Equity Research INDIA

September 20, 2020

BSE Sensex: 38846 Consumer Staples & Discretionary
ICICI Securities Limited
is the author and Worm’s world view #19: Conversations with HUL
distributor of this report
distributors
Overall revenues have recovered to pre-Covid level due to increased demand of
Sector update health, hygiene and foods products but personal care has still not fully recovered
yet and full range of personal care products are not available to distributors -
that's the insight from our conversations with distributors in Maharashtra and
West Bengal. They further told us, (1) rebranding of Fair & Lovely to Glow &
Lovely has not impacted sales much, (2) there is an increase in distributor’s bad
debts due to permanent closure of few retail stores, (3) price hike of c.8% in tea
products and (4) Nutrition business products have some supply constraints.
 Recovery in revenues: Distributors told us that the overall business is almost same
as pre-Covid as there is an increased demand for health & hygiene and foods
products. Brand wise, sales of Lifebuoy has increased. Further, they told us that the
whole range of products is yet not available especially in personal care. However,
even the demand for personal care products has not fully recovered. Also, they
mentioned that cosmetics business is still struggling and has not recovered.
 New businesses: Distributor told us that health food drinks product range (nutrition
business) is yet not available to them. However, distributors have started keeping
inventory of VWash which HUL recently acquired from Glenmark.
 Rebranding of Fair & Lovely to Glow & Lovely has not impacted the sales
much.
 Increase in distributor’s bad debts: Permanent closure of few retail stores (most
cases these stores were on rent) have led to increase in distributor’s bad debts.
Distributors are finding it difficult to absorb this loss with margins of ~4%.
 Inventory levels: Distributor level inventory has not changed significantly post
lockdown.
 Credit period: HUL has not extended any (extra) credit days for the distributors.
 Price hikes: HUL has taken a price hike of ~8% in Red Label Dust tea and is now at
par in pricing with Tata Tea Agni. There has been reduction in trade
schemes/discounts.
 SKUs (stock keeping units): HUL had reduced the total number of SKUs during
the lockdown to increase productivity in manufacturing units. However, full range of
SKUs is now available to distributors.
We like HUL’s supply chain agility and product portfolio (80% of revenues are
from Health, Hygiene and Nutrition product portfolio). That said, downtrading,
Research Analysts:
although primarily to lower sized packs and not to lower priced brands (yet), and
Manoj Menon potential second order macro impact limits stock upsides. For us, HUL is an
manoj.menon@icicisecurities.com
+91 22 6637 7209 outperformer within consumer staples.
Vismaya Agarwal
vismaya.agarwal@icicisecurities.com We do channel checks. We do network checks. However, >20 years of experience has
+91 22 2277 7632 taught this analyst that on-the-ground checks have utility, if and only if, we don't
Karan Bhuwania extrapolate it as a national trend (as diversity is high in India). Worm's world view is our
karan.bhuwania@icicisecurities.com
+91 22 6637 7351 periodic product on network checks.

Please refer to important disclosures at the end of this report

 Consumer Staples & Discretionary, September 20, 2020 ICICI Securities
Figure 1: Valuation summary
CMP TP Upside PE (x) EV/EBITDA (x) ADTV Market Cap
Company (Rs) (Rs) (%) Rating FY21E FY22E FY21E FY22E (US$ mn) (Rs bn) (US$ bn)
Staples
Bajaj Consumer 190 200 5 ADD 13 13 11 11 3.3 27 0.4
Britannia 3,798 3,300 (13) REDUCE 46 44 36 35 39.6 896 12.0
Colgate 1,373 1,500 9 HOLD 42 38 27 25 15.0 385 5.2
Dabur 508 550 8 ADD 53 48 48 43 23.1 891 11.9
Emami 370 400 8 ADD 31 26 23 21 5.2 177 2.4
GCPL 714 750 5 ADD 43 39 31 29 13.3 706 9.4
HUL 2,099 2,500 19 ADD 56 48 41 36 76.1 4,990 66.7
ITC 179 220 23 ADD 15 14 11 10 80.8 2,258 30.2
Jyothy Labs 154 160 4 ADD 25 23 18 17 1.7 55 0.7
Marico 363 420 16 ADD 41 36 29 25 13.6 479 6.4
Nestle 16,087 16,500 3 HOLD 73 59 48 40 32.1 1,555 20.8
Tata Consumer 541 600 11 ADD 64 53 34 31 30.3 504 6.7
Varun Beverages 705 750 6 HOLD 73 37 19 15 2.9 215 2.9

