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Macquarie - India Consumer Sector - Shifting To Higher Orbit of Growth - Aug 2018
Macquarie - India Consumer Sector - Shifting To Higher Orbit of Growth - Aug 2018
Amit Sinha
Macquarie Capital Securities (India) Private Limited
92, 2nd North Avenue, Maker Maxity, BKC, Mumbai, India
+91 22 6720 4085
Amit.sinha@macquarie.com
August 2018
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Please read Disclaimer on Pages 34-36
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Contents
India Consumer sector – Rising Tide may not lift all boats ..………………………………….……………............................. 3
Coverage Universe – Top picks HUVR, GCPL, Titan and JUBI ……………………...……..…….…………………………4
GST – Advantage organized players ………………………………………………..……………………….….………………….5
Macro data around Consumption, Rural recovery ……………………………………………………………............................7
Sector Valuation charts, global comparison …………………………………………………………………………….………..11
Company Section
HUL …………………………………………………….…….......…………………………………………………………….…….12
ITC ………………………………………….…….......…………………………………………………………….…….......……...14
GCPL .……………………………………….…….......…………………………………………………………….…….......……16
Titan ………………………………………….…….......…………………………………………………………….…….......……18
BRIT ………………………………………….…….......…………………………………………………………….…….......……20
UNSP ……………………………………….…….......…………………………………………………………….…….......……22
Jubilant Foodworks ………………………….…….......…………………………………………………………….……........…..24
Marico ………………………………………….…….......…………………………………………………………….…….......….26
Dabur ………………………………………….…….......…………………………………………………………….……........….28
Emami ………………………………………….…….......…………………………………………………………….…….......….30
Bajaj Corp …………………………………….…….......…………………………………………………………….…….......…...32
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Coverage universe
Bloomberg Upside/ Market Cap PER PER EV/EBIDTA EV/EBIDTA ROE Dividend
Consumer Sector Code CMP TP (Downside) Rating (US$mn) FY19E FY20E FY19E FY20E (FY18E) Yield
Hindustan Unilever HUVR IN 1,680 1,870 11% OP 54,831 55.3 46.1 38.4 32.2 80% 2.0%
Godrej Consumer GCPL IN 1,290 1,465 14% OP 13,827 48.8 41.1 33.8 28.3 27% 0.6%
Titan Company TTAN IN 900 1,240 38% OP 11,473 43.1 34.0 31.1 24.6 27% 0.7%
Jubilant Foodworks JUBI IN 1,406 1,600 14% OP 2,839 62.0 45.7 30.1 23.2 21% 0.2%
Bajaj Corp BJCOR IN 410 637 55% OP 908 21.4 18.8 17.9 14.5 45% 2.3%
Dabur DABUR IN 410 430 5% OP 10,013 39.8 34.4 33.0 28.4 27% 1.0%
Marico MRCO IN 360 331 -8% Neutral 7,150 49.1 41.3 35.1 30.1 35% 1.6%
Emami HMN IN 560 590 5% Neutral 1,886 18.3 16.0 14.6 12.6 34% 0.7%
ITC ITC IN 300 304 1% Neutral 50,871 27.1 24.4 17.1 15.3 25% 2.7%
Britannia BRIT IN 6,500 4,210 -35% UP 12,010 70.4 61.8 46.3 40.3 33% 0.5%
United Spirits UNSP IN 590 443 -25% UP 6,484 70.3 54.5 38.7 31.8 23% 0.2%
Asian Paints* APNT IN 1449 1,300 -10% Neutral 19,184 50.4 42.1 31.2 26.4 27% 0.9%
Berger Paints* BRGR IN 315 276 -12% Neutral 4,478 53.7 44.8 33.7 28.1 25% 0.6%
Average (weighted Mcap) 46.3 39.0 31.0 26.2 41.7% 1.6%
Average (ex- ITC) (weighted Mcap) 53.0 44.2 35.8 30.1 42% 1.6%
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Unorganized segment contributes significant part for most of the consumer products in India (FY17)
%
80% 75%
70%
60%
50%
30%
22%
20%
10%
0%
Cigarettes Biscuits Coconut Oil Jewellery
India Household consumption per capita – CAGR of 5.4% Comparison with Indonesia- Indonesia Household consumption
between CY00-14 per capita – CAGR of 3.2% between CY00-14
US$ US$
800 9% 1200 4% 4% 4.5%
8% 8% 4% 4%
7% 8% 4% 4% 4% 4.0%
700 7% 7% 3% 3%
1000
600 7% 3.5%
6% 6%
6% 800 3% 3.0%
500 5% 5% 2% 3%
4% 4% 4% 5% 2% 1115 2.5%
