate (market leader) was significantly elevated
for 1HFY2014, which hampered the operating margins for the company.
Exhibit 4: Products launched in 1HFY2014 taken seriously by the competition
General
Category
Brand Company
Specific
Category
Category
Size
Competitors Launch details What Happened?
Soaps &
Detergents
Dettol
Kitchen
Liquid
Reckitt
Benckiser
Dishwashing
liquid
Rs300cr
HUL (Vim),
Jyothy Labs
(Pril)
Launched in 4QFY2013, but
dishwashing war spilled over to
1QFY2014
HUL launched Vim Anti- Germ
dishwash liquid to counter
competition 1QFY2014. Final
verdict is not yet out
Foods
Saffola
Oats
Marico
Breakfast
cereal (oats)
Rs200cr
Pepsico
(Quacker), GSK
Consumer
(Horlicks) and
Kelloggs
National launch of India's first
flavored oats at pocket friendly
price of Rs15
Pepsico and Kellogs launched
flavored oats at competitive price
of Rs10; Nestle and HUL may
launch in future
Oral Care
Oral - B
Pro
Health
toothpaste
P&G
Toothpaste
(Basic)
Rs3,630cr
Colgate, HUL
and Dabur
Long awaited launch by P&G in
urban markets with one variant
in 2 SKUs (90g & 180g)
P&G captured only 0.2% market
share. Fierce competition still
continuing with Colgate at the
receiving end
Source: RSec Research, Industry
Exhibit 5: Other product launches in 1HFY2014
Food
Parle Hide & Seek Black (Chocolate & Vanilla variants), Parle Milano miniature tub,
Parle G Gold
Beverages Real Supa Fruits
Oral Care
Dabur Super Babool + Salt, Oral - B Pro Health toothpaste, Colgate visible white,
Colgate Active Salt Healthy White
S&D
Surf Excel liquid detergent, Ujala IBF 100, Ariel Color and Style, Vivel skin nourishing
soaps (green tea, aloe vera, mixed fruit & cream and refresh variants)
Personal Products
Engage Deo sprays, Tony & Guy salon range, Dove Elxir,
Garnier Fructis Goodbye damage hair oil
Home Insecticide Hit Anti roach gel
Source: Channel Check

6. FMCG Sector Update
Exhibit 6: Innovative products launched in 3QFY2014 (Oct – Nov. 2013)
Food Kelloggs' Muesli No added sugar (Kelloggs), Delishus Premium cookies (ITC)
Beverages Real Mango Shake (Dabur)
Tobacco Kwicknick (tobacco chewing gums by ITC)
S&D Vatika Honey & Saffron soap (Dabur)
Home Insecticide Good Knight fast card (GCPL)
Source: Channel Check
In the oral care war - we belong to the ‘Colgate camp’
It is not P&G alone that Colgate is fighting the dominance battle with, HUL is also pitching
in. A déjà-vu of sorts is being witnessed by Colgate between itself and HUL. In early 2000s,
when HUL launched Pepsodent, it took direct pot shots on Colgate with advertisement
aired on television stating “Pepsodent is 102% better than Colgate at fighting germs”. Cut
back to present, a similar aggressive advertisement was aired on television recently by
HUL taking a direct pot shot on Colgate. However, Colgate is a much more diversified
company from its early 2000 avatar having products at competitive prices in numerous
SKUs across segments (refer exhibit - 8) and this is where we base our prime argument for
the company. Moreover, Colgate has ramped up its distribution network and has higher
penetration in the hinterlands than HUL, which is the reason behind the company’s
increase in volume market share to ~56% despite higher competition. Hence, we believe
that while near term pain will remain for Colgate, the company will come out of this melee
unscathed in the long run.
