FMCG

Marginal impact of localized lockdown; essentials & hygiene to see uptick: Godrej Consumer

Update on the Indian Equity Market:

 

On Monday, Nifty plunged 3.5% at 14,310 due to rising COVID-19 cases, vaccine supply issues and the possibility of a lockdown in various parts of the country. Within NIFTY50, DRREDDY’S (+7.1%), CIPLA (+2.7%), and DIVISLAB (+1.1%) were top gainers, while TATAMOTORS (-9.7%), ADANIPORT (-8.9%), and INDUSINDBK (-8.6%) were the top losing stocks. Among the sectoral indices, PSU BANK (-9.3%), MEDIA (-8.1%) and REALTY (-7.5%) were the highest losers, and there were no gainers.

 

Marginal impact of localized lockdown; essentials & hygiene to see uptick: Godrej Consumer

 

Excerpts of an interview with Mr. Sunil Kataria, CEO, India and South Asian Association of Regional Cooperation (SAARC) at Godrej Consumer Products (GODREJCP), aired on CNBC-TV18 dated on 9th April 2021:

  • All the SAARC countries have continued to do well and growth has been robust for Godrej Consumer. Exports faced challenges in the 1HFY21 primarily because of lockdown, but it bounced back strongly in 2HFY21.
  • Thumb rule for FMCGs is whenever FMCG grows well, the Indian rural growth lead by 1.5x of urban growth. Pre covid, rural growth had gone down to 0.8x of urban, but the good news is now it has regained to 1.5x-1.7x of urban growth.
  • Mr Kataria expects
    • Good monsoon and with strong rural investment done, rural story will continue to hold very strong.
    • In this Budget, there is a lot of investment gone behind infrastructure sector which will stimulate demand and growth in core sectors. This will lead to good urban growth.
  • The top 3 important areas for Godrej Consumer are:
    • Household insecticides: Godrej Consumer is the category leader in this segment and have done most of the innovations here. India’s outlook towards health and hygiene has changed permanently, a strong momentum in this category is seen by Godrej Consumer this year and expects to continue to hold this momentum
    • Health and Hygiene: Godrej Consumer have done a lot of investment will continue to invest in this segment. It has moved beyond personal wash into being personal and home hygiene portfolio.
    • Go-To-Market Strategy: Sharp investments done in building a next level of GTM, this will be a big enabler in future.
  • Godrej Consumer Products posted a strong Q4FY21 update. The company said it has clocked in broad-based sales across all key categories and sees India sales growth around 30 percent this quarter.
  • This time, the COVID upsurge will see more of localized lockdowns rather than very far-ranging, wide impacting lockdowns. Therefore, a localized geography-based limited impact will happen on demand, which could impact certain discretionary categories.
  • People have started taking hygiene categories more casually and some stabilizing of demand is happening. Essentials and hygiene categories are expected to see an uptick again.
  • The whole consumption demand has looked up well across most of the segments and Mr. Kataria is pleasantly surprised with the kind of recovery in the demand that has happened even after the festive season.
  • Growth has been broad-based across all segments and that gives a lot of confidence and it talks about the quality of company’ growth across all the 3 segments – soap, hair color and household insecticides.
  • The company has taken calibrated price hikes across the portfolio and it is going to keep a close watch on price and demand of the products. More price increases are expected going forward if inflation continues, but not at the cost of volume growth. Therefore, some short-term pressure on gross margins is expected to be seen.

Asset Multiplier Comments

  • Post the virus outbreak, FMCG companies have stepped up supply chain agility and increased the GTM approach to ensure adequate stock. Teams have been put on “hyper-alert” to ensure that supply chains are uninterrupted in the case of disruptions due to localised lockdowns and curfews.
  • Overall, FMCG companies might get impacted due to regional lockdowns but this time it would be milder than last time lockdowns.

