Thematic | April

name

Company

2024

fy

Consumer

Time to Restock!

Naveen Trivedi – Research Analyst

(Naveen.Trivedi@MotilalOswal.com

Research Analyst: Pratik Prajapati

(Pratik.Prajapati@MotilalOswal.com) |

Tanu Jindal

(Tanu.Jindal@MotilalOswal.com)

10 December 2010

Investors are advised to refer through important disclosures made at the last page of the Research Report.

1

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Content:

Time to restock!

01

Page #4

Summary: Time to restock!

Volume print to improve; risk-

reward in favor

02

Page #6

03

Page #8

Story in charts

Top Ideas

04

Page #11

The consumer sector and

our takes

05

Page #18

06

Page #27

Category insights

Macro indicators

07

Page #30

08

Page #34

09

Page #37

Sector aggregates

Sector valuation

Valuation Summary

Companies

Pg41

Pg47

Pg53

Pg59

HUVR

GCPL

DABUR

TITAN

All eyes on rural

recovery

Growth and

margin remain the

key catalysts

Building on the

core strengths

A long runway for

growth

Consumer: Thematic

Consumer: Time to restock!

Consumer

Time to restock!

Volume print to improve; risk-reward in favor







Valuation snapshot (INR)

Companies

ITC

HUL

Reco

Buy

Buy

Buy

CMP

427

2,287

529

TP

500

2,900



Consumer staples companies have struggled to maintain volume growth momentum

during the last two years, largely due to external challenges. With deep distribution

touchpoints and a heavy revenue mix from the highly penetrated traditional

categories (such as oral care, hair care, laundry, soaps, etc.), the volume performance

of staples reflected the real consumption demand at a pan-India level. This was unlike

discretionary companies/categories that have been enjoying market penetration,

share gains by organized players, and changes in wallet share. Therefore, while

revenue CAGR for staples was at 13%, the same for discretionary was at 28% over the

last two years. Such a contrast was not observed in previous phases.

Earnings delivery of the staples companies was not as weak as it was on the volume

front. Staples clocked 16% and 9% YoY PAT growth during 9MFY24 and FY23 (broadly

similar to historical averages). Despite such healthy earnings, the majority of staples

stocks have underperformed because the market was more focused on volume-led

earnings growth. Over the last three years, the stock returns of HUL, Dabur, Marico,

Emami, and P&G have been lower than their earnings growth. During the same period,

discretionary companies have resulted in a better earnings trajectory, leading to a

valuation re-rating.

We continue to believe that discretionary categories/companies have better growth

potential driven by factors such as market penetration, deeper distribution reach, GDP

multiplier, higher wallet share, etc. However, we do see growth normalization (settling

of pent-up demand) along with the risk of sustaining such high margins amid

intensifying competition for many discretionary companies. The risk of earnings cuts,

along with a valuation check, is associated with the discretionary companies.

However, over the same period, we anticipate volume growth for staples companies

to be bottoming out with limited risk of earnings cuts. Given the comfort level with

valuation and earnings, we believe that select staple companies offer a better risk-

reward compared to several discretionary companies over the next 12-18 months.

We recommend increasing portfolio weights for staples companies. We prefer HUL,

GCPL, and Dabur in the staples category. In the discretionary category, we continue to

favor the jewelry space and prefer Titan

.

Nestle

Dabur

High inflation over the last two years has significantly affected consumption in the

mass segment. FMCG products have the highest penetration in rural areas and have

Britannia

Neutral 4,891 5,200

been impacted the most compared to other consumer baskets. The mass segment

GCPL

Buy

1,227 1,500

has a large user base, but the income growth is the slowest. Hence, such high

Marico

Buy

496

625

inflation has significantly reduced the affordability to consume more. Additionally,

Colgate

Neutral 2,714 2,500

households are over-indexed on food in their cost mix. With softer general inflation

Emami

Buy

440

550

and price cuts for FMCG, the income-to-cost mix has been gradually stabilizing over

UNSP

Neutral 1,158 1,150

the last 6-12 months. Macro indicators are also showing steady improvement

P&G

Neutral 16,599 17,000

(further details provided in the respective section). We believe that the volume

Titan

Buy

3,738 4,300

growth has bottomed out and anticipate a steady improvement over FY25 and FY26.

Asian Paints Neutral 2,871 3,150

Companies that prioritize user acquisition will be favored during this phase. We

Pidiltie

Neutral 3,049 2,800

project high single-digit revenue growth from FY24 to FY26 for our FMCG universe.

650

Indigo Paints

Jyothy Lab

UBBL

Page

Buy

Neutral

1,317

444

1,600

475

Neutral 2,586

2,400

Expect steady improvement in staples volumes during FY25

Listed discretionary companies grow faster over the last two years

Within our consumer universe (having a revenue pool of ~INR4,000b), we have

Sell

1,786 1,650

observed a consistent change in the category mix between staples and discretionary

Neutral 34,729 36,500

categories. Staples contributed 68% of the consumer universe in FY10, with major

3

April 2024

Consumer: Time to restock!

contributors being F&B, Cigarettes, Home Care, Personal Care, etc. The mix of

staples category, however, has decreased to 56% in FY23, representing a fall of

around 1,200bp. The consumer wallet has shifted towards discretionary categories.

The biggest gainers were paints, jewelry, and quick-service restaurants (QSR). The

significant expansion of stores for QSRs and jewelry was a key factor in this shift, as

consumers have transitioned from local/unorganized to organized establishments.

At the system level, their outperformance may not be as pronounced as it appears

in the comparison with the listed universe.

Staples companies to clock high single to low double-digit EBITDA growth over

FY24-26

Gross margin catalysts are gradually fading away, as we have observed robust YoY

growth in gross profit for our coverage universe in 9MFY24. We project a marginal

expansion in gross margin in FY25, but cost-control measures will drive EBITDA margin.

A&P spending was abnormal in 9MFY24, and we expect rationalization in FY25. This will

lead to low double-digit earnings CAGR for FMCG companies during FY24-26E.

Valuation and recommendation

The staples companies (excluding ITC, Tata Consumer and Varun Beverages) have

largely experienced a de-rating in valuation over the past two years. Most of the

stocks have generated returns below their earnings growth as the quality of

earnings (volume-led) was lacking. During the same period, we have observed

several consumer companies in the discretionary sector reporting a high earnings

trajectory, resulting in a re-rating of their valuations. Amid an overall challenging

period, we expect gradual improvement in volume growth for staple companies.

With risk-reward favoring, we expect staple companies to provide better returns

over the next 12-18 months. We recommend increasing portfolio weights for staple

companies.

We prefer HUL, GCPL, and Dabur in the staples category. In the

discretionary category, we continue to favor the jewelry space and prefer Titan.

Comparative valuation summary

Companies

ITC

HUL

Nestle

Dabur

Britannia

GCPL

Marico

Colgate

Emami

UNSP

P&G

Titan

Asian Paints

Pidilite

Indigo Paints

Jyothy Labs

UBBL

Page Industries

CMP

(INR)

427

2,287

2,586

529

4,891

1,227

496

2,714

440

1,158

16,599

3,738

2,871

3,049

1,317

444

1,786

34,729

Mkt Cap

(INR b)

5,253

5,328

2,529

927

1,181

1,279

641

737

191

824

548

3,378

2,730

1,546

60

161

458

384

TP

(INR)

500

2,900

2,400

650

5,200

1,500

625

2,500

550

1,150

17,000

4,300

3,150

2,800

1,600

475

1,650

36,500

Reco

Buy

Buy

Neutral

Buy

Neutral

Buy

Buy

Neutral

Buy

Neutral

Neutral

Buy

Neutral

Neutral

Buy

Neutral

Sell

Neutral

EPS (INR)

FY24E FY25E FY26E

16

44

41

11

90

20

12

49

19

16

242

41

59

37

32

10

16

526

17

48

36

12

102

23

12

51

20

18

271

53

59

43

36

11

26

636

19

53

41

13

113

26

14

56

21

20

310

65

64

50

40

12

32

738

P/E (INR)

FY24E FY25E FY26E

26

52

65

49

55

61

43

56

23

69

70

92

48

81

39

44

106

66

25

48

73

43

49

54

40

54

21

60

62

71

48

71

35

40

66

55

23

43

64

39

44

46

36

49

20

54

54

57

44

61

31

36

54

47

EV/EBITDA (INR)

FY24E FY25E FY26E

19

36

43

36

37

42

31

39

19

46

50

61

34

54

24

32

62

43

17

34

49

31

33

37

28

37

17

40

45

48

33

48

20

29

42

36

16

31

43

28

30

33

26

34

16

36

39

39

30

42

18

26

34

31

April 2024

4

Consumer: Time to restock!