Exhibit 7: Pricing intensity in the oral care category
Oral Care SKU MRP (Rs) Discount (%) Comments
Price hike/
(price cut)
(% qoq)
Price hike/
(price cut)
(% yoy)
Price hikes from Colgate’s stable
Colgate Max Fresh 150g 75 - 4.2 7.5
Colgate Total 140g 87 - - 33.2
Colgate sensitive original 40g 49 25.0 25% extra in grammage 5.0 -
Colgate sensitive original 80g 90 16.7 Festival offer by company- Rs15 off 5.9 7.1
Colgate Plax mint (mouthwash) 250ml 99 - - - 4.2
Colgate Plax fresh tea (mouthwash) 250ml 115 - - - 4.5
Price hikes from HUL’s stable
Close Up Menthol/citrus/Peppermint
Ice
150g 86 - 2.4 6.2
Close up (150g*2) value pack 300g 150 4.7 Family value pack discount 11.1 -
Pepsodent Gum Care 150g 95 42.1 Toothbrush free worth Rs40 5.6 5.6
Pepsodent Germi Check 200g 77 - 2.7 -
Pepsodent Whitening 150g 82 12.2
32g Pepsodent free worth Rs10
(July packaging)
3.8 -
Pepsodent Whitening 80g 42 - - -
Price hike from GSK Consumer’s stable
Sensodyne rapid relief 80g 120 - - 9.1
Price hike from Dabur’s stable
Dabur Red (200g+100g) value pack 300g 120 4.2 Family value pack discount 7.1 -
Source: Channel Check

7. FMCG Sector Update
Exhibit 8: Category wise peer analysis – Colgate has more offerings per category and at a discounted price to its peers
Oral Care SKU MRP (Rs) Discount offered Company
Basic Category – Estimated Category Size of Rs3,630cr
Colgate Dental 150g 52 9.6% in select modern retail stores Colgate – Palmolive (India)
Colgate Dental 100g 37 - Colgate – Palmolive (India)
Colgate Total Pro Health Gum 150g 92 Colgate – Palmolive (India)
Colgate Total 70g 55 Colgate – Palmolive (India)
Colgate Total 140g 87 Colgate – Palmolive (India)
Colgate Active Salt 200g 75 Colgate – Palmolive (India)
Colgate Herbal 100g 34 Colgate – Palmolive (India)
Colgate Herbal 200g 78 Colgate – Palmolive (India)
Colgate Cibaca 175g 40 Colgate – Palmolive (India)
Pepsodent Gum care 150g 95
42.1% (Sensitive toothbrush free
worth Rs40)
HUL
Pepsodent Expert care 80g 58 HUL
Pepsodent Gum Care 80g 45 HUL
Pepsodent Germi Check 200g 77 HUL
Oral - B all rounder 80g 36
Expensive than Colgate Dental
(100g - Rs37) Cheaper to
Pepsodent Expert care (80g -
Rs58)/ Pepsodent G (80g - Rs45)
and Colgate Total (70g - Rs55)
P&G
Oral - B all rounder 190g 72
At par with Pepsodent Germi Check
(200g - Rs77) and Colgate Active
Salt (200g - Rs75); Expensive to
Colgate Dental (150g - Rs52)
P&G
Meswak 100g 42 Dabur India
Dabur Red 100g 40 Dabur India
Freshness category - Estimated Category Size of Rs1,450cr
Colgate Max Fresh Blue 150g 79 - Colgate – Palmolive (India)
Colgate Max Fresh Red 150g 78 - Colgate – Palmolive (India)
Colgate Max Fresh Peppermint Ice 150g 75 - Colgate – Palmolive (India)
Colgate Max Fresh Blue+Red 80g 44 - Colgate – Palmolive (India)
Closeup Deep Action Red 150g 76 - HUL
Closeup Deep Action Menthol 150g 86 - HUL
Closeup Fire & Ice 150g 91 - HUL
Closeup Peppermint Splash 150g 86 - HUL
Sensitive Category – Estimated Category Size of Rs515cr
Colgate Sensitive (pro relief) 70g 150 - Colgate – Palmolive (India)
Colgate sensitive original 40g 49 25% (25% grammage extra) Colgate – Palmolive (India)
Colgate sensitive original 80g 90 16.7% (by Colgate) Colgate – Palmolive (India)
Colgate sensitive original 80g*2 150
13.3% (offered by select Modern
Retail)
Colgate – Palmolive (India)
Pepsodent Sensitive 80g 80 HUL
Sensodyne Fresh Mint 40g 50 GSK Consumer
Sensodyne fresh mint & fresh gel 80g 90 55.6% (Rs50 worth toothbrush free) GSK Consumer
Sensodyne Rapid Relief 80g 120 GSK Consumer
Sensodyne Rapid Relief & Protect 80g 150 GSK Consumer
Beauty and Whiteness Category – Estimated category size of Rs170cr
Colgate Total advance whitening (new launch) 140g 92 - Colgate – Palmolive (India)
Colgate Visible White 100g 79 - Colgate – Palmolive (India)
