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Key developments in Indian consumer space over the past month:
• Input cost push triggers more price hikes. No respite from firm input
costs led to more price hikes over the past month by consumer companies to
mitigate margin pressures. Key ones include: 1) Marico took more price
hikes in Dec’10 amounting to 8-12% across various SKUs of Parachute
Coconut Oil. Since Sep’10 Marico has undertaken cumulatively 15-30%
price increase across Parachute SKU’s, 2) Emami raised prices for its key
brands – Zandu Balm (by 10%) and Boroplus (by 5-6%), 3) HUL has taken
selective price hikes of 3-4% for some SKUs in its soaps and skin cream
portfolio. ITC was the only exception raising prices not in lieu of raw
material cost pressures. It increased price for its low price brand Bristol by
12% ahead of budget session .
• New product launches. 1) Britannia forays into breakfast food category
with the launch of a range of ready to cook breakfast mixes under Britannia
Healthy Start brand, 2) Nestle India augmented its baby food portfolio with
the launch of its global brand Neslac, 3) Pantaloon extends private labels in
soaps category under Sach brand, and 4) Parle has re-launched its wafers
products under a new name Parle Chips to leverage on strong brand recall.
• Key commodity trends. There was sharp increase in domestic soybean
prices over past month, up 10% m/m. Palm oil and coconut oil prices were
up 1% and 6% m/m respectively. While sugar prices were flat m/m, wheat
prices were firm up 6% m/m. Both crude and LAB prices were up c4%
m/m.
• Global Research. JPM plantation team has raised Crude Palm Oil (CPO)
forecast to M$3,400/t in 2011E and M$3,200/t in 2012E (M$2,750/t in
2010). JPM expects CPO prices to peak in 1Q11 and weaken by 2H11. In
our coverage universe, for HUL, Godrej Consumer and Nestle India, we
estimate palm oil accounts for nearly 11%, 15% and 8% of COGS
respectively. We estimate that every % increase in palm oil costs could
erode earnings for HUL and Godrej Consumer by 0.3-0.4% if not passed on
to end consumers.
• Performance and Valuation. Over the past month, BSE FMCG Index was
up 1%, outperforming Sensex by 6%. GCPL and Nestle India were the better
performers, up 8% and 3% respectively
Domestic Market – What’s changing?
Marico raises prices for Parachute coconut oil by 8-12%
Marico took more price hikes in Dec’10 amounting to 8-12% across various SKUs of
Parachute Coconut Oil. Since Sep’10 Marico has undertaken cumulatively 15-30%
price increase across Parachute SKU’s in wake of sharp 25% rise in copra prices
since Sep’10. For Saffola edible oil, it has undertaken 9-11% price hike since Sep’10.
HUL takes selective price hikes for soaps and skin creams
HUL has raised prices for its premium soap brands – Dove and Pears by 3-4% and
has increased price for one SKU for Lux (90gm) by 6%. This was being anticipated
for quite some time given significant cost push seen for palm oil derivatives. Our
channel checks suggest that prices for its leading fairness cream Fair & Lovely have
been raised by c3%.
Britannia forays into breakfast food segment
Britannia Industries has entered the breakfast food segment with launch of a range of
ready-to-cook breakfast mixes under the brand Britannia Healthy Start . The range
includes mix of traditional Indian breakfast (upmas, pohas ) and western breakfast
choices (porridges, oats ). It is priced between Rs 33 and Rs 45 for 150-170 gm
packs.
Recently Kellogg expanded its breakfast cereal portfolio with launch of Kellogg's
Heart to Heart Oats, made with 100% wholegrain oats. This launch comes after
Marico's foray into breakfast cereal segment recently where it has introduced Saffola
Oats.
Nestle expands its baby food portfolio with introduction of Neslac
Nestle India augmented its baby food portfolio with the launch of its global brand
Neslac. This nutritious milk drink will be for kids above 2 years of age. As per news
reports (FC) the product is priced at Rs189 for a 500gm pack.
Pantaloon extends private labels in soaps category under Sach brand
Pantaloon Retail introduced Sach glycerine soaps (with three variants) as part of their
strategy to expand their private label portfolio. Earlier company had introduced
toothpastes under the same brand name. The soaps are priced at Rs38 (for 120gm
bar). While the pricing is just 6% below the market leader in glycerine soaps
category Pears (by HUL), Pantaloon is currently running a promotional offer for free
Parachute coconut oil on purchase of Sach soaps to enable more consumer offtake.
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