Exhibit 1: Our coverage universe CAGR during FY24E-26E

Companies

ITC

HUL

NESTLE

DABUR

BRITANNIA

GCPL

MARICO

COLGATE

EMAMI

UNSP

P&G

TITAN

ASIAN PAINT

PIDILITE

INDIGO PAINT

JYOTHY

UBBL

PAGE

Revenue

9

8

10

9

9

9

9

8

7

9

12

17

10

12

15

9

12

14

Gross Profit

9

9

10

9

9

9

8

7

7

10

13

20

8

13

14

9

15

15

EBITDA

7

9

12

13

10

11

9

7

9

12

13

23

6

13

13

9

34

17

PAT

6

10

12

12

12

15

9

7

6

13

13

26

4

15

12

10

40

18

Exhibit 2: Coverage universe PAT and MKT cap CAGR over the years

Companies

ITC

HUL

NESTLE

DABUR

BRITANNIA

GCPL

MARICO

COLGATE

EMAMI

UNSP

P&G

TITAN

ASIAN PAINT

PIDILITE

INDIGO PAINT

JYOTHY

UBBL

PAGE

FY21-24

16

8

14

3

5

5

8

8

7

38

16

56

21

19

29

20

53

19

PAT CAGR (%)

FY19-24E

10

11

13

5

13

-0

6

12

11

11

13

22

21

15

41

13

-5

8

FY14-24E

9

11

10

8

19

11

12

11

7

26

10

17

17

15

83

16

7

15

FY21-24

25

-2

14

-1

10

19

7

20

-5

27

10

34

4

18

-18

46

12

4

MKT Cap CAGR (%)

FY19-24E

8

7

19

5

10

12

8

17

1

15

9

27

14

19

N/A

18

4

7

FY14-24E

6

15

18

11

28

16

17

15

7

8

18

30

18

26

N/A

15

8

18

Source: Company, MOFSL

April 2024

5

Consumer: Time to restock!

Top Ideas

HUL: All eyes on rural recovery

Hindustan Unilever’s (HUL) recent underperformance has been largely led by

external factors. Except for the recent challenge from local players (which is a typical

trend during falling input prices), the company has consistently gained market share

for the majority of its portfolio (85% of business). We believe such competitive

pressure from local players is temporary. In its long journey, HUL has reinvested

heavily in category expansion by adding/upgrading consumers. The company

operates into three large categories, i.e., 1) home care, 2) personal care, and 3)

foods and refreshment (F&R), with a presence across the traditional and emerging

segments. Apart from the wide basket, the company also has a presence across

price points. We believe that its wide user-base network will support growth once

macro tailwinds kick-in. HUL spends over INR60b on marketing to remain

competitive and sustain brand recall (top-of-the-mind brand recall for all age

groups). We expect better outcomes of this spending during a steady macro

environment. HUL’s competitiveness in the home care segment has seen a massive

boost in the last decade, and the company has capitalized on it well with 900-

1,000bp improvements in EBIT margin. However, despite such a strong track record,

parts of BPC and F&R still need more attention and positive outcomes. Under the

new leadership of Mr. Rohit Jawa, we expect more corrective actions to fix the

white spaces. With the anticipation of gradual improvements in macros, we expect

HUL will be able to capitalize and deliver better volume growth in FY25-26.

We

maintain our BUY rating with a TP of INR2,900 based on 55x FY26E EPS.

GCPL: Growth and margin remain key catalysts

In an environment where demand recovery is being delayed, we believe that Godrej

Consumer Products Ltd.’s (GCPL) internal initiatives are expected to help the

company sustain its growth outperformance. The inclusion of incense sticks and the

company’s entry into liquid detergent will not only expand GCPL’s target market but

also highlight its backend competence and growth-oriented approach. Under Sudhir

Sitapati's leadership, there has been a noticeable shift in the company’s strategy for

the last 12-18 months. GCPL has adopted a growth-centric strategy, which includes

pursuing inorganic growth, cross-selling, entering new categories, and expanding

the TAM for existing products. Additionally, there has been an increase in

reinvestment, particularly in marketing spending, and the company has taken

several strategic decisions such as improving inventory management for Raymond

Consumer Care (RCCL) and Indonesia business and closing the non-core businesses.

RCCL, Indonesia and Godrej Africa, US and Middle East (GAUM) still offer enough

headroom for EBITDA margin expansion in the coming years. With the domestic

business already outperforming in volume growth, improvements in demand should

boost GCPL’s growth trajectory. We believe earnings acceleration will keep the stock

in flavor.

We reiterate our BUY rating with a TP of INR1,500.

April 2024

6

Consumer: Time to restock!

Dabur: Building blocks on core strengths

Dabur India (Dabur) has been one of the key beneficiaries of consumers shifting

towards Ayurvedic and naturals products since the last 7-8 years. Oral care and

healthcare categories have benefited the most with this shift, which enabled the

company deliver superior volume growth among its peers (~7% avg. volume since

FY19). The power brand strategies had been delivering result even prior to Covid-19.

Dabur’s foray into various categories (baby care, tea, healthcare, and beverages),

and its shift from power brands to power platform strategies, have expanded its

total addressable market (TAM) and strengthened its market position. To attract the

new-age customers and millennials, Dabur improved its packaging across different

categories and introduced more formats for its products. Dabur's extensive focus on

scaling up its Ayurvedic portfolio, expanding its distribution network (to ~0.12m

villages and ~7.9m outlets), and transitioning towards chemist channels will drive

future growth. However, most of its initiatives were not yielding results as the

demand environment was subdued. Nevertheless, with an improving volume

trajectory and no impact of price cuts on revenue (unlike peers), we anticipate that

its revenue growth outperformance will continue in the near term. The operating

margin, which has been hovering around the 20% band over the last 8-9 years

(unlike peers that have seen expansion), also has room for improvement in the

medium term. The stock has underperformed during the last two years, and is

currently trading at 40x FY26E EPS, at a 15-20% discount to its historical three/five-

year averages.

We reiterate our BUY rating with a TP of INR650, valuing the

company at 48x FY26E P/E.

Titan:

A

long runway of growth

The organized jewelry market in India has consistently gained market share from the

unorganized/regional/local players due to a shift in consumer preference and rapid

store expansion. The organized market constituted over 40% of the mix in 2023 vs.

6% in 2007. Titan Company (Titan), with its superior competitive positioning (in

sourcing, studded ratio, youth-centric focus, and reinvestment strategy), has

continued to outperform other branded players. The brand recall and business moat

are not easily replicable; therefore, Tanishq’s competitive edge will remain strong in

the category. The store count reached to 2,949 stores as of Dec’23 and expansion

story remains intact. Titan’s EBITDA margin has been under pressure during 9MFY24

owing to a lower studded mix. It will be critical to monitor the margin outlook amid

intensifying competition. The non-jewelry business is also scaling up well and will

contribute to growth in the medium term. The business currently accounts for 12%

and 9% of revenue and EBIT, respectively. Overall, we model a 17%, 23% and 26%

revenue, EBITDA and PAT CAGR over FY24-26, respectively. Titan’s valuation is rich,

but it offers a long runway for growth with a superior execution track record.

Reiterate BUY with a TP of INR4,300 based on 65x FY26E EPS.

April 2024

7

Consumer: Time to restock!

STORY IN CHARTS

Exhibit 3: Sales will grow in high-single digit

Net sales (INR b)

16.5

11.0 10.0

1.1

11.5

5.6 6.0

2.3

5.9

YoY growth (%)

18.5

21.2

Exhibit 4: ..along with EBITDA growth

EBITDA (INR b)

14.1

5.6 6.9

9.7

10.4 12.0

13.6

5.8

3.0

YoY growth (%)

12.7 14.8 12.2

6.6

14.6

7.6 9.6

9.7

(Consumer universe ex-Titan) Source: Company, MOFSL

(Consumer universe ex-Titan) Source: Company, MOFSL

Exhibit 5: GP margin recovered in FY24

GP Margin(%)

Exhibit 6: EBITDA margin also shown improvement in FY24

EBITDA Margin (%)

(Consumer universe ex-Titan) Source: Company, MOFSL

(Consumer universe ex-Titan) Source: Company, MOFSL

Exhibit 7: Our coverage universe – Discretionary sales

Consumer discritionary universe sales CAGR (%)

Exhibit 8: Our coverage universe – Staples sales

Consumer staples universe sales CAGR (%)

28

16

11

13

16

15

7

9

Source: Company, MOFSL

Source: Company, MOFSL

April 2024

8

Consumer: Time to restock!

