16 Dec 2013
INDIA CONSUMER: Takeaways from Industry panel data and
feedback from company interactions/channel checks
We present takeaways from the Industry panel data for 9MCY13 v/s
9MCY12 and its implications on our FMCG universe performance going
9MCY13 panel data suggests broad‐based moderation in consumption
growth – across categories, geographies, income segments.
Relatively rural is holding up better v/s urban but even rural growth rates
are moderating.
Moderation is more prominent in Food & Beverages vis‐à‐vis Personal Care
and Household Care categories.
Our industry interactions with seven companies in FMCG suggest: a)
continuation of subdued volume growth even in 3QFY14, b) narrowing of
gap between rural and urban growth rates and c) lesser pricing power in an
environment of rising competitive intensity and RM inflation. Impact of
sticky inflation (especially in Foods) is playing truant with consumer wallets
as per most managements. Additionally, lagged impact of GDP slowdown as
well as poor consumer sentiments is also manifesting in consumption
There are exceptions to this broad‐based theme of consumption
moderation. Surprisingly, discretionary categories like Paints, Adhesives are
not witnessing any significant pressure and may continue to post double
digit volume growth. This could be owing to substantially better
performance in tier II/III towns.
Sector view: We maintain our cautious sector stance amidst weakening
fundamentals and rich sector valuations. While valuations have somewhat
corrected to 29.8x from peak of 33.9x, they are still expensive in our view
considering the long period average of 23.8x (BSE FMCG index
underperformed Sensex 21% in 4 months). We see downside risks to our
estimates ahead. Relatively we prefer Dabur, Marico and Britannia. Within
the large‐caps, we continue to prefer ITC v/s HUL.
Urban: Consumption slowdown is well entrenched and broad‐based
Industry growth has moderated sharply from 8% to 2%.
Foods & Beverages has seen maximum deceleration from 7% to zero
Household Care is still holding up well at 10% but Personal Care has
moderated from 10% to 5%.
Slowdown is widespread: a) across regions – North, East, South & West b)
across income categories – Sec A/B, Sec C/D/E and c) Across city based
classification – Metros, Mini Metros and Rest of Urban.
 Motilal Oswal Financial Services
Consumption growth slowdown in urban is broad based; growth has
slowed across regions – East, West, North and South, Metros and Mini‐
metros; moderation witnessed across income categories – Sec A/B, Sec
Urban value growth has collapsed to 2%
Eastern region
Western region
Northern region
Southern region
Sec A/B
16 Dec 2013
 Motilal Oswal Financial Services
Sec C/D/E
Rural growth also moderated
Rural – relatively lesser impacted but growth is decelerating
Eastern region
Industry growth has moderated from 7% to 4%.
Foods & Beverages has decelerated from 6% to 2%.
Household Care is still healthy at 8% but moderation from 12% growth in
Personal Care has slowed down from 11% to 4%.
Growth deceleration is prominent across regions but West is showing the
maximum stress with hardly any growth.
Western region
16 Dec 2013
 Motilal Oswal Financial Services
Northern region
Southern holding up better vs. other regions
Feedback from company interactions/channel checks
Our interactions with seven consumer companies in the last week suggest
continuation of subdued volume growth.
Vicious food inflation, lackluster salary hikes and weak consumer sentiments
are taking a toll on consumer wallets.
Companies are reluctant to implement required price hikes given the
prevalent moderation in volumes as well as heightened competitive
intensity. Thus, only partial pass through of price hikes have been
Delayed winter may impact sales of personal products, especially Skin Care
(Fairness cream in particular). Companies had built up trade inventory in
2QFY14 in anticipation of winter sales. Thus, normalization of inventory can
result in weak primary sales for 3QFY14. HUL, Emami, Dabur and ITC are key
players with winter exposure through Skin Care portfolio.
There are some exceptions surprisingly in discretionary categories like Paints
and Adhesives which are not seeing major challenges for volume growth.
Implications for the sector – weakening fundamentals plus premium
valuations underscore our cautious stance
Our coverage universe had reported a relatively subdued sales growth of
10.8% for 2QFY14 (June‐Sep’13), a 18 quarter low. Even EBITDA growth at
13.4% was lowest in 12 quarters.
Thus, while part of the slowdown, as reported by various industry
syndicates, is already in the numbers, reported growth performance of
listed consumer universe has not shown as much pain as indicated by the
panel data. Especially volume growth in some of the consumer names for
2QFY14 had remained healthy.
This could be owing to various factors – e.g. inventory loading in trade for
personal care products in 2QFY14 in anticipation of a good winter. In that
case, growth numbers for 2HFY14 should show further moderation, a trend
confirmed by our recent company interactions and industry channel checks.
Also, industry panel data may not be 100% accurate (and hence our
insistence on using it as a trend rather than focusing on specific growth
number for a category) as data is extrapolated from a sample and thus may
be divergent from reported growth data of sector companies.
16 Dec 2013
 Motilal Oswal Financial Services
We expect the moderation in staples consumption to persist as lagged
impact of macro slowdown and sticky inflation manifests going forward.
Reiterate our cautious sector stance. Relatively prefer Dabur, Britannia &
Marico. Within large‐caps we prefer ITC vs. HUL, though we do not have
BUY rating on either.
Snapshot of volume growth for FMCG universe
Revenue growth of our coverage universe at 18 quarter low
…so is EBITDA growth
Our universe = APNT, Britannia, Colgate, Dabur, GCPL, GSK Consumer,
HUL, ITC, Marico, Nestle, Pidilite, Radico, United Spirits
Valuations charts
P/E chart
Relative P/E vs. Sensex
16 Dec 2013
 Motilal Oswal Financial Services
P/B chart
Relative P/B vs. Sensex
Sector performance summary
16 Dec 2013
 Motilal Oswal Financial Services
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