Friday, June 1, 2018

Management Speak: Consumer Sector

Consumer Sector

Hindustan Unilever (HUVR IN) (Buy, PT: Rs1820)

·         From a demand point of view, we are seeing a gradual improvement in demand and that's coming through, whether it is from rural point of view or from an urban point of view; If you recall, we had talked about couple of years back that rural has started growing less than urban. In fact, we were one of the first companies to talk about rural stress as it converted into rural distress and now we are very happy to say that, yes, we are seeing pickup in rural across the country, not consistently everywhere, but in many places, it's growing now faster than urban.
·         When you look at it from innovations and naturals, this portfolio has been growing at 2.5 times HUL average and I think that's really where we are building the segments of future, both from the portfolio on top and naturals
·         Inflationary pressures will continue to remain elevated. So this is something that we need to continue to manage, we need to remain agile, we need to remain responsive to really manage the emerging inflationary pressures.
·         Even though there is inflation and there is a bit of potential price rises, at least in our context we know that the rate reductions we have taken post-GST are much larger.
·         Trade conditions have normalized and pipelines are now stable; It has been a very interesting year with the impact of demonetization, then the transition to the GST, then GST 2.0 and now, we have entered a phase where things are much more steady and the normal business environment has emerged
·         I think our focus on driving volume growth and improvement in operating margins, I think is consistent and we will continue to follow

Godrej Consumer (GCPL IN) (Buy, PT: Rs1300)

·         We believe that in India, the platform is set well for us to get back to double-digit growth this year on the back of continued improvements in the economic environment, particularly stronger rural demand. And even in quarter four, rural grew at a significantly higher pace than urban. And given the focus of the government in rural development and assuming a normal monsoon, we should see further improvements in rural growth.
·         The performance in our international business was relatively softer due to the weakness in Indonesia and Africa. However, we expect to see a strong turnaround in growth rates in fiscal year 2019. Many of the geographies that we are operating are projected to have stronger economic growth, so that should fuel stronger consumer demand.
·         We are also very excited about our innovation calendar for this year. We have 10 launches that are being planned in India across category, and we are targeting about at least a couple of launches in every quarter. The focus on our innovation agenda continues. I think last year the pace of new launches had slowed down a little bit, but we used the volatility of last year to take a step back and figure out how to reinvigorate our innovation pipeline. And our expectation is that this year will probably be the most active NPD launch calendar ever in our history. So we are very excited about the kind of disruptive products that we are facing at different price points
·         But at least for next couple of quarters, I think we're quite kind of protected against any increase in input cost. And for the period beyond that, we will evaluate calibrated price increases or maybe some of the cost saving initiatives to continue profitable growth.  So, to be honest, at this stage, we are not too worried of crude being at 70% or 70%-plus at this point in time, because we do have the comfort of continuing this gross margin momentum at least for next couple of quarters.

Marico (MRCO IN) (Buy, PT: Rs375)

·         There have been early signs of a revival in rural, as it outpaced urban growth in the last three quarters of FY18. We expect the government's spending plans to bolster rural development and raising of minimumsupport prices of crops to help regain the momentum in rural demand in the medium term.
·         In the medium term, Advertising spends will be stepped up to 10-11% of Sales to support forthcoming innovations. The Company will focus on fewer but bigger innovations to create growth engines of the future.
·         As far as copra is concerned, I think we have reached the highs.
·         We might consider something in Value added hair oil which in the coming quarters in terms of pricing.  Actually some place in the market have taken some price increases in some packs.

Dabur (DABUR IN) (SELL, PT: Rs315)

·         Like I mentioned earlier, there are some green shoots in rural markets, March numbers indicate some uptick.
·         Yeah. I think we have price increases in several categories. They are not pretty dramatic. Small increases we've got. So, wherever, they have seen some inflationary impact. We have taken up prices. It's not been very dramatic. But going forward, I think if inflation kicks in higher especially with crude oil prices at $70, $75 levels and perhaps trending higher. And we have the pricing element so that doesn't worry me. I think we should now, after a couple of years, we're able to use pricing as a tool to not just mitigate, but even perhaps enhance margins.
·         I think NPD pipeline is much stronger than you will see over the past two or three years.
·         I think we are committed to maintaining the current levels of operating margin.
·         Overall, our growth should be good. We are looking forward to this year. I think this year can be much better than what we did in the last two or three.

Emami (HMN IN) (Buy, PT: Rs1290)

·         Domestic business grew by 10% as rural markets grew stronger than urban promising a good growth trajectory going forward.Looking at all the external data the spends or the monsoons or whatever we are seeing we are relying heavily on the rural markets.
·         Prices for raw materials are firming up, but we have also taken up our prices keeping this in mind, so looking at the overall scenario it looks like we would be able to maintain our margins for this year.

Colgate Palmolive (CLGT IN)  (Buy, PT: Rs1450)

·         In toothpaste especially we are not seeing big difference in rural and urban growth, rural is slightly ahead of urban, so to that extent, we do not seem to be seeing the pickup that other companies have referred to, but having said that internally we are confident there has been a lot of this in the press already, MSPs and normal monsoon, election year, freebies, loan waivers, there is a lot of the stuff that is happening so which is positive for rural and it should play through at some stage and we do expect rural growth will be ahead of urban in say with a lag of quarter or two, but we will have to wait and watch obviously.
·         Post GST, we have not taken price increases as mentioned, but we have been able to grow our margins consistently, and yes, there will be a need to take our pricing, and yes, we will take our pricing up. .
·         Our strategy is to try to maintain this level of margins, we do expect with the combination of pricing and cost control, we will be able to deliver the gross margins

Britannia (BRIT IN) (Buy, PT: Rs6450)

·         We We've seen two quarters of double-digit volume growth. It's always good to have that kind of volume growth, because as I've always been saying, India deserves as a country with the kind of GDP growth that we are seeing, it deserves to see much better growth. So, I'm hoping that it continues and the revival does happen. And this being an election year, hopefully, it will sort of continue for at least a year and then with a stable government, things should be moving on at the same pace. Rural continues to be high double digits and it's growing month on month for us.
·         This year, the FY19 is going to be a very busy year for us in terms of new product launches. We have got almost about 50 new products coming in and they almost start from the word go.
·          So, there will be a slight amount of raw material inflation as we go forward, but it's going to be very, very controllable.
·         So, if you were to look at it from Q4 of last year which was a 24-month revenue growth of 12% went up to 15% to 19%. So, we are moving towards the pre-demon numbers of 22%, 25% and hopefully even 26% and 30%. So, I'm pretty hopeful that things will move in the right direction from now onwards.


1.       Hindustan Unilever
2.       Godrej Consumer
3.       Marico
4.       Dabur
5.       Emami
6.       Colgate Palmolive
7.       Britannia

No comments:

Post a Comment