Discretionary
Avenue Supermarts 2,149 1,850 (14) REDUCE 116 61 71 41 22.2 1,406 18.8
Bata 1,335 1,100 (18) REDUCE 163 46 35 20 19.4 172 2.3
Jubilant Foodworks 2,361 2,400 2 ADD 109 56 36 25 28.6 310 4.1
Page Industries 18,664 22,000 18 ADD 150 46 77 30 12.8 214 2.9
Sheela Foam 1,526 1,500 (2) ADD 75 28 38 18 0.8 74 1.0
Titan 1,164 1,100 (5) HOLD 127 52 69 33 51.3 1,055 14.1
United Spirits 544 650 20 ADD 78 37 40 24 23.4 398 5.3
Westlife Development 392 340 (13) HOLD (129) 66 88 20 1.7 64 0.9

Paints
Akzo Nobel 2,164 2,500 16 BUY 47 37 31 24 0.5 95 1.3
Asian Paints 2,028 2,200 8 ADD 73 57 46 37 62.1 1,951 26.1
Berger Paints 579 540 (7) HOLD 98 79 59 50 12.2 562 7.5
Kansai Nerolac 510 460 (10) HOLD 59 45 36 28 1.9 279 3.7
Source: Company data, I-Sec research

EV/ sales (x) P/B (x) P/CEPS (x) RoE (%) RoCE (%) CAGR (FY20-22E) (%)
Company FY21E FY22E FY21E FY22E FY21E FY22E FY21E FY22E FY21E FY22E Revenues EBITDA PAT
Staples
Bajaj Consumer 3.1 2.9 3 3 13 13 27 23 29 24 4 6 7
Britannia 6.7 6.5 16 13 42 40 36 30 25 21 11 18 20
Colgate 7.9 7.3 20 19 34 31 54 57 64 67 6 11 12
Dabur 10.2 9.3 12 11 46 43 24 23 18 17 6 12 10
Emami 6.4 5.9 9 8 32 25 29 33 32 34 5 9 11
GCPL 7.3 6.7 9 8 38 35 21 21 17 17 7 10 9
HUL 11.0 9.7 11 11 50 43 34 23 28 19 15 19 22
ITC 4.3 3.8 4 4 13 12 24 26 25 29 8 7 4
Jyothy Labs 3.1 2.9 4 4 20 18 18 19 16 16 9 16 20
Marico 6.1 5.6 14 13 36 32 36 37 32 33 7 11 11
Nestle 11.5 9.9 62 47 62 52 95 90 39 40 11 16 15
Tata Consumer 4.6 4.2 2 2 48 41 5 5 6 6 10 11 17
Varun Beverages 3.7 3.0 5 5 24 18 8 14 9 14 5 2 1

Discretionary
Avenue Supermarts 5.3 3.8 11 10 88 52 10 17 14 22 23 27 30
Bata 8.2 5.2 9 8 43 24 5 18 9 24 2 1 7
Jubilant Foodworks 8.2 6.3 24 18 48 33 23 36 17 27 11 19 36
Page Industries 8.6 5.9 24 19 101 39 16 46 14 36 9 14 15
Sheela Foam 3.6 2.4 7 6 43 21 10 23 9 22 17 15 13
Titan 5.8 3.7 14 12 87 43 12 25 13 29 14 12 15
United Spirits 5.5 4.3 9 7 51 29 12 22 13 23 1 5 16
Westlife Development 6.2 3.5 12 10 71 26 (9) 16 (9) 23 6 17 204

Paints
Akzo Nobel 4.1 3.4 7 7 34 28 16 18 16 18 1 1 5
Asian Paints 9.5 7.7 17 15 56 45 25 28 22 25 12 12 12
Berger Paints 9.9 8.3 19 17 72 60 20 22 17 19 4 4 4
Kansai Nerolac 5.9 4.7 7 6 44 35 12 14 11 14 5 10 9
Source: Bloomberg, I-Sec research