Exhibit 9: Staples vs. Discretionary category – mix change

Staples

70%

65%

60%

55%

50%

Discretionary (RHS)

46%

42%

38%

Exhibit 10: Staples vs. Discretionary category – CAGRs

Staples

Discretionary

Total

28%

19%

15%

10%

12%

8%

14%

10%

13%

34%

30%

10- Yr

Source: Company, MOFSL

5-Yr

2-Yr

Source: Company, MOFSL

Exhibit 11: Volume growth – staples companies (indexing for FY18)

FY18

126

100

100

144

111

100

100

117

100

111

100

129

100

FY23

122

100

122

100

133

100

150

100

132

100

151

100

144

HUL

Colgate

Dabur

Emami

Bajaj

Marico - Marico - Marico - GCPL -

Consumer FMCG

PCNO

VAHO Branded

Biz

Jyothy

Labs

Britannia Marico -

Saffola

Nestle

Exhibit 12: Volume growth – discretionary companies (indexing for FY18)

FY18

197

145

100

100

124

147

100 107 100

100 103 100

100

152

FY23

192

200

145

100

100

100

118

100

100

202

121

128

100

100

JUBI

KFC

(DEVY)

PH

(DEVY)

KFC

(SAPH)

PH

Westlife Barbeque

(SAPH)

BK

UNSP - Radico - Radico -

P&A

P&A

Total

UBBL

Asian

Paints

Titan

Note: For QSRs, Titan we capture SSSG

Source: MOFSL

Exhibit 13: FMCG volume growth vs. GDP growth

Average real GDP growth (%)

Average staple volume growth (%)*

Multiplier (x)

FY05-10

7%

9%

1.4

FY10-15

7%

7%

1.1

FY15-19

7%

5%

0.6

FY19-24E

4%

4%

1.1

FY24E

7%

4%

0.5

*Top listed staple companies

April 2024

9

Consumer: Time to restock!

Exhibit 14: Consumer PAT CAGR

Consumer universe PAT CAGR (%)

MOSL (ex-consumer) PAT CAGR (%)

Exhibit 15: Consumer market cap flow

Consumer universe mkt cap CAGR (%)

MOSL (ex-consumer) mkt. cap CAGR (%)

34

27

13

10

6

18

13

8

FY10-20

FY20-24

Source: Company, MOFSL

FY10-20

FY20-24

Source: Company, MOFSL

Exhibit 16: Consumer sector’s P/E band (x)

P/E (x)

56.0

48.0

40.0

32.0

24.0

Avg (x)

Max (x)

Min (x)

+1SD

-1SD

49.3

44.2

40.6

37.0

32.1

43.2

Exhibit 17: Consumer sector’s P/E relative to the Nifty P/E (%)

170.0

140.0

110.0

80.0

50.0

PE Relative to Nifty PE (%)

Avg (x)

100.8

124.5

April 2024

10

Consumer: Time to restock!

The consumer sector and our takes









The weak volume growth for staple companies during the last three years has resulted

into stock underperformance for many companies. There was a time when the sector

was benefiting from various drivers such as category penetration, increased

consumption frequency, market share gains, premiumization, distribution expansion,

and cost control measures. Consequently, we have witnessed one of the best earnings

and re-rating stories of the last two decades. In this report, we highlight which drivers

are still persisting and which are fading away.

With the earnings cut cycle behind us, we anticipate a gradual increase in the

attractiveness of FMCG companies, especially as the growth gap with the discretionary

categories is likely to narrow down in FY25. The implied growth assumptions in FMCG

companies are lower than those in discretionary stocks. During this phase of weak

demand, growth-centric stories may be exposed, leading to a valuation check!

FMCG volume recovery will not be immediate, but we are confident that volume

growth has bottomed out and should reach their recent historical levels by FY25.

During this phase, companies that prioritize user acquisition will be favored. For

brands that command a high market share but have fewer new users, we believe

pricing will be a tool to compensate for slow volume growth. We model a high single-

digit revenue growth from FY24 to FY26 for our FMCG universe.

Gross margin catalysts are gradually fading away, as we have observed robust YoY

growth in gross profit for our coverage universe in 9MFY24. We project a marginal

expansion in gross margin in FY25, but cost-control measures will drive EBITDA

margin. A&P spending was abnormal in 9MFY24, and we expect rationalization in

FY25. This will lead to low double-digit earnings CAGR for FMCG companies during

FY24-26E.

In this report, we are sharing our insights on the questions and concerns that we

commonly encounter during our interactions with investors:

Do you expect a volume recovery in FY25, particularly in the rural market?

Our view:

High inflation over the last two years has significantly affected

consumption in the mass segment. FMCG products have the highest penetration in

rural areas and have been impacted the most compared to other consumer baskets.

The mass segment has a large user base, but the income growth is the slowest.

Hence, such high inflation has significantly reduced the appetite to consume more.

Additionally, households are over-indexed on food in their cost mix. However, with

softer general inflation and price cuts for FMCG, the income-to-cost mix has been

gradually stabilizing over the last 12 months. Macro indicators are also showing

steady improvement (further details provided in the respective section). We believe

that the volume growth has bottomed out and anticipate a steady improvement

over FY25-FY26.

How do you see the competitive landscape changing for FMCG companies?

Our view:

India has made significant progress in its underlying ecosystem compared

to what is visible in the headline economy growth index. Telecom and internet

penetration, infrastructure upgrades (improved road, train, etc.), ease in banking

and financial transactions, and many more driving forces have been well established

over the last decade. While they may not be driving the headline growth

immediately, they are enabling sustainable, widespread growth. Various non-

April 2024

11

Consumer: Time to restock!

agricultural income streams have been added, which should further reduce the

sensitivity of monsoon on their income growth. The urban markets are also

witnessing various non-traditional sources of income, such as delivery services and

home services, especially targeting mass consumers. All these positive trends are

definitely expanding the user base, attracting new entrants across all categories.

We have witnessed a consolidation phase in most consumer categories over the last

two decades. Consumers have upgraded from local and regional brands to national

brands. During this phase, expanding distribution also contributed to significantly

improved sales for mainstream consumer companies.

The above discussion of fast-growing underlyings leads us to believe that entry

barriers will continue to diminish. The level playing field would encourage

entrepreneurship, attracting more new entrants across various categories. New-age

businesses are experiencing success across various categories. Fragmentation will

continue across categories, especially in more attractive categories.

What are the various moats enjoyed by FMCG companies?

Our view:

The distribution strength remains resilient with FMCG companies, but

entry barriers for new entrants are weakening, especially in urban markets. The

increasing alternative channels are reducing dependence on traditional trade (GT).

Consumers in these new channels have better affordability and are more open to

trying new products and brands. New entrants' tail will continue to expand; some

will die, and some will survive. New entrants are not only limited to small players;

we are seeing even large conglomerates entering into various consumer markets

(such as Reliance, Grasim, etc.). Such changes are relevant and continuous.

However, we observe that these changes are more focused on urban areas. On the

rural side, we still believe that mainstream companies remain robust, and the

distribution advantage still lies with them.

Strong balance sheet and free cash flow (FCF) are not easily replicable. Mainstream

companies can reinvest massively to drive the business. They can weather the

storm, which gives them a competitive edge. Although we have not seen much

success with recent acquisitions, acquiring growth will remain a key focus area.

Which categories are better growth stories?

Our view:

The traditional categories are losing out on GDP multiplier benefits.

Historically, the volume growth of traditional categories was better than the real

GDP growth. With steady improvement in macroeconomics, coupled with price

reductions by FMCG companies, we anticipate a rebound in volume growth. We

have observed a divergence in category-level growth. In some years, personal care

categories have dominated, while in other years, packaged food has outperformed.

Over the past two years, we have observed that packaged food categories have

outperformed in terms of revenue growth. Packaged food volume growth was not

robust, similar to others, but these categories could still withstand price hikes as

many packaged food items (such as biscuits, snacks, milk, and noodles) are among

the most affordable options compared to other outdoor food choices. Therefore,

they could still maintain positive volume growth despite the high price increase. The

similar trend was not visible for personal care categories.