Pepsodent Whitening 150g 82
12.2% (For June SKUs, free
Pepsodent 32g worth Rs10)
HUL
Pepsodent Whitening 80g 42 - HUL
Source: Channel Check

8. FMCG Sector Update
Acquisition / investment made by companies under our coverage in 1HFY2014
Bajaj Corp acquired No Marks anti blemish cream from Ozone Ayurvedics in August 2013
for an estimated ~Rs141cr, thereby valuing the brand at ~3.5x sales (which is expensive in
our view) to be amortized completely for the next three years. Anti blemish category is
estimated to be at ~Rs340cr size with Himalaya as a distinct leader. While the acquisition is
a positive for Bajaj Corp in the long run, in the medium term, the earnings for the company
will be slightly depressed owing to high amortization cost and higher expenses related to
operational restructuring of No Marks (currently has over 60 SKUs which are not all feasible
and is distributed only through Chemists network).
Godrej Consumer Products (GCPL) acquired 30% stake in the Mumbai based premier hair
salon chain B:Blunt founded by Adhuna Bhabani Akhtar and Osh Bhabani in 2005. B:Blunt
has national presence through 17 outlets, all in big cities of Mumbai, Bangalore, Delhi,
Pune, Indore and Hyderabad. The salon also has presence in Dubai through a single outlet
at Dubai International Financial centre. While GCPL’s investment into the hair salon chain is
miniscule (Rs50-60lacs according to our back of the envelope calculation), no specific
strategy is indicated by the management behind the investment. Nonetheless, we believe
the investment may be strategically beneficial, as the company will get a better
understanding of the premier hair salon space in India.
Key changing trend witnessed
High CPI of key vegetables (including onions, tomatoes, garlic, coriander) has increased the
demand for packaged/ frozen foods. According to media sources Mother Dairy's frozen
peas, Capital Foods' ginger garlic pastes and Del Monte's canned fruit have recorded 20-
30% higher sales since September 2013. For 2QFY2014, Dabur India reported strong 20-
22% yoy growth in its foods portfolio aided by increase in distribution reach and constant
innovations with Real brand extended to dairy as well as premium juice variants and
Hommade brand recording good sales for its tomato puree (25% increase in sale since
September 2013, according to media reports) and ginger-garlic paste. HUL and ITC too
recorded strong growth for their packaged foods business.
ITC has married information technology, distribution network and customer engagement, by
mapping more than 20 lakh stores across 150 cities and towns including organised retail
and kirana stores across India with near real-time information on the availability of its FMCG
products in a revolutionary online platform. This is a unique concept adopted by an FMCG
company to push premium products by targeting urban youth who are more inclined to do
impulse driven aspiration shopping. The portal was soft launched in May 2013 and has
recorded more than 29,000 hits. ITC is focusing on increasing its distribution reach and is
competing with HUL aggressively for the market share; HUL has a distribution reach of
~55lakhs outlets
We have used the portal and were impressed with the instant response received; depicted
below is the 3 step pictogram to locate the nearest store stocking ITC’s premium products:

9. FMCG Sector Update
Exhibit 9: ITC’s new store locator portal – a unique innovation in the FMCG category; easy to use in 3 steps
Step -1 Step - 2 Step - 3
Source: Company, RSec Research
Primary research of other categories
Given below in the tabular format is the discount offered in other key FMCG categories. We
note that juices, biscuits and dairy categories are not witnessing major discounts or price
hikes.
