ALL the listed players have now entered the sanitizer category. Everyone wants a piece of the pie!
Dabur
Marico
Jyothy Labs
Bajaj Consumer
Emami
Zydus Cadila
Note:
- Only Tata consumer & Nestle are left behind probably because they donāt yet have any presence in personal care segment.
- HUL, GCPL, Palmolive, ITC already had sanitizers in their portfolio. Dabur had one too which they discontinued & so reentered.
Two more 
patanjaliās product
It is amusing to see "disappointingā in the market reports. What else they were expecting in the current situation! No doubt there maybe a knee-jerk reaction to stock price, but when multiple companies are set to post big losses, a mere 1.2% profit decrease can be only disappointing to low quality traders.
Exactly my sentiments. People who write reports have lost all sense of context. I wonder instead of real flesh and blood people are these reports thrashed out by bots. Q1 will be worse because the whole of April was in lockdown. I wonder what they will write when the results of automobiles, white goods and other industrials start pouring in. Q1 2021 can be devastating. But for those who depend on DCF it is about loss of cash in one/two quarters of the next 50 quarters or so.
The disappointment seems to have stemmed for the following reason.
The company announced a massive 7% drop in underlying volume growth in the March quarter, compared to 5% growth in the first nine months of the fiscal. Even after factoring in major disruption at the end of March owing to the lockdown, analysts had factored in flat volumes. This was simply based on the assumption that growth had continued at around 5% before the lockdown. But the fact that volumes actually fell, and by as much as 7% means that growth had fallen sharply even before the lockdown, and was likely close to zero.
While again this should be no surprise. Before lockdown for couple of quarters volume growth was declining for Indian FMCG like Godrej, Marico. HUL, Nestle seemed to buck the trend but they were only catching up as there were underlying issues in demand. So HUL has not disappointed. Infact they made sure that they got affected late than industry and would come out faster. Who disappointed are they analysts and seems they are disappointed with themselves. Now what is to be seen is did market also disappointed itself and how would it affect the steady HULās stock.
Disc. Not invested, actively tracking.
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Disappointment has to be also read in the context of share price movement before the results. If you would have tracked the same, you would have seen that HUL made a new all-time high just 2 weeks back which means that investors/traders/punters/speculators whatever you call them were banking on decent results at least for 4Q and lower effect of Covid-19 on results going forward.
The stock has fallen 17% from its highs is still trading at 70x P/E - moreover, it is still trading at similar levels to pre-coronavirus times (mid-Feb). I think more corrections can come as people realize this is not as much a safe haven as it was made out to be and it is better to be in cash if one is bearish on the economy than investing in HUL at 70x P/E. So that is the short term.
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Long term again, one has to understand first the macro of India and markets in the past decade. Indian markets have been in a space where Govt securities (Debt securities) have given better results than the stock markets in the past 10 years. This is because of an overall slowdown in the economy which has been a continuing theme for the decade ending 2020 more or less. As such a lot of money movement has happened from cyclical to defensive companies. This has resulted in a rapid increase in P/E multiples of defensive companies like HUL and equal deflation in P/E multiples of other sectors.
In the case of HUL - it has delivered 9x returns in 10 years which is a CAGR of 24% (ignoring dividends for now). Of this EPS growth has been only 10% in the last decade - so the remaining returns have only come because of the shift of P/E expansion. So this is something that long term investors must understand ā HUL will be priced at 1/3rd of its current price if P/E multiple expansion in the last decade did not happen. So if the stock was trading at 250 a decade back it would be trading at 650 Rs per share rather than 2100 Rs per share on 31st March 2020.
Now this P/E preference towards holding HUL and other FMCG stocks versus other stocks has happened because of many reasons ā 1) one decade more of steady performance which merits higher PE, 2) fall in interest rates globally and this is perhaps one of the most important reasons, 3) botched up growth of Indian economy leading to very few sectors actually doing well and 4) disruption from bargaining power of organized retail / ecommerce still at a manageable level for brands as organized retail plus e-commerce still remains at sub 10% of Indian FMCG consumption, 5) lots of corporate governance issues cropping up in Indian cos resulting in preference towards MNCs and blue chips, 6) extreme apathy towards small and midcaps where BSE Smallcap Index, for instance, has given 0% returns in the decade ending 31st March 2020.
