True , I am not underestimating Amazon or its head . However inspite of their budget and multi segment focus , they haven’t been able to make a dent in several such reputed companies in US . Moreover I believe we shouldn’t underestimate our individual focused domestic companies too . However deep pocketed , and focused a multi product company is , it’s difficult to compete with single sector focused companies . Eg Symphony coolers . Look at how fruit and loom ( a berkshire company ) with deep pockets also once came and went back as it couldn’t compete then with Page and its distribution channel . Distribution channels are created with years of hard work . Even Havells for that matter is part of a competitive industry but posting stellar results and its terrific distribution channel is its moat . Although the latest news i hear is that they are back here some months back .
And here anyways the share of pie is large , so although the more good if it helps increase the overall pie by expanding market .
In foreign country , private labels also sell but they haven’t made as much of a dent in individual brands . Eg Nescafe or Colgate . I believe at max , this will help expand the market . Even here closer home in India , CCL is manufacturing coffee for many retail private labels , but that wouldn’t affect Nescafe or Bru much . At best it will expand market .
Here in India we have advantage of huge opportunity size and so FMCG and consumer durables have a long runway despite competition IMHO
As far as opportunity size goes , one of my favorite investor Bharat bhai Shah of ASK explains it beautifully
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As far as stock selection criteria are concerned, which create long-term value, there are five simple ideas, which I regard as material. One, Size of Opportunity is a mother idea. It is less about how big a business was or is. It is virtually all about how big it can get from where it is. It dwells almost entirely in future rather than in the past or present. It is more about the size of a pond rather than the size of a fish. Pond has to be large so that there is headroom for a capable fish to grow.
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Above selection from below link https://www.valueresearchonline.com/story/h2_storyview.asp?str=26143
Disc I am not a sebi registered analyst and none of them is s recommendation . Invested in some of the above names
Unless they spend on marketing, which I don’t feel they will do anytime soon, they will not become a brand.
However, I really doubt if in budget consumer durable space, there is any brand loyalty. The way, Xiaomi, took market-share away the smartphone market incumbents like Samsung, HTC or Micromax, is alarming to say the least. And they took that just by pricing war, and featuring on eCommerce platform. They started spending on A&P after they became market leader. In my opinion, small consumer durable market has many similarities to the smartphone market and I wonder why Amazon with a focused strategy can’t replicate that. Btw, market size is huge in smartphone too.
I agree, but they should be very much mindful of the possibilities. Any kind of complacency can hit them hard. Its a fact that not many private labels has been successful, but they shouldn’t look at the rear-view mirror.
Food is the most sticky category, so I won’t draw a comparison here, and same for dishwashers too. However, Amazon did fail in the past in smartphone (Fire Phone). But, being an anti-fragile company, I believe they will now be more careful and strategic.
Distribution is a wonderful thing but its a fact that eCommerce has destroyed distribution moat in many places. Distribution moat is here to stay for large appliances, W&C, building materials, paints, battery etc. But for smartphone and small appliances distribution moat IMHO is almost non-existent.
Colgate also has quietly increased its ROE from 48% to 52%. The communication has also undergone a rapid change. Do chk out the dancing doctor ad available on YouTube. The new MD is known to be a good communicator amongst the ad circles.
Colgate broke into a lifetime high today emphatically. Besides the tax cuts, the co has had a top mgt shuffle not only in india but also globally with Noel Wallace replacing Ian Cook and Ram Raghavan replacing Issam Bachaalani in India. In the past we have seen top fmcg cos like britannia, nestle , jubilant foods etc benefit from a top mgt change. Varun Berry in 2014, Suresh Narayanan in Nestle, Pratik Pota in Dominos etc
In a similar vein, Ram Raghavan has outlined several new product launches in the naturals segment starting with Activated Charcoal Bamboo toothpaste which incidentally is also part of the Colgate global strategy. Vedshakti which was launched primarily in South India is now going to be taken pan india across all the general trade formats. The focus is squarely back on volume growth and premiumization rather than on margins which are at really high levels in anycase. Colgate brand is the second most distributed brand in India after Lifebuoy soap so when it decides to take some product pan-india one can raise expectations as well.
Tax cut or no tax cut, these are amongst the best homegrown FMCG companies. ( ie…in my opinion )
At cmp, I would say…I like GCPL as I am hopeful of reasonably good qtly results due extended monsoon rains and resultant mosquito menace.