Consensus Estimate (Source: investing. com and market screener websites)

  • The closing price of GODREJCP was ₹ 715 as of 12-April-2021. It traded at 40x/ 35x the consensus EPS estimate of ₹ 18.5/20.9 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 814/- implies a PE multiple of 39x on FY23E EPS of ₹20.9/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Health and hygiene segments seeing good growth– Emami

Update on the Indian Equity Market:

On Thursday, Nifty closed 1.1% higher at 13,749. Within NIFTY50, TATAMOTORS (+3.9%), SUNPHARMA(+3.2%), and AXISBANK (+2.8%) were the top gainers, while INFY (-1.3%), WIPRO(-1.0%), and NSETLEIND (-0.8%) were the top losing stocks. Among the sectoral indices, FINANCIAL SERVICES (+1.8%),BANK (+1.7%) and PRIVATE BANK (+1.6%) were the top gainerswhileMEDIA (-0.8%), IT (-0.7%), and REALTY (-0.4%) were the only losing sectors.

Health and hygiene segments seeing good growth– Emami

Excerpts of an interview with Mr. Mohan Goenka, Director, Emami, aired on CNBC-TV18 on 23rdDecember 2020:
● The Covid-19 worries are now over for Emami. Emami delivered double digit YoY growth in 2QFY21 and the management expects similar YoY growth in 3QFY21E. The resumption of growth is to do with Emami’s product range which includes health, immunity, and hygiene products.
● Winter is the key season for Emami and it has set in well in most parts of India. Some healthcare products that have done well because of covid-19, continue to do so. These 2 factors are leading to sustainability of last quarter’s growth.
● Emami is a rural play which is also helping with the growth.
● Emami is not seeing any input cost pressure. Margins are in an expanding trajectory and that continues.
● Due to Covid-19, health has been in focus. Zandu is an established brand that plays in that area. Emami also focused on Chyawanprash, honey and some other product portfolios which have grown well- almost 40% in 2QFY21E.
● The promoters are committed to bringing the pledging down to zero in the next few quarters.
● Emami has launched multiple products particularly in the hygiene segment. Emami is spending good amount of money on advertising for these products. Because margins are at all time high would be investing more into the business.
● Advertising as % of sales will remain in range of 17%-18%.
Consensus Estimate (Source: market screener website)
● The closing price of Emamiwas ₹ 426as of 24-December-2020. It traded at 44x/ 36 x/ 31x the consensus EPS estimate of ₹9.8/11.8/13.8 for FY21E/ FY22E/ FY23E respectively.
● The consensus target price of ₹ 435/- implies a PE multiple of 32x on FY23E EPS of ₹13.8/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Q4FY21 is expected to be normal – Titan

Update on the Indian Equity Market:
On Wednesday Nifty closed 1% higher at 13,601. Among the sectoral indices, Realty (+3.9%), Media (+3.3%), and IT (+2.4%) closed higher. None of the sectors closed lower. Wipro (+5.7%), Cipla (+3.7%), and Tata Steel (+3.40%) closed on a positive note. Hero Motors (-1.0%), Divis labs(-0.7%), and Titan (-0.5%) were among the top losers.

Excerpts from an interview of Mr. S Subramanian, CFO, Titan with CNBC-TV18 dated 22nd December 2020:

● Mr S. Subramanian said there is a strong space for growth in jewellery sector over the next 5-10 years.
● The company has established itself as the market leader and the balance sheet is stronger.
● On other businesses, he said wearables are now a very exciting opportunity. With focus of people on wellness the company is looking for substantial growth in that segment.
● On eyewear, he said the market is significantly underpenetrated and there is a lot of opportunity to grow.
● He expects the company to come out stronger post covid crisis and the focus will be on people.
● On guidance, he said the 4QFY21E is expected to be normal and the good news is vaccine coming.
● The footfalls are improving even in malls and he expects that the worst to be over.
● On weddings, he said that the spends on weddings are lower, it provides an opportunity for people to spend more on jewellery. The company is also witnessing an increase in ticket size spends.
● He said the devices which will track people’s well-being would become important and so (Digital fitness watches) in Watches is a very exciting area.