So, if a long term investor assumes that HUL at a much higher base of operations continues to deliver 10% earnings growth for the next decade, he/she still have to answer the 6 points above and figure out how they will behave in the coming decade compared to the just gone decade. If the answer is everything will remain the same then HUL will prove to be one heck of an investment. However, if the answers of the some of these questions change i.e. if India shows a broad-based growth across multiple sectors in the coming decade, if interest rates having fallen to zero donāt go much further down globally and if e-commerce/amazon/organized retail get more bargaining power disrupting the power of distribution which leading FMCGs companies enjoy, then which way the P/E multiple will end in 2030 from the current all-time high of 70x is an open question. It will not be a cinch to invest in HUL. As discussed, it will be the ending P/E multiple more than anything else which will determine how a long term investor fares in HUL. Any so-called long term investor has to first form a view on ending P/E multiple before even trying to predict the growth in earnings or spending time on the same.
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Just to set up another analogy, while I have not checked but I am sure HUL gave 10% or more than that maybe 12% growth in EPS in the decade between 31st March 2000 to 31st March 2010. However, the price of the stock on 31st March 2010 remained where it was a decade back i.e. 31st March 2000. What did that mean - that the P/E multiple decreased at a CAGR of 10-12% in that decade while the EPS must have grown by maybe 12% or more. History can always repeat.
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Another very interesting piece of data, Unilever globally has increased its earnings over the past decade at 6% in rupee terms while HUL has increased at 10% in rupee terms. Unilever is 10x of HUL in total sales but is trading at just 2x the market cap of HUL. So on a price to sales basis Unilever is trading 5x cheaper than HUL although a) Unilever is ultimate owner of many of the brands like Surf etc globally and HUL is a licensee and not the ultimate owner and b) while lower growth rate is understandable but Unilever also doesnāt suffer from single developing country and currency risks. This is very important and when I speak to many of the fund-managers friends abroad, this a common reason for them to not invest in many of the hallowed low growth but obscenely expensive Indian stocks. As Indian investors are getting increased opportunity to buy stocks abroad with the help of the technology, I wonder why they should not do the same. Saves them from extreme country risks as well.
PS - In my experience in the stock markets in all these years it is easy to call oneself a long term investor if the stock is rising continuously but very difficult to remain one for long when the momemtum goes against you. Prices of the stocks should not become a means to justify the valuations.
Disclosure - I run a SEBI registered investment advisory firm. No position in HUL for me or my clients.
Yes agree, i think as I do not write big essays I do not explain clearly. Again HUL has not disappointed in business in current scenario and also prior lockdown. Everything is as expected by me. Yes punters, traders have disappointed by giving it unreasonable valuations. Long term investors donāt mind any of the ups and downs.
Disc. Not invested, tracking
Hi Sarvesh,
Could you give you opinion on the outlook for Varun Beverages, the bottler for Pepsico and franchisee in many markets including India
It has given very good returns since inception based on the never ending demand for Pepsiās line of carborated soft drinks
It does have decent capex on its books ( as the goal for pepsi was to become asset lite via this model ) and will face some hit in Q1 results as a good portion of summer + eating out opportunity is lost.
But it has a longtime trademark and is completely backed by Pepsico , so do not forsee any long term issues
The stock screener https://www.screener.in/company/VBL/consolidated/ also doesnt throw many red flags
Could you please give your view from a long term angle?
The above article has illustrations relevant to the US, however I feel that the same trend has started to play out in India as well.
Private levels are becoming more visible & appear more sophisticated than before. Iāve observed this more while shopping in Grofers & Amazon.
Following are few examples:
https://grofers.com/brand/grofers-mother's-choice
https://grofers.com/brand/grofers-happy-day
https://www.amazon.in/s?srs=17373877031
Granted that private levels have been around for a long while, without causing much damage to the branded goods, but their appearance, push, packaging etc. seems to be improving a lot!
Anyway, the threat is relevant in only the grocery retail and eCommerce, and not in the kinara stores which are still and may continue for long to be the preferred shopping destination of masses.
Regardless, branded goods may have a real chance of suffering loss of pricing power in the not-so-distant future and long term investors should remain mindful and discount their expectations accordingly.
Taking inspiration from our Prime Ministerās advice of āVocal For Localā in his recent speech, Dabur brands have decided to ride on this new trend. To extend the trend on digital, the Company has created interesting banner ads / posts, for its 14 brands -Dabur Red Tooth Paste, Dabur Chyawanprash, Honey, Real, Honitus, Amla, Dabur Lal Tail, Pudinhara, Hajmola, Almond Oil, Sainifresh, Odomos, Odonil and Fem.
