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Chasing Consumers 1: Robust demand in Ahmedabad and Anand
Consumer demand remains robust despite rising costs
As part of our Chasing Consumers series, we visited the cities of
Ahmedabad and Anand in Gujarat to assess the impact of inflation on
demand and pricing. We met with government officials, procurement
managers, store managers and distributors. Gujarat is in the middle of an
economic boom and our interactions indicate continued consumer demand
despite increasing prices, particularly for packaged food and personal care.
Demand elasticity indicates only pricing or volume growth
While overall consumer demand remains robust, we note volume declines
in products where prices of substitutes did not appreciate in the same
proportion. For example, in case of several fruits and vegetables,
consumers shift consumption to lower priced substitutes.
Store visits confirm high competitive activity
Our store audits confirm high competition for shelf space. L’Oreal,
Hindustan Unilever and Proctor & Gamble are jostling for shelf space in the
personal care segment; while HUL, ITC and Nestle compete in the
packaged foods categories. L’Oreal, in particular, has been purchasing
shelf extensions for increased visibility. Local companies such as Nirma,
Jyoti Laboratories and private labels maintain prominent shelf positioning.
Demand is robust for durables like LED TVs as sellers offer discounts.
Positive data-points from Marico distributor visit
We met with a Marico distributor and the meeting indicated volume
growth despite price increases taken in 2HFY11. The distributor also noted
that while Parachute and Saffola saw volume growth owing to their brand
power, Shanti Amla was gaining share versus competition.
Reiterate Sell on Hindustan Unilever, Nestle India; Buy Marico
We rate Hindustan Unilever and Nestle as Sell with 12-mo P/E based target
prices of Rs274 and Rs 3,396, respectively. We believe current valuations
price in volume growth and increasing margins, which we see as unlikely
given high competition and input costs. We rate Marico as a Buy with a 12-
mo P/E based target price of Rs165. Key risks: Upside - Sudden decrease in
input costs, decreases in competitive intensity; Downside - Sustained copra
prices, significant down-trading by consumers.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Chasing Consumers 1: Robust demand in Ahmedabad and Anand
Consumer demand remains robust despite rising costs
As part of our Chasing Consumers series, we visited the cities of
Ahmedabad and Anand in Gujarat to assess the impact of inflation on
demand and pricing. We met with government officials, procurement
managers, store managers and distributors. Gujarat is in the middle of an
economic boom and our interactions indicate continued consumer demand
despite increasing prices, particularly for packaged food and personal care.
Demand elasticity indicates only pricing or volume growth
While overall consumer demand remains robust, we note volume declines
in products where prices of substitutes did not appreciate in the same
proportion. For example, in case of several fruits and vegetables,
consumers shift consumption to lower priced substitutes.
Store visits confirm high competitive activity
Our store audits confirm high competition for shelf space. L’Oreal,
Hindustan Unilever and Proctor & Gamble are jostling for shelf space in the
personal care segment; while HUL, ITC and Nestle compete in the
packaged foods categories. L’Oreal, in particular, has been purchasing
shelf extensions for increased visibility. Local companies such as Nirma,
Jyoti Laboratories and private labels maintain prominent shelf positioning.
Demand is robust for durables like LED TVs as sellers offer discounts.
Positive data-points from Marico distributor visit
We met with a Marico distributor and the meeting indicated volume
growth despite price increases taken in 2HFY11. The distributor also noted
that while Parachute and Saffola saw volume growth owing to their brand
power, Shanti Amla was gaining share versus competition.
Reiterate Sell on Hindustan Unilever, Nestle India; Buy Marico
We rate Hindustan Unilever and Nestle as Sell with 12-mo P/E based target
prices of Rs274 and Rs 3,396, respectively. We believe current valuations
price in volume growth and increasing margins, which we see as unlikely
given high competition and input costs. We rate Marico as a Buy with a 12-
mo P/E based target price of Rs165. Key risks: Upside - Sudden decrease in
input costs, decreases in competitive intensity; Downside - Sustained copra
prices, significant down-trading by consumers.
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