Consensus Estimate: (Source: market screener and Investing.com websites)
● The closing price of Titan was ₹ 1491 as of 23-December-2020. It traded at 149x/ 69x/ 56x the consensus Earnings per share estimate of ₹ 10/22/27 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for Titan is ₹ 1068/- which implies a PE multiple of 40x on FY23E EPS of 27/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

On track to deliver 11th straight quarter of double-digit growth – Nestle India

Update on the Indian Equity Market:
On Friday, Nifty ended 0.7% higher at 12,859. The top gainers for Nifty 50 were Bajaj Finserv (+9.3%), Titan (+5.4%), and GAIL (+4.0%) while the losing stocks were Reliance (-3.7%), Adani Port (-1.6%), and IndusInd Bank (-1.5%). Top gaining sectors were Financial Service (+1.7%), IT (+1.4%), and FMCG (+1.2%) while top losing sectors are Media (-0.9%), and Pharma (-0.3%).

Edited excerpts of an interview with Mr Suresh Narayanan, CMD, Nestle India Ltd; dated 19th November 2020 from CNBCTV18:

The Company had a good 2Q with 10.2% growth in the top line. This will be the 11th straight quarter of double-digit growth.

The plant utilisation is well over 90% with some restrictions. Manufacturing levels are growing upwards.
For Nestle India, the core elements of their strategy which are 1) penetration linked volume growth and; 2) a strong focus on innovation and renovation remains constant for the upcoming quarters.

The total Distribution infrastructure has opened & continues to be a positive feature.

The Indian economy in recent times is following the theme of the resurgence of Bharat. The Tier 2, 3 & 4 towns and the rural market are doing extremely well.
Urban India is still facing some operating issues but is growing gradually. For Nestle India, it grew by 0.7% in 2Q while rural grew by 1.7%. In 3Q the Company saw urban growth of 6% & rural growth of 12%.

According to Mr Narayanan, the most unfortunate thing that happened during the pandemic was the meltdown of out of home consumption while an enormous surge is seen in at-home consumption. On a positive note, the out-of-home consumption is gradually opening up, and therefore, he sees some balancing in in-home & out-of-home consumption. Thus, the kind of absurd seen in the consumption in some of the categories will start to normalise.

As part of accessing rural India, the Company is taking 3 major steps: 1) improved access points of distribution. Stocking points have been increased to 12,000 from 8,000-9,000 2 years back, 2) carving out the portfolio making it more relevant for semi-urban & rural consumers, 3) Concentrating & establishing a better value & quality in brands as per the consumer’s needs.

The Company has recalibrated the innovation strategy during the pandemic. The Company has launched 60 new products in the last 2 years and 70% of these are successful.

Four big themes of innovation are coming up going forward: 1) better nutrition, 2) immunity-related innovation, 3) will be introducing ‘touchless’ vending for restaurants, and 4) identifying parts of the portfolio which need tweaking.

The Company may enhance nutrition & immunity brands in line with the theme and may also modify the price-value equation of some products.
The food processing PLI opportunity announced by the government is a huge and fantastic opportunity according to him.

Nestle India expects a CAPEX of Rs 2,600 crores to be completed over the next 3-4 years. Capex includes a new factory in Sanand, Gujarat. A substantial part of the CAPEX goes for the Sanand factory set up. The Company plans to invest in coffee, confectionery & dairy business. The higher capacity will have a huge multiplier effect for Nestle India.