Exhibit 10: Price discounts given in the select SKUs for Shampoo categories
Shampoos SKU MRP (Rs) S.P (Rs) Company Discount (% ) Comments
Sunsilk hair fall solution 340ml 184 128 HUL 30.4 Free conditioner worth Rs56
Sunsilk Co-creation-kretlock 180ml 112 97 HUL 13.4
Sunsilk Black shine (Black) 180ml 115 100 HUL 13.0
Sunsilk pink 180ml 115 100 HUL 13.0
Sunsilk silk and smooth (Yellow) 180ml 112 97 HUL 13.4
Clear 200ml 135 120.6 HUL 10.7
Tresseme 225ml 135 120 HUL 11.1
Dove conditioner 200ml 170 160 HUL 5.9
L'oreal original 375ml 230 215 L'oreal 6.5
L'oreal (hair fall repair and total repair 5) 175ml 135 55 L'oreal 59.3 55ml conditioner worth Rs80
Panteen lively clean (oily hair) 180ml 139 119 P&G 14.4 Limited period offer
Panteen silk & smooth 180ml 149 139 P&G 6.7
Dabur Vatika Heena Shampoo 90ml 56 44 Dabur India 21.4 30ml Vatika hair oil worth Rs12
Source: Channel Check

10. FMCG Sector Update
Exhibit 11: In MFD, GSKCHL offers discounts on its higher SKUs while, Bru’s (50g) price is reduced to match Nescafe’s price
Beverages SKU
MRP
(Rs)
S.P
(Rs)
Company
Discount
(%)
Comments
Malted Foods (MFD)
Horlicks Jar – original 500g 182 172 GSK Consumer 5.5 Select modern retail stores
Horlicks refill chocolate 1kg 356 340 GSK Consumer 4.5 Super saver pack; Rs16 discount
Mother's Horlicks chocolate 400g 230 205 GSK Consumer 10.9
Boost 450g 179 169 GSK Consumer 5.6 Free tennis ball
Boost 750g 283 158 GSK Consumer 44.2 1Kg Radical rice free worth Rs125
Bournvita refill 500g 178 166 Cadbury 6.7 Select modern retail stores
Bournvita Shakti 500g 188 166 Cadbury 11.7 Select modern retail stores
Bournvita jar 1kg 335 300 Cadbury 10.4 Select modern retail stores
Complan pista badam trial pack/kesar badam 400g 220 200 Heinz 9.1
Complan choco trial pack 500g 218 190 Heinz 12.8
Coffee
Nescafe vanilla latte sachets/cappuccino 5*15g 75 60 Nestle India 20.0 Select modern retail stores
Nescafe Classic jar 50g 115 95 Nestle India 17.4 Kitkat worth Rs20 free
Nescafe Classic refill 50g 106 101 Nestle India 4.7 Select modern retail stores
Bru Gold jar 50g 110 100 HUL 9.1
Bru Roast & Ground (new launch) 500g 150 142 HUL 5.3 20g Ponds talc free worth Rs8
Bru Roast & Ground (new launch) 200g 60 58 HUL 3.3
Source: Channel Check
Our top recommendations
Most companies in our FMCG universe are trading at their fair value; nonetheless, we pick
a handful of them as our top picks. For our top-picks, we recommend companies who are
leaders in their respective categories with strong fundamentals and which have witnessed
stock price correction owing to macro-economic headwinds. Our top picks include ITC,
Colgate and Britannia Industries.