2
Consumer Staples & Discretionary, September 20, 2020 ICICI Securities
Figure 2: Stock Performance
Absolute Return (%) Relative Return (%)*
Company
1m 2m 3m 6m 12m 24m 36m 1m 2m 3m 6m 12m 24m 36m
Staples
Bajaj Consumer 4 9 25 37 (25) (58) (51) 3 3 11 6 (31) (60) (65)
Britannia (3) 0 12 54 45 25 73 (4) (5) (2) 22 39 23 60
Colgate (4) (4) 1 16 4 22 20 (5) (9) (13) (16) (2) 20 7
Dabur 2 4 16 14 11 8 65 1 (2) 2 (17) 4 6 52
Emami 9 52 85 101 18 (32) (35) 8 46 71 69 11 (34) (48)
GCPL 3 2 11 43 10 (17) 13 2 (4) (3) 11 4 (19) (0)
HUL (5) (10) 2 2 15 26 64 (6) (16) (12) (29) 9 24 51
ITC (10) (8) (4) 2 (25) (41) (33) (11) (13) (18) (30) (31) (43) (46)
Jyothy Labs 5 27 32 57 (5) (28) (28) 4 21 18 25 (12) (30) (41)
Marico (3) 2 9 42 (5) 5 9 (4) (3) (5) 10 (11) 3 (4)
Nestle (3) (7) (1) 14 25 57 121 (4) (12) (15) (18) 19 55 107
Tata Consumer (1) 28 45 105 108 130 153 (2) 22 31 73 102 128 140
Varun Beverages (10) 2 (0) 17 13 33 98 (11) (3) (14) (15) 7 31 85

Discretionary
Avenue Supermarts (5) 8 (9) 12 30 40 97 (6) 2 (23) (19) 24 38 84
Bata 6 2 2 8 (14) 33 83 5 (3) (12) (23) (20) 31 69
Jubilant Foodworks 23 34 42 60 90 70 232 22 29 28 29 84 68 218
Page Industries (2) (4) 3 3 (6) (43) (4) (3) (9) (11) (28) (12) (45) (17)
Sheela Foam 11 4 6 11 21 (8) 9 10 (1) (8) (21) 15 (10) (4)
Titan 2 17 19 29 0 41 80 1 11 5 (3) (6) 39 67
United Spirits (8) (10) (11) 5 (10) (4) 2 (9) (16) (25) (26) (16) (6) (11)
Westlife Development 5 12 31 23 42 7 70 4 7 17 (8) 36 5 57

Paints
Akzo Nobel 5 17 18 1 27 27 19 4 12 4 (31) 21 25 6
Asian Paints 8 18 27 16 31 57 62 7 13 13 (15) 25 55 48
Berger Paints 3 12 16 28 57 93 116 2 6 2 (3) 51 91 103
Kansai Nerolac 2 13 31 38 10 9 2 1 8 17 7 3 7 (11)
Source: Bloomberg, I-Sec research *Relative to Nifty 50 Index

3
4
(Rs) (Rs) (Rs) (Rs) (Rs)

320
420
520
620
720
820
920
1,020
100
200
300
400
500
600
700

100
200
300
400
500
600
700
1,300
1,500
1,900
2,100
2,500
2,700

1,700
2,300

250
300
350
400
450
500
550
600
GCPL
Sep-17 Sep-17 Sep-17 Sep-17
Sep-17
Mar-18 Mar-18 Mar-18
Mar-18 Mar-18
Akzo Nobel
Sep-18 Sep-18 Sep-18
Sep-18 Sep-18

Berger Paints
Mar-19 Mar-19 Mar-19
Mar-19 Mar-19
Price charts

Kansai Nerolac

Tata Consumer

Source: Bloomberg
Sep-19 Sep-19 Sep-19 Sep-19
Sep-19
Mar-20 Mar-20 Mar-20 Mar-20
Mar-20
Sep-20 Sep-20 Sep-20 Sep-20
Sep-20