Consensus Estimate: (Source: market screener website)
The closing price of Nestle India Ltd was ₹ 17,400/- as of 20-November-2020. It traded at 77x/ 65x/57x the consensus book value estimate of ₹ 225/267/307 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 16,855/- implies a PE multiple of 55x on FY23E EPS of ₹ 307/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Strong 2QFY21 performance, expect 2HFY21 to better – Emami

Update on the Indian Equity Market:

On Tuesday, Nifty closed 1.4% higher at 12,631. Within NIFTY50, BAJFINANCE (+8.9%), INDUSINDBK (+7.3%), and LT (+6.9%) were the top gainers, while TECHM (-5.7%), CIPLA (-5.4%), and HCLTECH (-5.0%) were the top losing stocks. Among the sectoral indices, FINANCIAL SERVICES (+4.1%), BANK (+3.9%), and PRIVATE BANK (+3.7%) were the top gainerswhilePHARMA (-4.3%), and IT (-3.9%) were the only losing sectors.

Strong 2QFY21 performance, expect 2HFY21 to better – Emami

Excerpts of an interview with Mr. N H Bhansali, CEO-Finance& CEO, Emami, aired on CNBC-TV19 on 9thNovember 2020
● In 2QFY21, Emami delivered 10% YoY volume growth, 11% YoY revenue growth and 33% YoY EBITDA growth.
● In 2QFY21, excluding the winter portfolio which had a weak quarter, the revenue growth was 28% YoY.
● The growth was seen across all brands, channels and geographies. Kesh King had highest ever quarterly growth, healthcare sector delivered 50%+ YoY growth in 2QFY21.
● Now winter is setting in and management expects 2HFY21 to be better. Trajectory in October 2020 was good and all brands are performing well.
● Healthcare segment, which includes chyawanprash and other immunity boosters, growth was 40% in 1QFY21 and 53% in 2QFY21.
● There is no extra inventory with the dealers now and the supply chain has settled well from the interim covid-19 disruption. So growth would continue.
● In line with the FMCG industry, Emami’s advertising expenses have now returned to pre-covid levels.
● Management expects EBITDA margin to expand from 26% in FY20 to ~30% for FY21E.

Consensus Estimate (Source: market screener website)
● The closing price of EMAMILTD was ₹ 380/- as of 10-November-2020. It traded at 38x/ 31x/ 26x the consensus EPS estimate of ₹ 10.1/12.1/14.5 for FY21E/ FY22E/ FY23E respectively.
● The consensus target price of ₹ 391/- implies a PE multiple of 27x on FY23E EPS of ₹14.5/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Covid tailwinds led to a 50% growth in Healthcare – Dabur India

Update on the Indian Equity market:
Amid the uncertainty surrounding the US Presidential election outcome, Indian markets remained volatile on Wednesday. The Nifty50 ended marginally higher at 11,909 (+0.8%). Among the stocks, INDUSINDBK (+4.9%), SUNPHARMA (+3.7%), and DIVISLAB (+3.6%) ended the day higher. UPL (-3.9%), AXISBANK (-2.6%), and HDFC (-2.2%) led the losers. Among the sectoral indices, PHARMA (+2.2%), IT (+1.8%), and AUTO (+0.7%) led the gainers. REALTY (-1.9%), METAL (-0.3%), and FINANCIAL SERVICES 25/50 (-0.1%) led the losers.