April 2024

12

Consumer: Time to restock!

In our category insight section, we have shared detailed insights on category-level

underperformance and outperformance.

Exhibit 18: FMCG volume growth vs. GDP growth

Average real GDP growth (%)

Average FMCG volume growth (%)*

Multiplier (x)

FY05-10

7%

9%

1.4

FY10-15

7%

7%

1.1

FY15-19

7%

5%

0.6

FY19-24E

4%

4%

1.1

FY24E

7%

4%

0.5

*Top listed FMCG companies

Exhibit 19: FMCG companies’ historical volume growth (%)

Companies

HUL

Colgate

Dabur

Emami

Marico

GCPL

Jyothy

Britannia

Nestle

ITC-Cig

FY05-10

6

9

7

10

11

11

16

8

11

4

FY10-15

7

10

9

12

11

6

9

9

5

(2)

FY15-19

6

3

5

7

5

7

7

8

(1)

(1)

FY19-24E

3

1

6

3

4

6

6

4

6

4

FY24E

2

0

4

1

-

6

10

2

5

3

What are the margin levers?

Our view:

We anticipate limited gross margin levers in FY25, as there was a sharp

expansion in gross margin during 9MFY24. Gross margin, as compared to FY19, has

largely recovered during 9MFY24. Most companies have surpassed their FY19 levels,

while Nestle, Dabur, and GCPL are slightly lower compared to FY19. However,

discretionary companies such as UNSP, UBBL, Titan, and PAGE were trending below

during 9MFY24 as compared to FY19.

In 9MFY24, most companies experienced a gross margin reversal and a sharp

recovery was observed. However, companies reinvested their gross margin gains

into higher marketing spending. Despite the volatility in gross margin, such

fluctuations were not evident in the EBITDA margin. EBITDA margins for most of the

companies are higher than in FY19. Among all, Dabur has a slightly lower margin as

compared to FY19. However, UBBL and PAGE were at significantly lower EBITDA

margin in 9MFY24 vs. FY19. We do not anticipate a downward trend in margins for

FMCG companies. Instead, we expect a slight improvement in EBITDA margins for

most of the companies during FY25-FY26. Cost control will remain a key catalyst for

margin expansion.

April 2024

13

Consumer: Time to restock!

Exhibit 20: Gross and EBITDA margin change during FY19-24E

Gross Margin (%)

ITC

HUL

NESTLE

DABUR

BRITANNIA

GCPL

MARICO

COLGATE

EMAMI

UNSP

P&G

TITAN

ASIAN PAINT

PIDILITE

INDIGO PAINT

JYOTHY

UBBL

PAGE

FY19

64.0

53.0

59.4

49.6

40.6

55.8

45.2

65.1

65.7

48.8

58.0

27.2

41.5

49.3

44.3

46.5

53.6

58.0

FY24E

59.5

51.9

56.1

48.0

43.2

54.4

50.8

69.9

67.5

43.4

60.3

23.1

43.4

51.4

47.7

49.0

43.5

54.9

Gross Margin

Change (bps)

FY19-23

FY23-24E

(486)

39

(536)

425

(522)

197

(394)

233

51

204

(618)

469

(3)

560

60

426

(101)

277

(737)

193

(39)

267

(203)

(208)

(280)

470

(661)

872

28

316

(419)

672

(1,042)

37

(248)

(66)

EBITDA margin

FY19

38.1

22.6

24.4

20.4

15.7

20.5

18.1

27.7

27.1

14.3

20.7

10.1

19.6

19.3

10.1

15.5

17.6

21.6

FY24E

36.7

23.5

24.0

19.6

18.9

21.4

21.1

33.1

26.6

16.1

25.8

10.6

22.0

22.7

18.4

17.6

9.2

19.3

EBITDA Margin

Change (bps)

FY19-23

FY23-24E

(189)

49

77

16

(187)

141

(160)

72

169

158

(228)

320

46

252

190

350

(175)

124

(66)

242

153

360

196

(141)

(142)

382

(251)

587

681

144

(279)

486

(936)

95

(334)

102

What is your take on valuations?

The sector's valuation has experienced a consistent re-rating over the last 10-15

years. The sector was trading at around 30x P/E during 2014, but it has since

undergone a re-rating, with multiples increasing to more than 40-45x since 2019.

However, over the past 2-3 years, sector valuations have remained relatively

stagnant. In fact, some stocks have experienced a correction in their valuations

during this period.

The sector (excluding ITC) has largely experienced a de-rating in valuation over the

past two years. Most of the stocks have generated returns below their earnings

growth as the quality of earnings (volume-led) was lacking. During the same period,

we have observed several new consumer companies in the discretionary sector

reporting a high earnings trajectory, resulting in a re-rating of their valuations. Over

the last three years, several FMCG stocks (excluding ITC, Tata Consumer and Varun

Beverages) have experienced a valuation correction, including Dabur, HUL, Marico,

and P&G. Some of the discretionary stocks have also seen corrections recently, such

as Asian Paints, Pidilite, etc.

April 2024

14

Consumer: Time to restock!

Exhibit 21: Valuation changes vs. historical averages

Companies

Consumer

Consumer Ex ITC

Asian Paints

Britannia Inds.

Colgate-Palm.

Dabur India

Emami

Godrej Consumer

Hind. Unilever

Indigo Paints

ITC

Jyothy Lab.

Marico

Nestle India

P & G Hygiene

Page Industries

Pidilite Inds.

Tata Consumer

United Breweries

United Spirits

Varun Beverages

Current

P/E (x)

43.2

53.0

46.4

47.9

50.3

43.8

21.3

54.4

49.1

34.5

23.6

38.2

39.9

69.2

58.0

55.8

66.6

66.1

63.9

60.6

72.1

15 YR

36.1

36.1

44.9

37.7

31.7

38.3

21.8

36.7

44.0

69.9

24.0

33.2

32.9

47.1

52.2

51.1

44.7

40.0

83.0

na

43.0

Average P/E (x)

10 YR

40.6

50.1

53.5

44.6

38.7

44.4

26.8

41.0

51.5

69.9

24.1

33.5

40.8

57.6

62.7

64.8

56.2

46.0

91.0

63.0

43.0

5 YR

43.0

55.5

60.7

48.2

39.0

51.5

25.8

45.5

57.8

69.9

20.3

28.5

44.9

66.2

68.3

70.5

72.0

53.7

110.7

60.9

43.9

Prem / Disc P/E (x) vs.

15 YR

10 YR

5 YR

19.9

6.6

0.6

45.4

5.9

-5.5

3.5

-13.8

-23.6

28.7

8.0

0.8

70.1

31.5

38.1

12.1

-1.8

-16.6

-5.1

-19.7

-19.9

50.8

33.4

21.4

5.3

-4.8

-19.8

-54.6

-50.3

-54.6

3.5

-1.7

22.8

18.8

13.5

38.6

19.1

-2.3

-12.7

52.1

20.1

8.1

19.1

-7.9

-9.0

6.0

-13.4

-23.2

55.0

16.0

-3.6

48.2

43.6

10.7

-22.1

-29.7

-41.6

-99.2

-3.8

-2.1

63.9

68.0

60.6

Exhibit 22: Sector PAT mix

1

1

211

2

37

ITC

Asian Paint

Britannia

Pidilite

Marico

UNSP

P&G

10

19

UBBL

HUL

Nestle

GCPL

Dabur

Colgate

Emami

Page

Jyothy

3

3

4

4

7

3

2

Indigo Paint

Source: Company, MOFSL

Exhibit 23: Sector market-cap mix

1

2 22

31

ITC

20

Asian Paint

Britannia

Pidilite

Marico

5

10

11

23

UNSP

P&G

UBBL

HUL

Nestle

GCPL

Dabur

Colgate

Emami

Page

Jyothy

3

4

6

5

3

Indigo Paint

Source: Company, MOFSL

April 2024

15

Consumer: Time to restock!

Which all companies do you like?

Our view:

In the current environment of slowing demand, we prefer staple stocks

over discretionary stocks. Staples have already seen earnings cuts and decrease in

valuations. In light of the macroeconomic recovery, they align more with the

investment criteria.

Our top picks in staples are HUL, GCPL, and Dabur. In the

discretionary space, our top pick is Titan.