ITC is one of the most diversified companies amongst our universe. The stock has got a
beating after the company announced slightly higher than expected volume de-growth in its
cigarette business. However, our positive bias on the stock stems from two prime
assumptions – (1) Razor focus of the company in its non-cigarette FMCG business and (2)
Despite the GoI’s efforts to reduce cigarette smoking in India (the industry suffers from
consumer stickiness), it will be few years before cigarette smoking decreases to such an
extent as to adversely impact the financials of ITC. In our numbers we do factor 3-4% yoy
volume de-growth in ITC’s cigarette business for FY2014E, nonetheless, at the CMP, we
find the stock attractive for long term investment.
As discussed in our report earlier, Colgate is as synonymous to toothpaste in India as
photocopying is to Xerox. If P&G has entered India after being well aware of the
competition landscape in India and recording three years of consecutive losses in its books
of account; Colgate is also well aware of the staunch competitor it is facing having
successfully thwarted P&G from gaining leadership position in other geographical markets.
Further, in India the company straddles across segments with most product offerings
across price range and with the association with IDA (Indian Dental Association), the
company is successfully making inroads in the hinterlands. We believe, Colgate with
unmatched brand recognition, deeper product range and broader market penetration has
higher revenue growth potential than its peers. Strong fundamentals and healthy return
ratios further re-iterate our view.

11. FMCG Sector Update
Exhibit 12: Valuation table
Net Sales (Rs) EPS (Rs) P/E (x) EV/EBITDA (x)
CMP
(Rs)
Reco.
Target
(Rs)
FY2014E FY2015E FY2014E FY2015E FY2014E FY2015E FY2014E FY2015E
Asian Paints 504 Neutral 532 13,263 15,763 14.9 19.0 33.8 26.5 20.8 16.4
Bajaj Corp 232 Buy 277 740 915 11.5 13.9 20.2 16.7 14.8 11.3
Britannia 893 Accumulate 950 6,928 7,804 33.9 41.3 26.3 21.6 18.4 15.0
Colgate 1,256 Accumulate 1,424 3,609 4,162 36.6 47.5 34.3 26.5 24.3 18.7
Dabur India 165 Neutral 164 7,126 8,359 5.4 6.6 30.7 25.2 23.5 19.3
GCPL 904 Neutral 813 7,818 9,116 24.6 31.3 36.7 28.9 26.8 21.5
GSK Consumer ^ 4,471 Neutral 3,934 3,588 4,186 124.2 151.3 36.0 29.6 33.4 25.2
HUL 595 Reduce 553 27,531 30,561 16.4 19.7 36.3 30.1 31.6 26.3
ITC 319 Buy 366 32,376 37,455 11.1 13.1 28.6 24.4 19.4 16.5
Jyothy Labs 181 Accumulate 198 1,302 1,549 7.2 9.0 25.2 20.1 20.4 15.8
Kansai Nerolac 1,063 Neutral 1,100 3,275 3,673 49.1 55.0 21.6 19.3 13.9 12.4
Marico 215 Accumulate 238 4,982 5,777 7.2 8.8 29.7 24.4 19.3 15.7
Nestle India ^ 5,187 Neutral 5,150 9,234 10,563 122.4 160.9 42.4 32.2 24.3 19.6
Source: RSec Research; Note: ^ GSK Consumer and Nestle India are CY companies
Britannia is a complete re-rating story and despite the stock recording gains in excess of
80% since the inception of CY2013 (completely captured by us), there still exists upside in
the stock. Britannia in its 2QFY2014 results had positively surprised us with higher than
expected operating margins and going forward, we believe, the momentum will continue,
aided by lower sugar prices (higher base yoy) and good monsoons. While there does exist
a risk factor in terms of higher sugar price due to lower supply going forward, if impasse
between sugar mills and Uttar Pradesh (U.P) government continue for long, we believe,
Britannia will not get majorly impacted. Continued momentum in the company’s dairy
business and recent management restructuring is our other basis for optimism.

12. FMCG Sector Update
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