400 3% 600 2%
4% 10311073 2.0%
954 990
300
3% 400 793 813 828 858 892 923 1.5%
2% 714 729 747 765
200 2% 1.0%
1%
200
100 1% 0.2% 0.5%
0 0% 0 0.0%
India Household consumption per capita growth Indonesia Household consumption per capita growth
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Source: World Bank, Macquarie Research, August 2018
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Rural wage growth trend has been improving MSP price hikes a tad higher
14%
12% 11.5%
10.3%
10% 9.0%
8% 7.3%7.4%
6.6%
5.6%
6% 4.8%5.2%
4%
2%
0%
F2013 F2014 F2015 F2016 F2017 F2018(YTD)
Source: CMIE, Macquarie Research, August 2018 Source: CMIE, Macquarie Research, August 2018
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Sector Volume growth CAGR for the last 17 years is 6%; ex- ITC sector volume growth CAGR is 8%.
Volume growth was boosted during FY07-FY13 on account of significant rural growth, led by the MNREGA scheme launched
by the government
% %
10% 14%
9%
9% 9% 9% 9% 9% 12%
12%
8%
7% 7% 8%
7% 10% 10%
7%
6% 9% 9%
6% 6% 8%
5% 7% 7% 8%
5% 7% 7%
4% 6% 6% 6%
4% 4% 6% 6%
4% 5% 5%
4% 5% 5%
3% 3% 3% 4% 4%
3%
2% 2%
1% 2% 2%
1%
0% 0%
Source: Company data, Macquarie Research, August 2018 Source: Company data, Macquarie Research, August 2018
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Urban recovery to be led by Seventh Pay Commission pay hikes and OROP scheme
Government has announced 23.6% hike in salaries of central government employees (4.7mn) and pensioners (5.3mn)
effective from Jan-16 onwards and entailing a wage bill of US$15bn or 0.7% of GDP
OROP (one rank one pension) will further entail US$1.2b/year higher consumer spend in the economy.
FMCG – Management of companies have said that Urban growth is recovering significantly.
Consumer discretionary – most of the consumer discretionary names are showing good results.
Central government wage increase – Can boost the State government to follow in-line with centre hikes
economy significantly
50 2.5% 100 5%
40 2.0% 80 4%
30 1.5% 60 3%
20 1.0% 40 2%
10 0.5% 20 1%
0 0.0% 0 0%
FY11
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY12
FY13
FY14
FY15E
FY07
FY03
FY04
FY05
FY06
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15E
FY16E
FY17E
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PAL – revenue break-up by segment (FY16) Most impacted by Patanjali (product overlap as % of
FY16 sales)
Edible oil 8% 8% 8%
1%
7%
Others 6%
9% Cosmetics/ 6%
6% 6%
Toiletries
19% 5% 5%
4%
Other foods Healthcare
29% 12% 3%
2%
x
50
45
40
35
30
25
20
15
10
5
-
Apr-00
Apr-01
Apr-02
Apr-03
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Inida Consumer PER 30x 20x 40x
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Margin expansion to continue driven by premiumization, operating leverage and supply chain optimization
GST rate cuts provide cushion for price hikes to compensate for input cost inflation .
We believe the supply chain optimization initiative can further aid in margin expansion in the medium term.
LEVER Ayush- can counter players like Patanjali & capture growth in the naturals space
HUVR has launched the LEVER Ayush master brand, with products ranging from soaps, shampoos, tooth paste, hand washes and face washes in
South India.
The Naturals/Ayurvedic segment has grown the fastest over the last 2-3 years, and we believe this is a very positive move from HUVR to capture the
part of growth and to counter players like Patanjali Ayurved.
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Top pick in the Consumer staples. High valuations likely to sustain on higher multiples.
HUVR is trading at ~47x FY20E PER, in-line with sector peers valuation.