Exhibit 24: Company-wise key rationale

Companies

Revenue

growth

Margin

Valuation Comments



Cigarette volume growth is expected to be in the low single digit; the company is lagging

behind due to its favorable base. The tax hike will be closely monitored for its impact on

volume growth and the government's stance on tax outlook. ITC is taking a more

aggressive stance on its FMCG business, with a consistent focus on expanding its user

base, primarily shifting from unorganized to organized sectors. The FMCG EBITDA

margin recovery is healthy. We model a 80-100bp margin improvement annually over

the medium term.

We expect that the volume growth has bottomed out and anticipate a gradual volume

recovery in FY25. HUL’s wide product range and presence across price segments should

help the company achieve steady growth during the recovery period. Part of the BPC

and F&R has a turnaround scope; we will see how the new CEO addresses the gaps. The

stock valuation at 45x FY26E earnings is reasonable given the historical valuation and

the potential to exceed earnings expectations.

The company remained focused on volume-driven revenue growth. The planned capex

of INR50b for 2023-25 reflects this focus. The packaged food category is likely to sustain

better growth among staples. The stock, however, trades at an expensive valuation.

Recovery in the rural markets should support Dabur’s portfolio, as it is heavily skewed

towards rural areas. In the domestic business, we expect healthcare, oral care, and food

business to grow faster than others. The distribution drive will further contribute to

rural growth. EBITDA margin has remained in the range of 19-20% for the past several

years. The margin is expected to improve in the coming years due to a better mix of

products (such as higher healthcare offerings) and increased pricing in high market-

share brands. The stock trades at <40x P/E on FY26E.

The company has benefited from the high price hike-led growth in the last 12-18

months, with limited impact on volumes. The focus remained on expanding and scaling

up other non-core brands and products. Distribution expansion in the ‘Hindi belt’

supported the overall growth. EBITDA margin expansion has been sharp over the last 3-

5 years. However, reinvesting in new businesses will limit further expansion. The stock

trades at fair valuations.

GCPL is consistently working to expand the Total Addressable Market (TAM) for the

India business through product innovation to drive frequency. Besides, there has been a

consistent effort to address the gaps in profitability and growth within its international

business. We see margin headroom from the RCCL and Indonesia businesses. The stock

valuation is expensive, but earnings are expected to outperform peers.

Rural recovery, distribution expansion, and anniversarization of price cuts should help

deliver better revenue in FY25-26. Cost control measures and a slight gross margin

expansion can deliver better EBITDA growth than revenue growth. The stock trades

below its five-year average multiple.

Colgate is striving to enhance its core portfolio through consistent relaunches and marketing

activation. The growth difference between herbal and traditional products has been

narrowing. It has implemented a price hike for its premium portfolio in the last six months,

unlike price cuts by other FMCG companies. The Toothbrush segment continues to be

volatile. EBITDA margin is elevated and will be challenging to sustain. Further, the recent run-

up in the stock covers up the valuation gap with others.

The challenge around user addition persists for the core portfolio. Elevated market

share is not allowing for further growth despite gaining market share. The recent

ITC















HUL



Nestle









Dabur















Britannia



GCPL









Marico















Colgate

Emami









April 2024

16

Consumer: Time to restock!

Revenue

growth

Companies

Margin

Valuation Comments

acquisitions, team scaling up, and reduction in the promoter pledge are positive signs.

The uncertainty surrounding volume growth is keeping the valuation below that of

peers. However, there is an upside potential due to re-rating in the volume recovery

phase.

P&A has been experiencing an inspiring growth trend for the past two years. UNSP

remained aggressive in expanding its P&A portfolio, and prioritizing its resources for this

purpose. Weak discretionary demand may slow down the premiumization trend over

the near term. EBITDA margin upside is still present in the business due to a

combination of mix and cost-control measures following the partial sale of a popular

portfolio. The company is trading at a rich valuation following the recent increase in

stock price.

With a portfolio of essential and healthcare products, the company remained focused

on customer acquisitions driven by product innovation. The penetration play will

continue at a steady pace, despite the high probability of user additions. We do not

foresee any near-term triggers, especially given its rich valuation.

Superior competitive positioning (sourcing, studded ratio, youth-centric focus, and

strong FCF) among the branded players, along with a sustained shift from the

unorganized/regional/local players to organized retailers, would sustain the growth

outperformance. The story of store expansion remains strong in the medium term. The

operating margin has been under pressure, making it crucial to monitor the margin

outlook amid rising competition. Valuation may be high, but the long-term growth

potential and superior execution story will continue to attract investors.

Weak discretionary demand and a changing competitive landscape are affecting the

growth and margin outlook for FY25. The execution history of the company is very

strong. It will be interesting to monitor Grasim’s scalability in a category, which is less

price-sensitive and more brand-centric.

Superior execution, along with a track record of product innovation, always inspires the

core strength of the company. Pidilite appears relatively less vulnerable to competition

in its core business. It is further boosting growth by entering the decorative paints

category, positioning itself as a comprehensive home improvement company. The stock

is trading at a rich valuation though.

Given the relatively small scale of Indigo Paints (INR11b revenue in FY23) in the large

paints industry, the company has been able to grow much faster than the industry.

Consumers’ rising acceptance of the brand and the expansion of distribution have been

driving the outperformance. However, changing the competitive landscape will be a key

monitorable.

The company has been able to surprise with its growth during the last 12 months,

particularly in terms of volume growth. Apart from the core portfolio, Jyothy has been

focused on the personal care business. The EBITDA margin has seen a sharp recovery in

9MFY24. In the face of intensifying local competition and a sluggish growth outlook, it

will be intriguing to observe Jyothy’s performance in FY25E.

UBBL faces numerous challenges, including stiff competition from both local and

international brands in India, along with regulatory issues in the industry. The gross

margin has been under sustained pressure since the last three years, and the recovery is

being delayed. The stock trades at an expensive valuation.

The company has a superior execution track record in a large unorganized/local

industry. Its recent performance has been hit by high channel inventory and slow

demand. The Auto Replenishment System (ARS) has brought channel inventory

efficiencies, providing a huge competitive advantage. There is a potential for multiple

re-ratings in the future. The company has a fair valuation.



UNSP









P&G









Titan









Asian Paints









Pidilite









Indigo Paints









Jyothy Lab









UBBL









Page

Industries







Note: Positive and Negative are relative growth impact rather than absolute growth



Positive



Mild Positive



Negative

April 2024

17

Consumer: Time to restock!

Category insights

Consumer Index

Our consumer universe (revenue pool of INR4,000b) consists of various categories

from both staples and discretionary baskets. It provides us with the underlying pulse

of consumption and eliminates the disparity in wallet share towards any particular

category. The index comprises a diverse range of categories, from essentials such as

Oral Care, Hair Care, Personal Care, and Home Care to discretionary items such as

F&B, OTC FMCG, Cigarettes, Footwear, Paints, QSR, Dairy, Liquor, and Jewelry.

The index is based on the weighted average revenue growth of various companies,

included in their respective categories. The CAGR of the index helps to understand

the underlying demand trends.

Exhibit 25: Consumer Index – yearly trend

YoY Gr. (%)

18%

19%

20%

19%

17%

14%

10%

8%

7%

7%

7%

6%

8%

10%

4 Year CAGR (%)

17%

22%

22%

15%

11%

10%

5%

6%

9%

10%

4%

0%

20%

19%

Source: MOFSL

Exhibit 26: Consumer Index – quarterly trend

75%

50%

25%

0%

-25%

YoY Gr. (%)

2-Yr CAGR (%)

4-Yr CAGR (%)

Source: MOFSL

Revenue mix: Staples vs. Discretionary

In our consumer universe, we have observed a consistent change in the category

mix between staples and discretionary categories. Staples contributed 68% of the

consumer universe in FY10, with major contributors being F&B, Cigarettes, Home

Care, Personal Care, etc. The mix of staples category, however, has decreased to

56% in FY23, representing a fall of around 1,200bp. The consumer wallet has shifted

towards discretionary categories. The biggest gainers were paints, jewelry, and

quick-service restaurants (QSR). The significant expansion of stores for QSRs and

jewelry was a key factor in this shift, as consumers have transitioned from

local/unorganized to organized establishments.

April 2024

18

Consumer: Time to restock!

