I strongly agree with this , except for HUL and most of Nestle’s products. Only positive I see in Foreign MNCs is excellent corporate governance and less possibility of promoter debt/pledging issues like in Emami and Bajaj corp.
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Colgate came out with some decent nos yesterday amidst rural slowdown. There is a decent amount of volume growth and a small increase in ebitda margins. They also appointed a new MD who is slated to take over from 1.08 which the market has appreciated. Generally in the case of Colgate , when there is top mgt change it is usually followed by some new product launch and an ad blitzkrieg around that product.
Theres not much being discussed about PGHH and Gillette . Would request fellow valuepickrs to please give views on the same .Many thanks in advance
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I believe, all started from the Movember movement and then men took it forward. It had a great following in India too this time. Still India is a large country with diverse culture and trends, and so anything so severe is unlikely to happen anytime soon. And even if that happens it won’t last forever as India is a warm country & men are unlikely to keep large beards except in Winters.
I’m not very much surprised as the fortune of a fashion company is linked with trends. Any slippage in following the trend is likely to hit it hard. P&G Inc. survived without scar because the rest of its portfolio more than compensated for the loss. But if it happens in India, the shareholders of Gillette Ltd. may suffer a medium term pain given the exclusive dependence of Gillette Ltd. on the Gillette brand only (~80%).
FYI, Marico & GCPL upped the ante by releasing a range of beard styling products under Set Wet & Cinthol Brands, respectively. Being more aggressive on this front Marico bought 45% stake in Beardo, which were the forerunner in the movement in India, and is now planning to complete the acquisition by March 2020.
I think more pain is waiting for Gillette in India as electronic trimmers & shavers are getting more popular among Urban males. Gillette has one electric trimmer/shaver product in India but they aren’t probably focusing on it strongly, and Philips India seems to have taken a considerable lead on that front.
Disclosure: I’m invested in GCPL & Marico. Resisted the temptation to invest in Companies with exclusive dependence on Single Brand, e.g. Gillette, P&G Hygene, Colgate.
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Hey do you have a portfolio thread. If yes would really like to read it. Thanks
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Thanks for asking. Not yet created. Might do in future. 
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Agreed @sujay85. However i believe that there is a great oppurtunity for Gillette in India and the management of P&G is fantastic . Inspite of competition faced by Dollar shaving club, their market share in international market like US is still about 50% and although its a single product which is a risk , they have a terrific moat and the constant innovation that they do , i have seen people who spend very less generally but still buy mach3 or Gillette Fusion .
Electric razor is definitely a threat to watch out for, however i believe the cost point at which it is available , it may not be attractive as compared to Gillette razors which are quite cheap comparatively and i guess in the electric market too , Gillette will make its mark if it feels that traditional shaving products are facing disruption .
Similarly with P&G hygiene , they have great oppurtunity size and have still managed their market share over 50% . They are constantly educating in rural schools on the importance of sanitary napkins and i typically like the long term focus of these MNC not being bothered by quarterly numbers . Perhaps thats why there is a lumpiness in profits . Companies like Gillette show results over a period of 5 year cluster . My only wish is that these companies be a bit more aggressive like their Indian FMCG counterparts
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Completely agree about the large opportunity size and quality of P&G Hygene & Gillette. They have a great brand too which means they have a great pricing power.
Yes, and the interesting thing is that the market is aware of it & so less price erosion & mostly time correction takes place in these periods which were historically as long as 5 years. For example Gillete price remained sideways during Nov 2003 to Mar 2009 (P&G acquired Gillette on 2005). These periods can be frustrating for individual investors, so mindset should be prepared accordingly.
I would like to disagree on this point. The M.R.P of Gillette Mach3 New Blade Razor is ₹250 & is usuable nearly 15 times. Whereas Philips electric shaver range starts from ₹1845, & that remains workable for years without much maintenance, rechargeable battery & blade works for nearly 2 years. Moreover, trimming is a new fad & that can’t be done using a manual razor.
TBH, I find it a bit unacceptable for a market leader to wait for a category (electric trimmer & shaver) to become popular & then start entering strongly (reminds me of Kodak, god forbid!). I like a player more which is keen on creating a category.
Don’t get me wrong. I like P&G as a company. They are working well on their home & personal care products & also doing a great service by educating & promoting the use of Sanitory Napkins. But I feel they aren’t doing enough in keeping its dominance in Gillette. They are innovating the traditional category well but I’ll keenly monitor how they are preparing for the upcoming mini-disruption (electric trimmer/shaver) or trend-change (Beardo).
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Ashwath Damodaran on brand names in recent interview to Bloombrg
*“I’ll make a general statement about the brand name, consumer products because a lot of these companies that you are talking about also have built brand names over time and have essentially stable, predictable cash flows. Around the world, brand names are under assault. They’re under assault partly because it is like, somebody is 25 and has a different opinion on Britannia biscuits and somebody who is 65 who would say, how would I live without my Britannia biscuits? I think that, when I valued Kraft -Heinz last year, this was the point which I would make. People thought Kraft -Heinz, they were not going to go away they were the most powerful brand names in the world. Now Heinz with its 57 kinds of ketchup and Kraft, with its you know, melted, disgusting cheese you know whatever. It is but people said that they were not going to go away and what you’ve learned since the Warren Buffett 3G acquisition is that both, and these are very savvy and highly regarded investors and both over-estimated this staying power of brand names. And if Warren Buffett and 3G can get blindsided by how quickly brand names can fail, I wouldn’t be surprised if the average investor is overestimating the staying power of brand names. And if Warren Buffett and 3G can get blindsided by how quickly brand names can fail, I wouldn’t be surprised if the average investor is overestimating the staying power for many of these consumer staple companies because I think brand names are coming under assault for lots of different reasons. Part of the reason is, the way we get information is different. We no longer watch TV so maybe one of these brand names where much of the recognition came from, hey, they were on TV. Now, I might be getting it on my phone, it’s very different. *
How people get information, what creates brand names. You are going to see it play out. It is not that I am not going to sell short over these companies, but I’d be wary about paying premium prices just because they produce something I view as a consumer staple and it has a brand name that is recognised. You have a brand name; you have a consumer staple so it is going to last forever. Nothing last forever. Nothing lasts for a long time. It has lasted for a long time but here, you’ve got to see change coming and that change is going to mean a lot of adjustment in, not just the investor part on the company’s part too in terms of how much money they’ve used to keep these brand names afloat.”