Excerpts of an interview of Mr. Mohit Malhotra, CEO, Dabur India published in Mint on 4th November 2020:
• Dabur India recently reported 2QFY21 numbers with ~17% domestic volume growth compared to a year ago. There has been an all-around recovery- economy, rural, urban opening up, modern trade opening up, and e-commerce.
• Healthcare got a tailwind and continues to do well; home and the personal care portfolio have seen a sequential recovery in all the sub-categories.
• Healthcare has grown by 50%, out of which health supplements grew by 70%. That is the one that has driven growth.
• Consumption is very muted and the whole mindset is about saving and not splurging. That is why most discretionary products have not yet picked up. In-home consumption continues and this will sustain over a period of time.
• This quarter, the contribution of new products was ~5-6%. The new product launches are not just in categories but also specific to channels, such as e-commerce first products. Dabur is also trying to get into adjunct categories around its power brands, so it is both line and brand extensions. These new launches have also helped drive growth in revenue.
• Covid-19 has been an inflection point for Dabur. There are some fundamental changes being made, in both go-to-market and the way they look at categories, and capitalizing on the opportunities. Capitalizing on e-commerce will help connect with the millennials and urban consumers while strengthening the rural distribution will help resonate with the rural consumer.
• The casual labor force suffered the most due to the outbreak of the virus and they were the ones who went back. Since that labor didn’t come back, there was some hiring from the remote parts of Jharkhand and some other states. Initially, there was some productivity fall and now, post-training, they are at 100% of pre-covid levels.
• The rural growing significantly ahead of urban is expected to continue for a while.

Consensus Estimate: (Source: market screener website)
• The closing price of Dabur India was ₹ 519/- as of 04-November-2020. It traded at 55x/ 48x/ 42x the consensus earnings estimate of ₹ 9.5/ 10.9/ 12.4 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 544 implies a PE multiple of 44x on FY23E EPS of ₹ 12.4/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Tanishq sees better recovery in demand in smaller towns- TITAN

Update on the Indian Equity Market:
On Thursday, Nifty ended 0.8% higher at 11,834 led by IT and Pharma stocks. The top gainers for Nifty 50 were Wipro (+7.3%), Cipla (+5.0%), and TCS (+3.0%) while the losing stocks for the day GAIL (-3.1%), ONGC (-2.8%), and ITC (-1.4%). Top gaining sectors were IT (+3.2%), Pharma (+2.5%), and Bank (+1.0%) while losing sectors were Media (-0.5%) and FMCG (-0.1%).

Edited excerpts of an interview with Mr Arun Narayan, Vice President, Category, Marketing & Retail, Tanishq at Titan Company Limited.; dated 07th October 2020 from Retail Economic Times:

Almost all Tanishq stores are open across the country and the Company has seen a really encouraging response from consumers. There has been positivity because of the festivals from August onwards. The Company believes that as they head into Dussehra and Diwali, the sentiment should only improve.

In towns, where malls contribute to a larger part of their business, the recovery has been even slower but there has been a steady improvement month on month and that gives them the confidence as they head into Dussehra and Diwali. Consumers are waiting to bring in positivity into their lives after months of being restrained and locked down and that is going to play out over the next two months i.e., in October and November.

The Company saw a greater improvement in plain gold and studded jewellery. In August, there was a period when the Company saw more investment buyers and increased demand for gold coins. That was the time when gold rates were going up significantly for maybe two weeks. But now that gold rates have cooled down, they found that recovery is pretty much even across both plain gold as well as studded jewellery.

The management is fairly optimistic about this season for many reasons; one is deferred demand from wedding shoppers. Weddings have got deferred from quarter one of this year to November, December and some of them also to quarter four and they believe that those who have weddings in their families will be back to shop for jewellery. Second, many consumers buy every year during this auspicious period and the Company knows they will be back.
Consumers seem to have accepted that gold rates may remain range-bound or fluctuate, but there is a belief that at least till this festive season, they may not see a significant uptick.

The Company has more than 13,000 customers who bought jewellery through video calls.
One can buy jewellery from the comfort of their homes, sitting with their family, through video calls and can make a remote contactless payment. All the documentation and invoices can be emailed to the customers and they can get the latest catalogues on their phone or device. One can buy jewellery from their nearest Tanishq store from the comfort of their homes. It is a whole new experience for the Company & the consumers as well with the virtual try-on and video calling. The way consumers have adopted that across metros and smaller towns has been really fantastic.