Exhibit 27: Changes in the category mix: Discretionary items consistently gaining wallet share (%)

Categories

Oral Care

Hair Care

Personal Care

Home Care

F&B

Cigarette

Dairy

OTC FMCG

Paints

QSR

Liquor

Jewelry

Footwear

Aggregates

Staples

Discretionary

FY10

3

4

9

11

23

15

2

1

13

1

10

6

3

100

68

32

FY11

3

4

8

11

23

14

3

1

12

1

10

7

3

100

66

34

FY12

3

4

8

11

22

13

3

1

13

1

10

8

3

100

65

35

FY13

3

4

8

11

22

13

3

1

12

2

10

8

3

100

65

35

FY14

3

4

7

11

22

13

3

1

13

2

9

8

3

100

65

35

FY15

3

4

7

10

22

12

3

1

12

2

12

8

3

100

64

36

FY16

3

5

7

11

21

12

4

1

13

2

12

7

3

100

63

37

FY17

3

4

10

8

21

12

4

1

12

2

11

7

3

100

64

36

FY18

3

4

10

7

21

12

4

1

13

3

11

8

3

100

62

38

FY19

2

4

9

7

21

10

4

1

13

4

11

9

3

100

60

40

FY20

2

4

9

7

21

10

4

1

13

4

11

9

4

100

59

41

FY21

3

4

9

8

23

10

4

1

14

3

9

10

3

100

62

38

FY22

2

4

8

8

21

9

4

1

15

4

10

11

3

100

58

42

FY23

2

3

8

8

20

10

4

1

15

4

9

13

3

100

56

44

Note: Listed company universe

The growth divergence between consumer staples and discretionary has been

observed for several years, but the big difference became more apparent in the last

two years. Staples categories are experiencing lower growth potential due to the

shift towards organized players from unorganized players vs. the discretionary

categories. At the system level, however, their outperformance may not be as

pronounced as it appears in the comparison with the listed universe.

Exhibit 28: Staples vs. Discretionary category – mix change

Staples

70%

65%

60%

55%

50%

Discretionary (RHS)

46%

42%

38%

10%

34%

30%

10- Yr

Source: MOFSL

5-Yr

2-Yr

Source: MOFSL

15%

12%

8%

14%

10%

13%

Exhibit 29: Staples vs. Discretionary category – CAGRs

Staples

Discretionary

Total

28%

19%

April 2024

19

Consumer: Time to restock!

Exhibit 30: Category-wise growth trends

YoY Gr. (%)

Oral Care

Hair Care

Personal Care

Home Care

F&B

Dairy

Cigarette

OTC FMCG

Paints

QSR

Liquor

Jewelry

Footwear

FY13

16

20

14

19

15

20

11

11

13

32

11

17

17

FY14

14

15

8

9

12

13

12

12

15

18

5

4

16

FY15

12

22

12

9

11

21

8

14

12

15

0

10

14

FY16

5

10

7

3

3

18

2

6

9

14

1

-6

9

FY17

3

1

3

7

8

11

5

0

9

6

4

16

4

FY18

9

8

11

12

10

10

5

7

12

16

9

12

12

FY19

8

14

10

13

12

14

10

13

15

20

14

12

14

FY20

1

-4

-3

4

6

8

5

4

4

14

3

5

5

FY21

10

2

6

5

11

-5

-11

34

6

-23

-14

-1

-22

FY22

7

12

10

17

10

16

14

10

32

59

19

31

33

FY23

3

3

14

24

14

24

21

-10

19

35

18

37

29

5-yr

Avg

6

4

6

12

10

10

5

8

15

15

7

15

6

1Q

FY24

11

1

4

11

10

8

15

12

8

12

9

22

0

2Q

FY24

6

2

4

4

5

14

11

1

1

8

9

29

6

3Q

FY24

8

3

0

0

4

14

7

4

6

6

12

19

4

Avg. 4

Qtr

7

4

5

8

8

14

12

3

7

11

10

24

7

Source: MOFSL

5-yr Avg.

CAGR 4 Qtr

Colgate

5

7

Dabur

9

6

Gillette

8

5

Category Gr. (%)

6

7

Oral Care

Category insights: Staples categories



Oral care:

The oral care category grew more than 15% during FY07-FY15.

Colgate's revenue growth and category performance were similar. After FY15,

however, when the natural/ayurvedic trend emerged, Colgate started

underperforming the category growth. With a high oral care penetration (>90%),

the category reported a 6% CAGR over FY18-23. Dabur has outperformed the

category, delivering a 9% revenue CAGR over the last five years. In 9MFY24, the

category delivered mid-single-digit revenue growth, mainly led by price hikes.

Exhibit 31: Oral care category

16%

17%

14% 14%

16%

15% 15%

14%

12%

5%

9%

8%

10%

7%

3%

1%

3%

7%

Hair Care

Marico –PCNO

Marico – VAHO

Dabur

Bajaj Consumer

Emami –

Navratna

GCPL – Hair

Colors

Emami – Kesh

King

Category Gr. (%)

5-yr Avg.

CAGR 4 Qtr

7

(1)

3

4

7

5

3

8

2

4

8

4

2

9

(4)

4



Hair care

– Marico holds a dominant market position in the category and has

delivered a 7% revenue CAGR over the last five years. Emami's Kesh King

outperformed while Navratna underperformed during FY18-23. In LTM, GCPL's

hair colors segment has performed well, achieving an average growth rate of

10%. In 9MFY24, the category continues to underperform, with an overall low

single-digit growth across the companies.

April 2024

20

Consumer: Time to restock!

Exhibit 32: Hair care category

32%

15%

17%

27%

16%

26%

20%

15%

22%

10%

1%

8%

14%

12%

2%

3%

4%

-4%

Personal Care

HUL

GCPL - Soaps

Gillette

Emami -

Boroplus

Emami - F&H

Dabur - Skin

Category Gr. (%)

5-yr Avg.

CAGR 4 Qtr

6

5

11

4

7

9

3

(8)

2

6

(5)

4

3

5



Personal care:

This category always looks promising due to low penetration and

room for upgrades. However, new entrants have hurt the mainstream brands

consistently. Category growth over FY07-15 was 13%, which fell to 7% over FY15-23.

Gillette outperformed during the last 12 months, while Boroplus underperformed

.

Exhibit 33: Personal care category

17%

14%

7% 11%

14%

17%

14%

11% 10%

10%

14%

6%

5%

12%

8%

7%

3%

-3%

5-yr Avg.

CAGR 4 Qtr

HUL – Detergent 13

8

GCPL – Home

8

10

care

Dabur – Home

10

12

care

Jyothy – Fabric

8

15

care

Jyothy –

10

9

Dishwash

Jyothy – HI

(3)

5

Category Gr. (%) 12

8

Home Care



Home care:

The category posted double-digit growth over the last five years across

most of the companies. HUL, the market leader, posted a 13% revenue CAGR over

FY18-23. In LTM, Jyothy’s fabric care has performed well and delivered a strong

double-digit growth. The HI segment of Jyothy Labs has remained an

underperformer due to its dependence on seasonality and competition from GCPL.

Exhibit 34: Home care category

22%

16%

19%

23%

19%

12%

9%

3%

9%

3%

7%

13%

17%

8%

24%

12%

4%

5%

April 2024

21

Consumer: Time to restock!

5-yr Avg.

CAGR 4 Qtr

Britannia

10

6

Nestle

12

14

HUL - (incl. GSK)

8

3

ITC - FMCG

11

13

Marico – Saffola

15

(17)

Dabur – Real

12

15

Agro Tech

1

(8)

Category Gr. (%) 10

8

F&B



Food & beverages (F&B):

Marico has outperformed this category with a 15%

revenue CAGR over FY18-23. However, its performance was hurt in 9MFY24 due

to a price correction of edible oil. ITC/Nestle also delivered 11%/12% (five-year)

revenue CAGR along with a high single-to-double-digit growth in 9MFY24. This

growth was driven by premiumization and penetration-led strategies. The

category CAGR has been one of the best in the staples category.

Exhibit 35: F&B category

26% 25%

19%

15%

20% 19%

15%

12% 11%

8%

3%

10%

12%

6%

11% 10% 14%

8%

OTC FMCG

Dabur – Health

Supp.

Emami – Pain

MGT

Dabur – OTC

Amrutanjan –

Balm

Emami –

Digestive

Category Gr. (%)

5-yr Avg.

CAGR 4 Qtr

9

7

10

12

2

8

1

2

9

2

1

3



OTC FMCG:

Despite the small scale with limited room for penetration and

frequency, the category growth has consistently been volatile. Amrutanjan and

Dabur’s OTC have outperformed the category over the last five years, and

delivered 12% and 10% (five-year) revenue CAGR, respectively. The category

witnessed several new users during the Covid-19 phase. However, the demand

for products dropped significantly as Covid fears waned.