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I would ask mr Damodaran here that is he investing in say a Britannia for a good day brand or for its distribution and innovation strength of creating new brands and entering new categories and capturing market share …all keeping profitability intact…
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I would not take his view as “don’t buy FMCG( brands )” but just build changing(though slowly) scenario, disruption or moat while valuing such companies.
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This is a good perspective. But it will take a decade or two to apply to India.
There are very few new brands who have manufacturing capablity to match the quality except for ITC and few new ones like Paperboat. Future group has been trying to do that same for long but I don’t see them succeeding so far. Patanjali is slipping down because of quality issues.
Other point is that as a society US is more of an exception than rule. It is a society which is far more open to changes and experimentioans.
In India, established brands may show next leg of growth due a rising income level and aspirations at bottom of pyramid.
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I would like to add Saj Food Products (Bisk Farm) to that list. In Eastern and North-Eastern India they have built a great brand with superior product differentiation from the incumbents. In-spite of being a Britannia shareholder I have high regards for Bisk Farm’s products, and I know of a lot of families including mine who have switched to Bisk Farm’s biscuits. They release new products periodically & most of them become an instant hit.
Read the following almost decade-old article. They have become bigger & better since then (still a smaller regional player though).
They were planning to roll out an IPO by 2011 but didn’t. I hope they’ll do soon.
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Somewhere I believe Aswath Damodaran , although a great teacher , lays great emphasis on quantitative over qualitative factors such as innovation, opportunity size . We have a great opportunity size here with rising income and great companies like Nestle were considered overvalued even 20 years back and trade at pretty much similar multiple . I believe such disruption is far in such FMCG atleast in India and more so in a company like Britannia which is not a one product company . It’s not just about Britannia but a lot of quality companies that are considered overvalued by American standards but might not be so overvalued as they look . I dont say one must pay any multiple and granted that many are overvalued too and must correct before being considered a decent investment .
Even disruption is more easy in non FMCG companies as compared to FMCG and more difficult in innovative FMCG as they adapt pretty quickly to the changing needs with one great advantage over new comers I.e the brand .
Disc- Invested and am not a sebi registered analyst. Pls do your own diligence before investing
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I think this is the crux of what the Professor is trying to say. He is not saying “FMCG companies are going to get disrupted, don’t buy them”. He is saying “FMCG companies are more likely to be disrupted in the near future when compared to the past. So, make sure you value / pay for them accordingly”.
In a very crude sense, what he’s trying say that perhaps FMCG companies may not reclaim the high P/E multiples they once did. Even if that’s not entirely true, there is some merit to his argument.
Maybe in India, it will perhaps take a decade more. But we would be better as investors to at least consider taking stock of that risk and making sure our purchase price is cognitive of that.
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That makes the sense .In addition to @dineshssairam points that once is consumption-related stocks was considered the biggest driver for the economy and NBFC played a key role in economic expansion for segments that are not catered by banks. This slow consumption period will go for one or two quarters even The IMF, too, has cut its projection for India’s economic growth by 0.3 percentage point to 7 per cent for 2019-20 citing weak demand. ( source : https://economictimes.indiatimes.com/news/economy/indicators/imf-cuts-indias-fy20-growth-forecast-by-30-bps-to-7/articleshow/70348753.cms)
due to these facts the sectors like consumer staples, quick service restaurants (QSRs), automobile and jewellery (which are consumer discretionary item apart from the basic needs ) are already facing multiple challenges .ITC , Titan ,Bajaj consumer ,Jyoti labs , Havells , Symphony , Britannia , major automobile companies are not flying high and the same is reflected in their price . one should be sit tight on the lines.
I am not saying the one can TIME the market but tone CAN WELL control the LOSS … i have done mistakes in past. That’s the reasons senior VP’s also advocate one became a better investor once he gone through the bear phase. This is Not BEAR phase but the MARKET is moving in RANGE and slow bumps and humps seems like detrimental phase for certain stocks , which is just like killing someone by Pricking niddles .
However the POCKET of growth remained in Individual stocks . If we talk about non FMCG sector for example Bajaj finance is racing ahead of its peers , The global increased demand of brufene due to the closure of Chinese facilities and BASF closure of plant of brufene give a boost to the export and IOLCP is better beneficial .which is major worlds’ largest backward integrated plant to manufacture brufene .HDFC life is another company beating it’s own sector. ( These are not FMCG companies 0
Amidst of this investor pay attention to own strategy and look inward what mistakes he has done in past and how he can use this opportunity of discounted equities .
Disc: I am not SEBI Approved analyst .the stocks mention above are not hereby recommended to buy sell or hold .One may do his or her due diligence and consult SEBI approved analyst before investing
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It could be because these are low value, low ticket and more repetitive purchase items where the impact of a slowdown will probably come at the last leg. That is the reason why the volume growth is still holding up. But the moment you go down to slightly more high value, high involvement purchases like a discretionary, you see the whole impact. In another quarter, the monsoon flavour will come in and FMCG may still hold up on the volume side for maybe a couple of quarters more.