Financials- we expect ~21% earnings growth in FY17-20E We value HUL at 50x FY20E PER, 15% premium to the
sector multiple
Segment Sales (Rsb) FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
HomeCare 88 113 116 133 152 171 Details EPS Valuation
Personal Care 138 163 166 190 217 244 FY20 37.4
Foods 41 11 12 13 15 17 Multiple 50 15% premium to sector multiple
Refreshments 49 48 52 60 68 77 Target Price 1,870
Others 10 20 16 19 22 25
Net Sales 291 318 322 332 355 415 475 532
growth 8% 9% 1% 2% 7% 17% 14% 12%
Raw Material Cost 149 162 159 163 167 193 220 246
Gross Margin 48.8% 49.1% 50.7% 50.8% 52.9% 53.4% 53.7% 53.7%
Adjusted PAT 38 39 42 43 53 67 81 93
EPS (Rs) 17.4 18.0 19.3 20.1 24.3 30.8 37.4 43.0
EPS growth 12% 3% 7% 4% 21% 27% 21% 15%
B/S & Return Ratios FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Debt equity ratio (D/E) -132% -125% -130% -68% -75% -103% -110% 0%
Working capital days -30 -29 -28 -22 -13 -6 -1 0
ROE 117% 102% 104% 81% 75% 87% 95% 0%
ROCE 84% 75% 70% 69% 70% 70% 70% 70%
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FY19 Cigarette EBIT growth could be under pressure on no price increase and down-trading
ITC has not taken price increases in its cigarette portfolio in FY19 until now. We are now building in 5% price growth (vs 9% earlier) for FY19E.
In case of no price increases in the near term, pricing growth from 2Q19 onwards would be muted. Further, we expect down-trading trends to
continue with the 64mm segment being the main volume growth driver.
Price hike in cigarettes imperative for double digit cigarette EBIT growth
We believe recovery in cigarette volume growth to be a healthy sign, however, we believe pricing growth to taper off from 2Q19. .
While valuations remain attractive and ITC has significantly underperformed peers, we would like to see a recovery in the earnings growth trajectory
before turning decisively positive.
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ITC is trading at ~23x FY19 PER. We maintain Neutral rating with TP of Rs304.
B/S & Return Ratios FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Debt equity ratio (D/E) -27% -22% -21% -15% -13% -13% -12% 0%
Working capital days 85 54 53 52 32 5 3 0
ROE 35% 33% 29% 26% 23% 23% 24% 0%
ROCE 49% 46% 43% 38% 33% 33% 35% 0%
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Higher chance of earnings surprise, top pick in the India consumer space
GCPL is trading at a 40x FY20E PER. We believe GCPL will continue to deliver earnings growth ahead of peers on account of lower penetrated
categories and the higher innovation factor.
We maintain Outperform with TP of Rs1,465.
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Segment Sales (Rsb) FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Rsm PAT EPS (Rs/share) Multiple Value Comments
Consolidated EPS 22,171 32.6 45.0 1465 Based on FY20 PER
Household Insecticides 15.1 16.5 23.1 23.7 22.6 25.4 28.8 32.6
Soaps 9.9 11.2 15.9 15.5 18.0 20.6 22.5 24.6 Total 1465
Hair Colours 4.9 5.6 5.8 5.7 6.2 7.1 8.2 9.2
Others 0.9 3.6 4.2 6.2 7.4 8.7 10.5 12.4
Indonesia 13.6 14.5 14.5 15.3 13.5 15.6 17.9 20.1
Africa 10.0 11.7 13.2 20.3 28.2 32.6 38.0 42.4
Others 12.2 12.9 13.5 14.1 14.0 15.8 17.8 20.1
Adjusted PAT 7.6 9.1 8.3 12.8 16.3 18.4 22.2 25.7
EPS (Rs) 22.1 27.1 34.1 37.7 21.4 27.0 32.6 37.8
EPS growth 13% 23% 26% 10% 16% 27% 20% 16%
B/S & Return Ratios FY14 FY15 FY16 FY17 FY18 FY19E FY19E FY19E
Debt equity ratio (D/E) 63% 63% 57% 68% 45% 39% 31% 0%
Working capital days 46 39 50 51 52 53 54 55
ROE 21% 23% 25% 25% 25% 27% 28% 0%
ROCE 18% 20% 21% 20% 21% 24% 26% 0%
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We are building in a 34% EPS CAGR in FY18-20E led by strong revenue growth.
