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Consumer products
India
Likely slowdown in coconut oil; light hair oil continues to grow well. Our channel
checks and discussions with industry experts (Bajaj Corp) suggest that growth rates in
the total hair oil market have slowed down to ~2% in 2QFY12 from ~5% in 1QFY12.
This slowdown is primarily on account of likely decline in the coconut oil market while
value-added hair oil is growing in mid-teens. While the market leader Dabur has taken
price hikes, volume growth is likely to be marginal due to disruptive pricing in the
Shanti Badam Amla brand. Marico’s price-based strategy seems to have worked well (in
capturing the uptrading volumes to amla from coconut segment) and Shanti Badam has
likely shown strong volume growth. Retain SELL on Dabur and ADD on Marico
Light hair oil stands out with volume growth in mid-teens
Our channel checks and discussions with industry experts (Bajaj Corp) suggest that growth rates in
the total hair oil market have slowed down to ~2% in 2QFY12 from ~5% in 1QFY12.
This slowdown is primarily on account of likely decline in the coconut oil market while valueadded
hair oil is growing in mid-teens. We discuss the segment-wise performance below:
Amla. It grew by ~14% in volume terms (10% in 1QFY12) and 21% in value terms (13% in
1QFY12) in 2QFY12. While the market leader Dabur has taken price hikes, volume growth is
likely to be marginal due to disruptive pricing in the Shanti Badam Amla brand. Marico’s
price-based strategy seems to have worked well (in capturing the uptrading volumes to amla
from coconut segment) and Shanti Badam has likely shown strong volume growth.
Light hair oil market. It grew by 18% in volume terms in 2QFY12 (17% in 1QFY12)
primarily driven by strong growth in Almond Drops (AD). AD recorded ~22% volume growth
in 2QFY12 and 20% in 1QFY12. Value market share of AD has increased to 54% as of
August 2011.
Major competitors in the light hair oil segment are Dey’s Medicals’ Keo Karpin (Number 2
player struggling to protect market share), Marico’s Hair & Care (17% market share with
gains of ~200 bps in 18 months) and Marico’s Nihar Almond (priced at ~40% discount to
AD).
Cooling oil. It grew by 12% in volume terms (7% in 1QFY12) and 18% in value terms (9%
in 1QFY12) in 2QFY12. Bajaj Corp, a new entrant with its brand Kailash Parbat, has gained
1.5% market share within 4 months of launch. It is available in 3,50,000 outlets.
Coconut oil. It has likely declined during the quarter in volume terms. In our view,
narrowing gap between the MRPs of coconut oil and value-added oil (particularly amla) has
likely led to consumers flocking to the latter (most of these gains have likely accrued to
Marico’s Shanti Badam Amla; probably a smart strategy by Marico to ensure that consumer
volumes are retained in one of their brands). Volume growth in Parachute may have likely
decelerated.
Dabur results likely to be weak; good growth in value-added hair oil for Marico
We expect Marico’s volumes to benefit from the good growth in the value-added hair oil
market. This is in line with our thesis, “Marico’s value-added hair oil continues to outperform
coconut oil (CNO) in volume terms due to successful launches of cooling oil in Andhra
Pradesh and Tamil Nadu and increasing consumer acceptance of Parachute Anti-hairfall oil in
South India apart from potentially continuing gains in Shanti Badam Amla due to aggressive
pricing. The good growth in newer segments of value-added hair oils is not surprising as
Indian consumer associates hair oil consumption with nutrition and is looking for
propositions-based products (key example is cooling oil, anti-hairfall oil etc)”. However,
volume growth in the key coconut oil segment will likely decline to ~5% in 2QFY12 from
10% in 1QFY12. We have marginally cut Marico’s EPS estimates for FY2012E and FY2013E
by 5% as we model lower volume growth in coconut oil (EPS of Rs5.1 and Rs6.7 in FY2012E
and FY2013E, respectively). We have reduced our target price on Marico to Rs175 (Rs185
previously) in line with earnings revision.
We expect weak results from Dabur with domestic volume growth of ~4%. The company
continues to face significant price-based competition in hair oil and shampoo. Health
supplement sales were flat in 1QFY12 and we expect low single-digit growth rate in 2QFY12.