Vocal_For_Local.pdf (741.5 KB)
Source: Investor Communication
Honestly we canāt really compare the US based niche stores with our local amazon/grofers brands. The thing which is going for Traders Joe /Sprouts /Whole foods is mostly the kind of stuff they carry in their stores. I have shopped in all of these stores for over five years and these are not the typical grocery stores. They typically lean towards organic foods and locally procured items, specialty cheeses etc. There is a separate crowd for it to go out and buy these things. There are bargains to be had in certain items but again there are other items which are too costly. Amazonās presto and grofers in house brands in snacks and other categories can be a one time change when our favorite brands arenāt available and I often see people will tend to back to name brands in India as these never match the name brands perceived quality/attachment to the. product etc. Itās s akin to getting Yippe when Maggi isnāt available and repenting when you eat it. I see only Costcoās Kirkland brand who always had quality, packaging and cost benefit equal or better to name brands made a significant impact in terms of people really wanting to get it. To me, our big brands management are smart enough to lower the price, throw in some catchy offers to retain the customer base. But as you mentioned the packaging and finishing are on par with other big brands these days but we need to see if they can really make a dent in the name brandsā businesses in the long run.
I always buy amazon in-house brands like basics for electronics, batteries, solimo for food, ketchup, presto for cleaners. amazon is amazing at knowing what people want, and they push their VFM irresistibly and will not allow brands to push them on their own platform. As we know manufacturing is outsourced by all FMCG, amazon can get manufacturing done anywhere they want. And they got the money to outspend even HUL etc. There is no barrier in this business, anybody can make chips, soaps, except in the mind, which we all know can be a difficult thing to change.
While you will find all kinds of consumers, those who will stick to 100 year old brands and also those who will go for 1 year old private labels, what any platform like amazon cannot afford to do, at least for now, is that do not support sales of good brands. If they do that in any means, that will be an opportunity for the competitor platform to get the other set of consumers who are brand specific. This will result in Amazon loosing on their private labels random purchasesā¦I can write a long essay on this but to be short and preciseā¦this is a coexistence world and none can survive without the other, market is huge, runway is huge and any brand which constantly innovates, provides consistent and relevant value and makes sure it is available when needed will continue to remain core to the consumers as well as to the eCommerce platforms.
Small example, in current crisis situation why is Amazon still selling Safolla, Parachute, Harpic, Dettol etc. when they can make the most of it. The core strength and value proposition of Amazon is to provide platform and technology. If they focus more and more on manufacturing, private labels etc. then in next few years it will give rise to some other Amazon who will be selling other popular brands. They would never want to lose their core competency to someone else for the greed of Private labels.
Having said that, there would be some categories which will be dominated by private labels in Amazon, Walmart, Dmart, Star etc. and agilent FMCG firms will slowly reduce incremental investments in these categories and focus more on those where a retailer does not have the core competency to provide better value to consumer.
With time, none can survive without other and none can kill the other. What they can very well do is kill themselves by overdoing something which was not supposed to be done.
Any big grocery chain such as Tesco, Jumbo, AH, Spar, Lidl, Aldi (mostly european, highly regulated market) keep private labels as a very large percent of inventory, almost every item has own private label, my guess almost 30-40% of stock is inhouse or some common brand (such as euro-shopper).
Just saying, symbiosis and all, there is new and rising competition as retail consolidates with big/giant players, online or offline.
Thanks for your insights. I was not aware of the nature of Traders Joe, Sprouts or Whole foods. I suppose that these are niche stores like what Westside is in Fashion Retail.
In fact, I was thinking that we may even see some offline grocery retail chains switch to that kind of model if the social distancing norms make it difficult for them to improve SSSG growth and thus making a niche private-label only model may help them to maintain profitability with greater margin. Of-course, they will attract a segment of customers only.
Nevertheless, in general retail too private labels may get more visibility for the reasons mentioned above. Strong brands will coexist but weaker brands may find it tough to compete. This is because weaker brands mainly work on push model and private labels will get more push for obvious reasons, and with better packaging they will get almost as appealing to a value conscious consumer.
Certainly, this scenario will play only in offline & online retails and not in Kinaras. So, brands arenāt fading away anytime soon as Indians in general still shop majorly from Kinaras, unlike in developed countries like US.
I believe categories like Rice, Staples, Sugar etc. will fall in these categories. I already see Tata Sampann facing huge competition from private labels in staples category. There is very less scope of differentiation.