We are building in strong revenue growth in the next 3 years Our TP is based on 50x FY20E PER
Rsm FY15 FY16 FY17 FY18 FY19E FY20E Parameter Value (Rsm) Comments
Revenue 119,032 112,645 128,965 156,213 190,269 226,796 FY20 EPS 24.7
Revenue growth 9.0% -5.4% 14.5% 21.1% 21.8% 19.2% PER multiple 50.0 25% premium to the last 3 years average PER multiple
Total Value 1,235
EBITDA 11529 9207 11954 17333 23545 29426
EBITDA margin 9.7% 8.2% 9.3% 11.1% 12.4% 13.0%
Investments in Subs and JVs 6 1x invested amount
PAT 8,226 7,053 8,329 12,500 17,285 21,937 Value per share 1,241
PAT growth 11.1% -14.3% 18.1% 50.1% 38.3% 26.9%
EPS 9.3 7.9 9.4 14.1 19.5 24.7
No of Shares 887.8 887.8 887.8 887.8 887.8 887.8
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We are building in 12% earnings growth for the next two years Our TP is based on 40x FY20E PER
Year Ending FY15 FY16 FY17 FY18E FY19E FY20E Parameters Rs/share
FY20E EPS 105.2
Income Statement Target multiple 40.0
Sales revenue 78,584 83,972 90,541 97,734 109,176 122,266 Target Price 4210
Sales growth (%) 13.7% 6.9% 7.8% 7.9% 11.7% 12.0%
EBITDA 8,622 12,140 12,757 14,998 16,922 19,073
EBITDA Margin (%) 11.0% 14.5% 14.1% 15.3% 15.5% 15.6%
EBIT 7,177 11,006 11,565 13,668 15,252 17,050
EBIT Margin (%) 9.1% 13.1% 12.8% 14.0% 14.0% 13.9%
Profit before tax 9,498 12,207 13,043 15,144 17,022 19,162
Net profit 6,887 8,246 8,846 9,998 11,235 12,647
Net profit post minorities 6,887 8,246 8,845 9,995 11,227 12,639
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Segment Sales (Rsb) FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E
We value UNSP at 40x FY20 PER @Rs443/share
Prestige & Above 34 37 46 50 51 59 68 77
growth 9% 26% 8% 3% 16% 16% 12%
Details Valuation Per Share Comments Popular 47 44 36 34 29 30 33 35
FY20E PAT 7765 10.7 -7% -18% -5% -16% 5% 8% 8%
Multiple 40 40 In-line with consumer sector average multiple
Valuation/ TP 310,590 428 Net Sales 106 93 85 88 84 91 103 114
growth -1% -12% -9% 4% -5% 9% 13% 11%
Sale of UBT shares (at current price) 10902 15
Target Price 321,492 443
Raw Material Cost 58 52 48 49 43 47 52 58
Gross Margin 55% 56% 56% 56% 52% 51% 51% 51%
Adjusted PAT -0.2 -1.1 1.7 3.3 4.3 6.0 7.8 9.8
EPS (Rs) -1.1 -7.9 11.5 22.6 29.7 8.3 10.7 13.5
EPS growth nm nm nm 97% 31% -72% 29% 27%
B/S & Return Ratios FY14 FY15 FY16 FY17E FY18E FY19E FY20E FY21E
Debt equity ratio (D/E) 274% 723% 209% 214% 127% 107% 88% 73%
Working capital days 173 165 133 113 103 100 107 119
ROE 0% -6% 14% 18% 21% 23% 24% 26%
ROCE 11% 7% 16% 16% 17% 20% 22% 23%
Other factors for margin expansion include: 1) Higher online ordering (60% of delivery sales in 3Q18 vs 49% in 3Q17); 2) Re-negotiations of rental and
A&P cost leading to cost savings; 3) Dunkin’ Donuts’ loss impact on the EBITDA margin came down to 112bps and 4) the removal of the discounts
helped maintain gross margins .