Exhibit 36: OTC FMCG category

34%

26%

9% 11%

16% 18% 14%

11% 12% 14%

6%

0%

-10%

7%

4%

13%

10%

3%

5-yr Avg.

CAGR 4 Qtr

ITC

4

10

Godfrey Phillips

8

24

VST

6

4

Category Gr. (%)

5

12

Cigarette



Cigarette:

This category has faced several challenges over the past 10 years,

including high taxes and the increasing prevalence of illegal cigarettes, which

have affected the sales of top legal brands. The revenue growth during FY07-15

was 14% for the category, which tapered down to 6% during FY15-23. Godfrey

Philips is an outperformer in the Cigarette category with a revenue CAGR of 8%

(five-year ended FY23).

April 2024

22

Consumer: Time to restock!

Exhibit 37: Cigarette category

16%

20%

16% 15%

10%

21%

14%

5%

12%

13% 12%

11%

12%

8%

2%

5%

5%

-11%

QSR

Jubilant Food

Devyani (KFC)

Devyani (PH)

Sapphire (KFC)

Sapphire (PH)

Burger King

Westlife Dev.

Barbeque

Speciality

Restaurants

Category Gr. (%)

5-yr

CAGR

10

40

13

22

14

23

13

14

2

15

Avg.

4 Qtr

5

19

7

20

5

26

11

3

11

11

Category insights: Discretionary categories



QSR:

A significant portion of the category's growth is driven by the addition of

stores; over the past three years, most brands have substantially increased their

store count. The category registered a 15% revenue CAGR during the last five

years. KFC has witnessed higher growth in both Devyani and Sapphire, while

Specialty Restaurants has been the most underperforming.

Exhibit 38: QSR category

112%

43%

35% 40%

54%

43%

59%

32% 18% 15%

14%

6%

-23%

16%

20%

14%

35%

11%

Liquor

United Spirits

Pernod Ricard

United

Breweries

Radico Khaitan

Category Gr. (%)

5-yr Avg.

CAGR 4 Qtr

5

13

9

7

6

12

7

6

24

10



Liquor:

The historical growth trend was not strong. The category has faced

several headwinds such as higher taxes, highway ban, pricing pressure, etc. Over

the last three years, P&A growth has been very strong, clearly supporting the

upgrade narrative.

Exhibit 39: Liquor category

34%

27%

20% 21% 20%

18%

11%

5%

0%

1%

4%

14%

9%

3%

18% 18%

10%

-14%

April 2024

23

Consumer: Time to restock!

Paints

Asian Paints

Berger

Indigo Paints

Kansai

Category Gr. (%)

5-yr Avg.

CAGR 4 Qtr

15

6

15

22

9

15

8

21

7

7



Paints:

This category represents one of the most compelling growth

compounding stories, with the long-term CAGR exceeding 15%. Asian Paints and

Berger achieved a 15% revenue CAGR from FY18 to FY23. However, growth has

been subdued in 9MFY24, with mid-to-high single-digit growth being achieved

due to price cuts. Indigo Paints delivered a 22% revenue CAGR over FY18-23,

and it also achieved a double-digit growth in the last 12 months

.

32%

Exhibit 40: Paint category

25%

16%

19%

21%

19%

25%

15%

13% 15%

12%

12%

9%

9%

4%

6%

19%

7%

Footwear

Bata

Relaxo

Metro

Mirza Inter.

Liberty

Category Gr. (%)

5-yr Avg.

CAGR 4 Qtr

6

4

7

15

(8)

4

6

5

18

(2)

5

7



Footwear:

This category delivered a 16% revenue CAGR during FY07-15, but the

growth rate decreased to 9% during FY15-23. Metro Brands reported double-

digit revenue growth over the last five years and also in the LTM, despite a

slowdown in the discretionary market

.

33% 29%

5%

7%

Exhibit 41: Footwear category

19% 21% 17% 16%

14%

12%

9%

4%

14%

14% 13% 15% 15%

-22%



Jewelry:

This is one of the best growth compounding categories with the

benefits of transitioning from unorganized to organized players. Titan has not

only outperformed its competitors in the last five years but also in the last 12

months. Gold inflation and store expansion are further supporting the growth of

the category.

Jewelry

Titan

Kalyan

Senco

Thangamayil

Category Gr. (%)

5-yr Avg.

CAGR 4 Qtr

20

29

6

28

13

18

15

26

21

28

Exhibit 42: Jewelry category

45% 46%

26% 28%

17%

5%

10%

40% 40%

31%

16% 12%

12%

5%

-1%

37%

28%

-6%

April 2024

24

Consumer: Time to restock!

Volume mix: Staples vs. Discretionary

Volume growth serves as the true health index for consumer categories, as it

reflects user additions and the frequency of brand/category usage. In staples,

volume growth largely reflects user additions rather than the usage frequency.

Historically, FMCG companies have sustained healthy volume growth through (1)

expanding distribution networks (particularly in rural areas), (2) introducing new

product categories (brand extensions), and (3) enticing consumers to upgrade to

premium offerings. While rural markets continue to offer these growth catalysts,

urban markets show comparatively less sensitivity to them. Thereby, the demand

from rural areas is more crucial for staples than for discretionary categories.

However, on the other side, discretionary categories have remained largely skewed

toward the urban markets. These sectors inherently leverage growth drivers from

transitioning to organized markets from unorganized ones. Industries such as

jewelry, paints, and restaurants benefit from these dynamics. Liquor and cigarettes

are influenced by a range of drivers, including, penetration (such as female users

and network addition), transitioning from unorganized to organized markets (e.g.,

country liquor to IMFL and bidi to cigarettes), consumption frequency, and

consumer upgrading narratives.

Staple universe – volume trajectory over FY19-23:

We have noted that the last five

years have been quite volatile, mainly from the consumer sector’s point of view.

Multiple trends had emerged during this period, many of which eventually settled

over time. Rural reverse migration and pantry loading provided temporary benefits

to various staple categories, but we observed adjustments once these drivers

normalized. Similarly, there was a surge in demand for healthcare-related products

(mainly naturals/ ayurvedic products), but these trends also disseminated later on.

Most categories experienced mean-reversion during this period.

Besides such divergent trends during FY21-FY22, high commodity-led inflation

prompted pricing adjustments across various consumer categories. This also led to

additional changes in consumer trends in FY23 and 9MFY24. All these divergent

trends are critical to understand the underlying demand and potential outcomes in

the upcoming years.

Volume 5-year CAGR

Marico - Saffola

Jyothy Labs

Dabur

Nestle

GCPL - Branded Biz

Britannia

Marico - FMCG

HUL

Marico - PCNO

Marico -VAHO

Emami

Bajaj Consumer

Colgate

9%

9%

8%

7%

6%

6%

5%

5%

4%

4%

3%

2%

2%

We have plotted the volume index for various consumer companies, where the base

year is FY18. It provides us with the volume index for the past five years, effectively

normalizing all fluctuations in growth rates. Among the companies that recorded

five-year volume CAGRs of above 5% were Jyothy, Dabur, Marico (Saffola), Nestle,

GCPL, and Britannia. Conversely, Colgate, Bajaj Consumer, and Emami exhibited

lower volume CAGRs over the same period.

Given the steady general inflation and favorable raw material prices, there have

been instances of price cuts and consumer-oriented initiatives over the last 6-9

months. With anticipated deterioration in macros, we expect staple companies to

rebound in terms of volume performance in FY25.

April 2024

25

Consumer: Time to restock!

Exhibit 43: Volume growth – staple companies (indexing for FY18)

FY18

126

100

144

100 111

100

100

117

100

111

100

129

100

FY23

122

100

133

100

100

150

100

132

100

151

100

144

122

HUL

Colgate

Dabur

Emami

Bajaj

Marico - Marico - Marico - GCPL -

Consumer FMCG

PCNO

VAHO Branded

Biz

Jyothy

Labs

Britannia Marico -

Saffola

Nestle

Discretionary universe – volume trajectory (FY19-23):

We have noted that last five

years have been quite volatile, mainly from the consumer sector point of view.

Multiple trends had emerged during this period, many of which eventually settled

over time. Rural reverse migration and pantry loading provided temporary benefits

to various staples categories, but we observed adjustments once these drivers

normalized.