I expect a strong Qtr from Marico and a descent one from Dabur as well.
Their valuations are however…a little stretched.
My opinion : Both Dabur and Marico ( specially Marico ) can still be bought at CMP if one is okay with digesting 6-12 months of time correction / no returns for the sake of great long term gains.
Disc : All three are a part of my personal portfolio.
My views may change without prior intimation.
There has developed a significant valuation gap between these homegrown FMCG and HUL/Nestle/P&G. Last couple quarters Foreign MNCs managed to show better growth. It’s a matter of time growth returns to matching levels for them as well. Also, silently 2 other future big FMCG names are brewing which we tend to forget…one of them is Tata consumer products, which benefits from tax cut same way as HUL. Starbucks turnaround time has also come. Agro tech foods is also waiting to get things right. All these are excellent time correction candidates.
Disc. Hold some of names above. This is not a buy sell call but just comparative analysis thoughts
Interesting article @bheeshma. However, where can we see incremental improvements coming in. Since the company is already efficient any incremental change in the net profits will flow through the revenue growth. Operating margins have gone from 21% in 2015 to 27% as on current year.
If we take a 3-5 year horizon as per the changes the management is introducing what will move the needle in profits?
Double digit revenue growth rate or further improvement in operating margins?
Also the management’s logic that penetration of people who brush two times daily is very low doesn’t guarantee faster growth in the near term. It only means that growth will be linear and upwards for the foreseeable future but that should be at the historical growth rate only.
Hi @karu_lamborghi_
The market for oral care is about 10,000cr so it’s not that big a market and its growing in low single digits at an overall level. So double-digit revenue growth is in my view a distinct impossibility.
The basic thesis is improving return ratios which have been steadily improving slnce the last 3 years after a decline. As outlined by the new mgt the focus is on grabbing market share by introducing new products like activated charcoal and increasing the spread of the naturals portfolio.
Colgate is the market leader but it was broadsided by Patanjalis dankanti which created a whole new category which Colgate could never create in its own. It took a some years for Colgate to recover as it’s a large multinational and moves slowly but now it has got a plan in place and a new mgt to execute it.
I expect the return ratios to improve further from this point on as all major fixed asset investments have been made. The gross margins are at an all time high. The headwinds is the liquidity crunch in the general trade channel which may increase receivables or create supply chain pressures.
From my personal experience, I think it is very hard for people to move from one brand to another by seeing any advertisement. After having used parachute all my life, unless I get bad experience from Parachute, I would not change even if it bit expensive. Definition of “bit” may change from person to person.
Dabur is a equally good fmcg manufacturer. It has good presence in the hair oil segment and has economies of reach with its vast distribution network. With a small incentive to the shopkeepers and competitive pricing can ensure that within few years parachute might lose decent amount of market share. For eg once can look at what has happened to chocolate biscuits in the biscuit industry.
Regards
Divyansh
Dabur’s dependence on Anmol Coconut is far lower than Marico’s is on Parachute. Thats one.
Two- Parachute is a far stronger brand with some pricing power. How much???..we ll find out.
Three- Industry is going through a tough period. Un - organised players are already under the pump. ( in coconut oil mkt, they account for 25 pc or so of the total industry…source- Marico’s AR ) So, maybe they ll be hit harder.
Four- Parachute’s brand equity and per capita consumption is higher in South India, which is not as price sensitive as north. Also, north Indians do apply more of Amla, Mustard oils vs South Indians.
So, in my opinion…anything may happen. But Marico has more to loose than Dabur…thats for sure. Weather they will loose is a different matter.
Disc: holding both Dabur and Marico. Both are amongst the core constituents of my my PF.
I just want to confirm a trend that I am seeing across grocery, chemist and Modern retain channels in Gujarat…that of Emami Ltd being finally able to sell Boroplus body lotions in descent quantities ( volumes that can make a difference to the company ). They are avlb exclusively in 1+1 pack.
Can fellow valuepickrs throw some light on this from their home states ??? It will be of great help.
“In 2019, most consumer staples stocks underperformed the market with discretionary/ urban proxies faring better. Even then, most companies in our coverage continue to trade at a premium compared to their last 5/10-year average one year forward P/E,” UBS said.
