India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Chemicals (TTCH)
Tata Swach—redefining household water purification business. We present key
takeaways from our meeting with Mr. Sabaleel Nandy, Head of Tata Swach. Within its
first year of launch, Swach has attained market leadership in Maharashtra and
Karnataka based on its (1) superior product features versus peers and (2) low price
point. Swach is set to clock sales of 1 mn units in FY2011E, ahead of company
expectations. TCL plans to drive future volumes through (1) expansion across the
country (12 states covered till now), (2) expansion into rural areas (urban India accounts
for majority of sales), and (3) sales of Rs499/749 models (most of current sales are the
Rs999 variant). However, breakeven of the business is still some time away.
Swach—redefining household water purification business in India
TATA Swach is a portable water purifier which requires no electricity or running water to operate.
It was launched by TCL in December 2009. We believe Swach has redefined the water purification
business in India and has only scratched the surface of the huge potential this business presents.
Swach is targeted at those households which are aliens to the concept of filters or purifiers and/or
rely on boiling water. According to TCL, out of 207 mn households in India, 183 mn do not use
filtering systems or boil water.
Swach—superior product features versus peers in addition to low cost
Besides Swach’s low price point, its superior product features versus peers were revealed to us.
Swach has (1) higher storage capacity of up to 18 liters for the Rs999 variant and 15 liters for the
Rs749 variant, (2) longer life of bulb used to filter water, and (3) in addition, the cost of purifying
one liter of water using Swach is Rs0.1 versus Rs0.22-0.25 using other purifiers such as Pureit,
Aquasure etc. The replaceable bulb lasts for 3,000 liters, much higher than immediate peers, and
the purifier has a lock feature which ensures that only genuine Swach bulbs can be used during
replacement.
According to TCL, penetration of water purifiers in urban households is only 2%. Contrary to our
expectations, urban households account for majority of Swach’s current sales of around 50,000
units per month with the Rs999 variant claiming the lion’s share. With the launch of lower-cost
versions in August 2010, sales are expected to reach 80,000 units/month by end-FY2011E from
50,000 currently. According to media reports, estimated sales of Swach are around Rs750 mn YTD
FY2011E
TCL redefines water purification business, with incumbents slashing prices
TCL’s launch of Swach at Rs999 in December 2009 led to (1) incumbents such as HUL’s
Pureit slashing their prices for low-cost model to Rs1,000 from Rs2,000 earlier and (2)
companies launching their low-cost versions. For example, the Godrej group, which already
has a purifier for the urban market, is also developing a device for rural markets, while
Eureka Forbes launched Aquasure.
Swach set to clock sales of 1 mn units in FY11E, ahead of company expectations
TCL started selling Swach on a pilot basis in Maharashtra and Karnataka. It has attained
market leadership in these two states. TCL has now expanded to 12 states and 6,000 outlets,
relying purely on word of mouth and micro awareness programs and utilizing (1)
institutional channels through Croma outlets and (2) traditional distributional channels for
FMCD (fast moving consumer durables) products. In order to keep costs low, TCL plans to
avoid national advertising/print campaigns and instead intends to utilize channels such as
NGOs and Tata Kisan centers to expand sales of its low-cost versions into rural markets.
Swach—uses natural ingredients thereby leading to low cost
Swach uses natural material (rice husk ash) which is a naturally occurring mesoporous
material. This is impregnated with silver nanoparticles in small quantity. The product was
developed in collaboration with TCS and Titan and is manufactured and marketed by TCL.
Until TCL establishes scale, it will not pay any royalty to the other two group companies.
The material for the storage and outer case is food grade, non-toxic plastic which is
outsourced from third-party vendors such as Sundaram, Simplex. TCL utilizes vendors close
to target markets in order to keep costs of logistics minimum.
TCL to set up additional capacity for purifiers in FY2012E
The replaceable bulb is manufactured at TCL’s Haldia plant which has an annual capacity of
3 mn bulbs. TCL plans to set up additional capacity for bulbs manufacturing at a cost of
Rs500 mn in a location close to the rice-producing belt in the country in FY2012E.
Supply chain issues and creating awareness remain key challenges
According to TCL, demand has far exceeded the company expectations. The key challenges
in this business are (1) creating awareness in rural India about perils of unsafe drinking water
and (2) managing the supply chain such as capacity, distribution etc.
However, breakeven of the business is still some time away
Swach works on the printer cartridge model, where profitable growth of the business
requires replacement demand to set in. According to the company, the breakeven point for
this business is still some time away.
No comments:
Post a Comment