Volume 5-year CAGR

Titan

Asian Paints

Westlife

Radico - P&A

BK

KFC (SAPH)

JUBI

Radico - Total

UNSP - P&A

KFC (DEVY)

Barbeque

UBBL

PH (DEVY)

PH (SAPH)

15%

15%

15%

14%

9%

8%

8%

8%

5%

4%

4%

3%

1%

1%

Given stable general inflation and favorable raw material prices, there have been

instances of price cuts and consumer-oriented initiatives over the last 6-9 months.

With anticipated deterioration in macros, we expect staple companies to rebound

in terms of volume performance in FY25.



Volume growth –

The reduction in the volume growth in the consumer staples

company seen in FY23 was attributed to the rise in retail inflation and increasing

commodity prices. This subdued volume growth persisted into the 1HFY24, but

showed signs of recovery in 3QFY24 as inflation began to ease. Meanwhile, in

liquor companies, the P&A categories outperformed popular categories,

achieving double-digit volume growth in FY23. However, the category

performance was impacted in 9MFY24 due to tax hikes implemented in states

like Karnataka and Maharashtra. However, Radico Khaitan (P&A category)

sustained strong double-digit growth throughout this period. Cigarette

companies also delivered double-digit revenue growth in FY23.

Exhibit 44: Volume growth – discretionary companies (indexing for FY18)

FY18

FY23

JUBI

KFC

(DEVY)

PH

(DEVY)

KFC

(SAPH)

PH

Westlife Barbeque

(SAPH)

BK

UNSP - Radico - Radico -

P&A

P&A

Total

UBBL

Asian

Paints

Titan

Note: For QSR and Titan we capture SSSG

Source: MOFSL

April 2024

26

Consumer: Time to restock!

Macro indicators

Steady improvement in rural wage growth

The wage growth in both agricultural and non-agricultural sectors experienced a

slump after 2014, with certain categories dipping into the negative territory by

2019. Between 2021 and 2023, wage rates remained relatively stagnant. Agricultural

sectors were particularly impacted by poor monsoon seasons, but other problems

made things worse, such as increased costs for essentials like fuels and fertilizers.

Moreover, global price fluctuations compounded the difficulties faced by farmers.

Exhibit 45: Agricultural wages

Farm Wages (INR/day)

Avg. Wage Gr

360

270

180

90

0

UPA I:

8% CAGR

UPA II:

19% CAGR

Exhibit 46: Non-agricultural wages

Wage Gr (YoY %)

NDA:

5% CAGR

Non-Farm Wages (INR/day)

Wage Gr (YoY %)

Avg. Wage Gr

36%

360

24%

12%

0%

-12%

270

180

90

0

UPA I:

7% CAGR

UPA II:

18% CAGR

NDA:

4% CAGR

36%

24%

12%

0%

-12%

Source: Company, MOFSL

Source: Company, MOFSL

Exhibit 47: Rural CPI and real farm wage growth

20.0%

14.0%

8.0%

2.0%

-4.0%

Real Farm Wage Gr

Rural CPI

Exhibit 48: Rural CPI and real non-farm wage growth

Real Non-Farm Wage Gr

20.0%

Rural CPI

14.0%

8.0%

2.0%

-4.0%

Source: Company, MOFSL

Source: Company, MOFSL

April 2024

27

Consumer: Time to restock!

Consumer Confidence Index

The RBI’s Consumer Confidence Index has been consistently improving, surpassing

the last 10-year average, a feat last observed in 2019. The gap between the current

and future indices has narrowed down, with the peak occurring in 2020-21. This

improvement in the index signals a positive outlook for future consumption.

Exhibit 49: Consumer Confidence Index (RBI)

Current Index

144

128

112

96

80

Phase with

weak current

and low

expectation

Future Index

Avg of Current

Avg of Future

Peak gap,

mainly due to

steep fall in

current

sentiments

Source: RBI Database, MOFSL

MSP rates: Steady escalation

MSP rates have increased by mid-single digits during the last five years. However,

there has been minimal fluctuation in MSP rates over the last year; it has gradually

increased during the last decade. The increase in MSP rates contributes to improved

income growth for farmers, while the government endeavors to maintain a delicate

balance between income growth and food inflation. Notably, Kharif crops have

generally experienced a more significant increase in MSP rates than Rabi crops.

Exhibit 50: Long-term MSP trend

(INR/quintal)

Kharif Crops

Paddy (Grade A)

Jowar (Hybrid)

Bajra

Maize

Ragi

Arhar (Tur)

Moong

Urad

Cotton (Long Staple)

Groundnut in shell

Sunflower seed

Soybean (Yellow)

Sesamum

Niger seed

Rabi Crops

Wheat

Barley

Gram

Masur (Lentil)

Rapeseed/Mustard

Safflower

Other Crops

Copra (Ball) - Calendar Year

Jute (CY)

Sugarcane (CY)

2023-24

2,183

3,180

2,500

2,090

3,846

7,000

8,558

6,950

6,377

6,377

6,760

4,600

8,635

7,734

2,275

1,850

5,440

6,425

5,650

5,800

12,000

5,050

315

YoY Gr%

7

7

7

6

7

7

6

10

5

9

9

6

7

10

6

5

7

7

2

7

4

3

4

2

5

6

CAGR % 2014-24

7

5

8

8

5

11

5

7

5

5

5

7

7

7

9

5

4

5

3

8

6

3

4

4

6

3

CAGR % 2018-24

5

4

6

5

4

6

4

4

4

3

5

5

6

7

6

5

4

5

3

8

6

3

6

4

9

6

Source: RBI, MOFSL

April 2024

28

Consumer: Time to restock!

Consumer Price Index

In FY24, the CPI moderated for two consecutive months to 4.7% in Apr’23 and 4.3%

in May’23. This trend ended with CPI rising to 4.9% in Jun’23 and 7.4% in Jul’23,

largely due to higher food inflation. The CPI has breached the RBI’s target range for

the first time since Feb’23. This marks the highest reading observed since the peak

in Apr’22 at 7.8%. The surge in vegetable prices and elevated inflation in other food

categories such as cereals, pulses, spices, and milk have driven this increase.

Further, the contribution of F&B to the overall inflation has risen significantly to

65%, surpassing its weight in the CPI basket. This was further moderated in Aug’23

to 6.7%, mainly due to the government’s active intervention

.

Rainfall and FMCG

We conducted an analysis correlating rainfall data with FMCG sales growth for the

subsequent year to assess the monsoon’s impact on consumer demand. Historically,

it has taken more than one consecutive year of deficit monsoon to significantly

impact the FMCG sector. Following four deficit years (FY15 and FY18) of rainfall, the

past four years have witnessed near-normal rainfall levels, which are anticipated to

boost demand, especially in rural markets.

Exhibit 51: Correlation between monsoon and the FMCG sector

FMCG Sales Gr. (LHS)

20%

14%

8%

2%

Avg FMCG Gr (%)

Rainfall (Jun-Sep) (mm)

Long Period Average (LPA) - 879.5mm

1,000

850

700

550

-4%

400

Source: IMD, MOFSL

Exhibit 52: Agriculture GVA vs. total GVA

Agriculture GVA YoY G%

18%

8%

-2%

-12%

-22%

Total GVA YoY G%

Source: RBI Database, MOFSL

April 2024

29

Consumer: Time to restock!

Sector aggregates

Revenue growth – Expect volume recovery in FY25

FY24 revenue growth has

been hit by price cuts. We

expect volume growth

recovery in FY25.







The FMCG sector has experienced more growth driven by price hikes in the last

two years due to high inflation-induced price increases and slower volume

growth. Prior to this, we have seen revenue growth driven by increased volume.

Macro headwinds and price hikes have been delaying the recovery in the rural

market, which is under pressure due to weak income growth. The mass segment

was exposed to inflation; hence, the volume recovery has been delayed. We have

seen down-trading, a higher mix of low unit packs (LUPs), etc., during this period.

We expect the revenue growth trajectory to gradually improve in FY25, largely

driven by volume growth.

Exhibit 53: Sector aggregate – revenue growth

Net sales (INR b)

16.5

11.0

10.0

5.6

1.1

11.5

6.0

2.3

5.9

YoY growth (%)

18.5

14.6

5.6

6.9

9.7

(Consumer universe ex-Titan) Source: Company, MOFSL

Exhibit 54: Company-wise revenue CAGR during FY19-24E

5-year

Source: Company, MOFSL

April 2024

30