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Net Debt to Equity -0.2 -0.2 -0.1 -0.4 -0.6 -0.7 0.0
Working Capital Days -50 -47 -32 -42 -41 0 0
Operating Cash Flow 2,886 2,238 1,813 4,995 5,220 6,742 7,848
Free Cash Flow 81 10 221 4493 4206 5333 6172
ROE 20% 16% 9% 22% 26% 0% 0%
ROCE 25% 21% 12% 30% 38% 0% 0%
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Segment Sales (Rsb) FY14 FY15 FY16 FY17 FY18 FY19E FY20E Details Rs/share Comments
Parachute 13 19 20 18 23 27 30 FY20E EPS 8.7
Saffola edible oil 7 8 8 9 9 9 10 PER Multiple 38 In-line with last 3 years average multiple
VAHO 9 11 13 14 14 16 19 Valuation 331
Other (inc Youth brands) 6 7 7 7 6 7 8
International 10 10 11 11 11 12 14
Net Sales 47 57 60 59 63 74 84
growth 8% 9% 1% 2% 11% 18% 13%
EBITDA 7 9 11 12 11 13 15
EBITDA Margin 16.0% 15.2% 17.5% 19.6% 18.0% 17.5% 18.3%
Adjusted PAT 5 6 7 8 8 9 11
EPS (Rs) 3.8 4.4 5.6 6.3 6.4 7.3 8.7
EPS growth 34% 18% 26% 12% 2% 14% 19%
B/S & Return Ratios FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Debt equity ratio (D/E) -9% -5% -23% -21% -13% -7% -16%
Working capital days 61 49 48 48 48 48 48
ROE 28% 35% 37% 36% 34% 35% 37%
ROCE 31% 41% 47% 48% 41% 42% 45%
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Oral care – Shift to Ayurvedic/ Naturals thesis can continue for more than a decade
We believe the recent trend to the Ayurvedic/Naturals category can continue for another ten years and the category can become ~50% of the total
toothpaste market size from ~20% currently.
We believe Dabur’s positioning and brand equity in the space is very strong, which can help Dabur to take a leadership position ahead of others. Oral
Care is ~16% of domestic sales, and we believe it can sustain strong growth going forward .
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Segment Sales (Rsb) FY14 FY15 FY16 FY17 FY18 FY19E FY20E Details Value Comments
Hair care 11 12 13 12 12 13 14 FY20 EPS 10.7
Oral care 8 7 8 7 8 9 11 Multiple 40 Inline with Consumer sector players
Home care 3 3 4 3 3 4 4 Valuation 430
Skin care 2 3 3 3 3 3 3
Health care 16 18 18 16 16 18 20
Foods (Juices) 8 10 10 10 9 11 12
Others 2 3 3 2 2 3 3
International 23 24 27 24 25 30 35
EBITDA 12 13 15 15 16 20 23
EBITDA Margin 16.4% 16.8% 19.3% 19.6% 20.9% 21.8% 22.1%
Adjusted PAT 9 11 13 13 14 16 19
EPS (Rs) 5.2 6.1 7.1 7.3 7.8 9.3 10.7
EPS growth 20% 16% 17% 2% 7% 19% 16%
B/S & Return Ratios FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Debt equity ratio (D/E) -22% -30% -44% 1% 0% -6% -15%
Working capital days 47 43 54 54 54 54 54
ROE 38% 35% 33% 28% 26% 28% 29%
ROCE 34% 34% 34% 30% 28% 31% 33%
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Raw Material Cost 6.8 7.8 8.5 7.9 8.1 9.4 10.7
Gross Margin 37% 35% 36% 32% 32% 33% 32%
B/S & Return Ratios FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Debt equity ratio (D/E) -57% -66% 39% -13% 8% -18% -39%
Working capital days 53 44 23 40 42 44 44
ROE 48% 45% 40% 35% 27% 31% 32%
ROCE 51% 54% 41% 38% 32% 33% 35%
Gross margin strong on price hikes, EBITDA margin impacted by higher employee cost
Gross margin continues to remain strong (66.6%) despite higher input cost on account of price hikes taken in ADHO in Apr-18.
EBITDA margin came in at 31.2% (up 50bps YoY) in 1Q19 due to by higher employee cost (Rs221m vs 199m in 4Q18) on account of higher
international business employee cost.
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Financial Summary
Parameters Details Comments
2016 2017 FY20 EPS 21.2
Year Ending FY2015A FY2016A FY2017A FY2018F FY2019F FY2020F
Multiple 30 25% discount to the sector average
Income Statement Target Price 637
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Important Disclosures:
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