Consensus Estimate: (Source: market screener website)
The closing price of Titan Company Ltd was ₹ 1,254/- as of 08-October-2020. It traded at 127.1x/ 60.0x/48.8x the consensus EPS estimate of ₹ 9.9/20.9/25.7 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 1,068/- implies a PE multiple of 41.5x on FY23E EPS of ₹ 25.7/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

In-home beverage consumption up 25%; sales at pre-COVID levels- Varun Beverages

Update on the Indian Equity Market:
On Tuesday, Bulls continued to dominate as NIFTY ended up 159 pts (+1.4%) at 11,603.
Among the sectoral indices, METAL (-0.7%), FMCG (-0.19%), and PHARMA (-0.1%) were the losers and FINANCIAL SERVICES (+3.15%), REALTY (+ 2.6%) AND PVT BANK (+2.3 %) were the gainers.
Among the stocks, TATAMOTORS (+7.7%), HDFC (+7.6%), and ADANIPORTS (+3.5%) were the top gainers. BRITANNIA (-1.5%), COALINDIA (-1.3%), and WIPRO (-1.3%) were the top losers.

In-home beverage consumption up 25%; sales at pre-COVID levels- Varun Beverages

Edited excerpts of an interview with Mr. Ravi Kant Jaipuria, Chairman, Varun Beverages with CNBC TV18 dated 5th October 2020:

Varun Beverages (VBL) is the second-largest franchisee (outside US) of carbonated soft drinks and non-carbonated beverages sold under trademarks owned by PepsiCo. It produces and distributes brands such as Pepsi, Diet Pepsi, Seven-Up, Mirinda Orange, Mirinda Lemon, Mountain Dew, Seven-Up Nimbooz Masala Soda, Evervess Soda, Duke’s Soda, Sting, Tropicana, Seven-Up Nimbooz, Gatorade and Quaker Oat Milk as well as packaged drinking water under the brand Aquafina.

• Comments on Hotels, Food courts, Restaurants and Bars to operate in Maharashtra from 5th Oct, 2020 at 50% capacity: Maharashtra is an important state but not the biggest state sales wise for Varun Beverages. He further added that UP is the largest contributing state for Varun Beverages. Unlock in any area or region will be helpful for the company to increase the sales and he is happy to know that restaurants, movie theatres are opening up.
• The overall volume sales have reached pre-COVID levels since August, and the numbers for August and September are very close to the numbers logged during the same periods last year.
• When asked about the prospects for the month of October as the restaurants are opening up he stated that September has been better and he is happy with the performance and things are looking good going forward. Opening up of restaurants will definitely help increase the sales but in-home consumption is quite large and on the go consumption has started and they will be back to normal levels soon.
• The supply started in July-20, so July-20 was reasonably good although weaker than July-19 but since August Varun Beverages is doing well and going forward, he doesn’t see any reason why sales should fall or decline unless any major incidence or lockdown happens.
• Whatever fixed cost they could cut down during the lockdown, they have kept it down since then so fundamentally they will be in a good shape as the cost have gone down and volumes are back to normal. So, going forward things are looking pretty good and in shape.
• Unfortunately, they have lost the peak season i.e. April-May-Jun this year but as the go to market keeps on improving and unlock keeps happening things will be back to normal.
• In home beverage consumption has gone up by 25-30% after COVID and on the go consumption is also seeing recovery. If it reaches the normal level he sees huge growth coming in.
• When asked about the revenue contribution, he informed that restaurants and bars contribute less than 5%, in home consumption and on the go consumption are the main business for Varun Beverages.
• When asked whether they are facing any issues at the supply side he replied that they did not had any issue at the supply side and were able to maintain the supply. Production and Supply side was never a challenge for Varun Beverages.