(Rs) (Rs) (Rs) (Rs) (Rs)

200
250
300
350
400
450
HUL
600
800
1,000
1,200
1,400
1,600
2,000
2,200

1,800

Titan
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500

1100
1400
2000
2300

500
1700
2600

800

350
550
750
950
1,150
1,550
1,350
Marico
Sep-17 Sep-17 Sep-17 Sep-17
Sep-17 Britannia
Mar-18 Mar-18 Mar-18 Mar-18
Mar-18
Sep-18 Sep-18 Sep-18 Sep-18
Asian Paints

Sep-18
Mar-19 Mar-19 Mar-19 Mar-19
Mar-19
Sep-19 Sep-19 Sep-19 Sep-19
Sep-19
Mar-20 Mar-20 Mar-20 Mar-20
Mar-20
Sep-20 Sep-20 Sep-20 Sep-20
Sep-20

(Rs) (Rs) (Rs) (Rs) (Rs)

ITC

125
175
225
275
325
375
400
800
1,200
1,600
2,000
2,400
2,800

200
400
600
800
1,000
10,000
12,000
18,000
20,000

14,000
16,000

4,000
6,000
8,000
600
800
1,200
1,400
1,800

1,000
1,600

Nestle
Sep-17 Sep-17
Sep-17
Colgate

Sep-17 Sep-17
Mar-18 Mar-18 Mar-18
Mar-18 Mar-18
Sep-18
Consumer Staples & Discretionary, September 20, 2020

Sep-18 Sep-18 Sep-18 Sep-18

United Spirits
Mar-19 Mar-19 Mar-19
Mar-19 Mar-19
Sep-19 Sep-19 Sep-19 Sep-19 Sep-19
Mar-20 Mar-20 Mar-20 Mar-20 Mar-20
Avenue Supermarts

Sep-20 Sep-20 Sep-20 Sep-20 Sep-20

(Rs) (Rs) (Rs) (Rs) (Rs)

400

0
200
600
800
1,000
200
250
300
350
400
450
500
550

200
700
1,200
1,700
2,200
2,700
100
175
250
325
400
475
550

22,000
32,000
42,000

2,000
12,000
Dabur

Sep-17 Sep-17 Sep-17

Sep-17 Sep-17
Mar-18 Mar-18 Mar-18
Mar-18 Mar-18
Sep-18 Sep-18 Sep-18 Sep-18
Sep-18
Mar-19 Mar-19 Mar-19 Mar-19
Mar-19
Page Industries
Bajaj Consumer

Sep-19 Sep-19 Sep-19 Sep-19

Varun Beverages
Sep-19
Mar-20 Mar-20 Mar-20 Mar-20
Mar-20
Jubilant Foodworks

Sep-20 Sep-20 Sep-20 Sep-20

Sep-20

(Rs) (Rs) (Rs) (Rs) (Rs)

650
850
1,050
1,250
1,450
1,650
1,850
2,050
0
200
400
600
800

150

100
300
200
250
300

200
400
500
600
50
100
0
500
1,000
1,500
2,000

Sep-17 Sep-17 Sep-17 Sep-17 Sep-17

Emami

Mar-18 Mar-18 Mar-18 Mar-18 Mar-18

Bata India

Sep-18 Sep-18 Sep-18 Sep-18 Sep-18

Jyothy Labs

Sheela Foam

Mar-19 Mar-19 Mar-19 Mar-19 Mar-19

Sep-19 Sep-19 Sep-19 Sep-19 Sep-19
Mar-20 Mar-20 Mar-20 Mar-20 Mar-20
Sep-20 Sep-20 Sep-20 Sep-20
ICICI Securities

Sep-20
Westlife Development
 Consumer Staples & Discretionary, September 20, 2020 ICICI Securities
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New I-Sec investment ratings (all ratings based on absolute return; All ratings and target price refers to 12-month performance horizon, unless mentioned otherwise)
BUY: >15% return; ADD: 5% to 15% return; HOLD: Negative 5% to Positive 5% return; REDUCE: Negative 5% to Negative 15% return; SELL: < negative 15% return

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