Consensus Estimate: (Source: market screener website)

• The closing price of VBL was ₹ 689/- as of 06-Oct-2020. It traded at 76x/29x/21x the consensus EPS estimate of ₹ 9.2/24.3/33.1 per share for CY20E/CY21E/ CY22E respectively.
• The consensus target price of ₹ 804/- implies a PE multiple of 24x on CY22E EPS of ₹ 33.1/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Investment in digital transformation paying off now – Titan

Update on the Indian Equity Market:
On Monday, Nifty ended 2.5% lower at 11,222 mirroring sell-off in global markets due to rising coronavirus cases across the globe. Domestic investors remained cautious due to the passage of a farm bill as well. Among the Nifty50, TCS (+0.8%), INFY (+0.5%), and KOTAKBANK (+0.3%) were the only stock gainers. INDUSINDBK (-8.6%), TATAMOTORS (-7.8%), and HINDALCO (-7.2%) were the top losers. None of the sectoral indices ended the day in the green, and REALTY (-6.0%), METAL (-5.6%), and MEDIA (-4.8%) were the top sectoral indices to end with losses.

Edited excerpts of an interview with Mr. S Subramaniam, CFO, Titan Company with CNBC-TV18 on 18th September 2020:
• As of now, plain gold jewelry, wedding jewelry, and gold coins are still very much in demand. The recovery from an overall revenue perspective has been fine. The month of September will not see high sales due to the extended inauspicious period.
• In terms of revenues, the company is at about a 90% level on a year-on-year basis. Around 85-90 percent of stores are open but for shorter timings due to localized lockdowns.
• As far as diamond jewelry is concerned, the ratio will remain low this year as discretionary expenses are not taking off as expected. The company hopes to return to normalcy by 4QFY21.
• The industry is facing some serious challenges due to Covid-19, especially the smaller jewelers. Titan is witnessing higher market share, due to a strong balance sheet and strong brands.
• The high investments in digital transformation over the past years are now paying off. Videoconferencing has become a big way of attracting and connecting with customers. Some of the customers may visit the store to complete the sale but a lot of sales are happening digitally. These are the big competitive advantages of Titan.
• The studded jewelry caters to people who are unlikely to face job losses due to the pandemic. Discretionary spending doesn’t depend just on the income levels but also on the general mood and sentiment. In the current situation, most people are avoiding going out. They are waiting for better times when they can feel safe going out to buy jewelry.
• The recovery has been good, slightly better than what the company had anticipated. There are some worrying signs such as the unpredictable timing of normalcy returning, the vaccine is available for all, vaccine doses, which are slightly dampening.
• The cost-cutting measures have been implemented since December 2019, before the outbreak of the virus. The companywide initiative been doing very well. The measures start from discounts to customers, to franchisee pay-outs and every aspect is being looked at. Similarly, every element of fixed cost is also being looked at, including employee cost. The savings from the measures are coming in and assuming next year to be a normal year, will see a bump up in margins.

Consensus Estimate: (Source: market screener and investing.com websites)
• The closing price of Titan Company was ₹ 1,117/- as of 21-September-2020. It traded at 111x/ 54x/ 45x the consensus earnings estimate of ₹ 10.1/ 20.7/ 24.9 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 1,062/- implies a PE multiple of 43x on FY23E EPS of ₹ 24.9/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Pandemic has impacted all layers of FMCG – Nestlé

Update on the Indian Equity Market:
On Wednesday, NIFTY ended up 77 pts (+0.7%) at 11,550.
Among the sectoral indices, MEDIA (+2.5%), AUTO (+1.5%) and PVT BANK (+1.8%) were the top gainers while FMCG (-0.2%) and PHARMA (-0.1%) were the losers.
Among the stocks, TATAMOTORS (+8.8%), HEROMOTOCO (+6.4%), and INDUSINDBK (+6.0%) were the top gainers. BHARTIARTL (-2.9%), ULTRACEMCO (-2.2%), and ASIANPAINT (-1.4%) were the top losers.

Pandemic has impacted all layers of FMCG – Nestlé

Edited excerpts of an interview with Mr. Suresh Narayanan, MD & CEO of Nestle with Mint dated 25th August 2020:

• Food companies with a strong digital-first capability are the ones that are going to hold consumers’ interest for a long time, Nestlé boss Suresh Narayanan said.
• His comments on consumer sentiment and mobility:
o Covid-19 is not just a health challenge, it is also a humanitarian call to redefine the way humans live, engage and work innovatively.
o Companies that are better placed to react to the new normal will naturally be preferred more by consumers.
o Food companies need to leverage their in-depth knowledge of food habits, nutrition, quality and safety in order to innovate and renovate, and adapt to this new normal.
o They need to respond to new demands, reset defining relationships with consumers and reconsider their product portfolio in the post-covid era to make products healthier, while allowing consumers to make an indulgent choice.
• His outlook for the Indian economy in the short and medium term: India’s economy is showing signs of recovery after withstanding the impact of covid-19. Some sectors were impacted more than others. With easing of restrictions on economic activities, businesses are slowly getting back on track. The government announced several measures to ensure business continuity and sectoral revival.
• When asked what other measures government should take to drive demand, he replied that the government has taken measures to increase liquidity and is hopeful that it will help the economic climate and push up demand. MGNREGA inputs have maintained an income source for a large number of people in rural areas and helped maintain demand. A good monsoon also helps. While we do see a push up in rural demand, as the economy starts opening up, it should create jobs and help build up urban demand as well. A strong focus on infrastructure development will revive the job sector as well as demand.
• Nestlé has witnessed better growth in Tier 2, 3 and 4 cities, semi-urban areas than urban areas during the lockdown. Rural consumption continues to be stronger than urban demand.
• Strong performance was delivered in the e-commerce channel. The demand in all out-of-home consumption channels experienced a sharp decline due to the lockdown. However, Nestlé brands enjoy trust, credibility and strength as far as in-home consumption is concerned. This boosted sales of dairy whitener, milk and coffee, all of which performed well. Maggi witnessed solid growth towards the end of the quarter after initial supply constraints.
• When asked whether consumer preferences will change when things will go normal, he stated that Covid-19 has had a profound impact on the pace, channel, texture and frequency of consumption, across a variety of segments in FMCG. There is a redefinition of out-of-home consumption in favor of brands and formats that are more in-home.
• Channel contexts have undergone sharp changes with a surge in e-commerce. Nestlé witnessed contribution of e-commerce going up significantly, while out-of home has not done well. If you look at e-commerce channels in the US, what took eight years in terms of penetration was achieved in eight weeks. Clearly the e-commerce journey is here to stay and there will be recalibration of channels.
• Quality, safety, nutrition and trust have undergone sharper re-definition and consumers tend to favor tried-and-tested brands and relationships formed herein. A new word has been added to the lexicon of consumer needs, which is “immunity” for self and the family. Categories that are in favor have changed and, together with the economic pandemic that followed Covid-19, a recalibration of the consumer wallets is taking place where essentials are taking precedence over luxuries, however affordable they are.
• When asked how Nestle has prepared to adapt to this change, he commented that their entire innovation funnel is undergoing a change. Every business is recalibrating in the context of newly relevant consumer behaviors that are coming in, that is, what innovations we should go with, what innovation should be left out.
• He is a great believer that in a crisis, one should engage, not disengage. If we disengage, then the consumer has other choices. Going forward, consumers are going to be more digitally active than they were earlier, and food companies with a strong digital-first capability are the ones that are going to hold consumers’ interest for a long time. Overall, Nestlé have accelerated digital engagements across key parts of our portfolio and put out innovative digital campaigns to engage with consumers.

Consensus Estimate: (Source: market screener, investing.com websites)

• The closing price of Nestle India was ₹ 16,202/- as of 26-Aug-2020. It traded at 71x/51x/62x the consensus EPS estimate of ₹ 228/269/311 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 16,758/- implies a PE multiple of 54x on FY23E EPS of ₹ 311/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”