Though we like the ayurvedic positioning of Dabur’s products and the opportunity that they
present in the long term, retain SELL due to (1) moderation in domestic sales growth and
likely market share losses in hair oil, (2) limited pricing power and continuing high
competitive intensity in key categories, (3) input cost inflation impacting margins and (4) rich
valuations with uncertain domestic sales outlook. Retain estimates and SELL rating on Dabur
(TP Rs110).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Consumer products
India
Likely slowdown in coconut oil; light hair oil continues to grow well. Our channel
checks and discussions with industry experts (Bajaj Corp) suggest that growth rates in
the total hair oil market have slowed down to ~2% in 2QFY12 from ~5% in 1QFY12.
This slowdown is primarily on account of likely decline in the coconut oil market while
value-added hair oil is growing in mid-teens. While the market leader Dabur has taken
price hikes, volume growth is likely to be marginal due to disruptive pricing in the
Shanti Badam Amla brand. Marico’s price-based strategy seems to have worked well (in
capturing the uptrading volumes to amla from coconut segment) and Shanti Badam has
likely shown strong volume growth. Retain SELL on Dabur and ADD on Marico
Light hair oil stands out with volume growth in mid-teens
Our channel checks and discussions with industry experts (Bajaj Corp) suggest that growth rates in
the total hair oil market have slowed down to ~2% in 2QFY12 from ~5% in 1QFY12.
This slowdown is primarily on account of likely decline in the coconut oil market while valueadded
hair oil is growing in mid-teens. We discuss the segment-wise performance below:
Amla. It grew by ~14% in volume terms (10% in 1QFY12) and 21% in value terms (13% in
1QFY12) in 2QFY12. While the market leader Dabur has taken price hikes, volume growth is
likely to be marginal due to disruptive pricing in the Shanti Badam Amla brand. Marico’s
price-based strategy seems to have worked well (in capturing the uptrading volumes to amla
from coconut segment) and Shanti Badam has likely shown strong volume growth.
Light hair oil market. It grew by 18% in volume terms in 2QFY12 (17% in 1QFY12)
primarily driven by strong growth in Almond Drops (AD). AD recorded ~22% volume growth
in 2QFY12 and 20% in 1QFY12. Value market share of AD has increased to 54% as of
August 2011.
Major competitors in the light hair oil segment are Dey’s Medicals’ Keo Karpin (Number 2
player struggling to protect market share), Marico’s Hair & Care (17% market share with
gains of ~200 bps in 18 months) and Marico’s Nihar Almond (priced at ~40% discount to
AD).
Cooling oil. It grew by 12% in volume terms (7% in 1QFY12) and 18% in value terms (9%
in 1QFY12) in 2QFY12. Bajaj Corp, a new entrant with its brand Kailash Parbat, has gained
1.5% market share within 4 months of launch. It is available in 3,50,000 outlets.
Coconut oil. It has likely declined during the quarter in volume terms. In our view,
narrowing gap between the MRPs of coconut oil and value-added oil (particularly amla) has
likely led to consumers flocking to the latter (most of these gains have likely accrued to
Marico’s Shanti Badam Amla; probably a smart strategy by Marico to ensure that consumer
volumes are retained in one of their brands). Volume growth in Parachute may have likely
decelerated.
Dabur results likely to be weak; good growth in value-added hair oil for Marico
We expect Marico’s volumes to benefit from the good growth in the value-added hair oil
market. This is in line with our thesis, “Marico’s value-added hair oil continues to outperform
coconut oil (CNO) in volume terms due to successful launches of cooling oil in Andhra
Pradesh and Tamil Nadu and increasing consumer acceptance of Parachute Anti-hairfall oil in
South India apart from potentially continuing gains in Shanti Badam Amla due to aggressive
pricing. The good growth in newer segments of value-added hair oils is not surprising as
Indian consumer associates hair oil consumption with nutrition and is looking for
propositions-based products (key example is cooling oil, anti-hairfall oil etc)”. However,
volume growth in the key coconut oil segment will likely decline to ~5% in 2QFY12 from
10% in 1QFY12. We have marginally cut Marico’s EPS estimates for FY2012E and FY2013E
by 5% as we model lower volume growth in coconut oil (EPS of Rs5.1 and Rs6.7 in FY2012E
and FY2013E, respectively). We have reduced our target price on Marico to Rs175 (Rs185
previously) in line with earnings revision.
We expect weak results from Dabur with domestic volume growth of ~4%. The company
continues to face significant price-based competition in hair oil and shampoo. Health
supplement sales were flat in 1QFY12 and we expect low single-digit growth rate in 2QFY12.
Though we like the ayurvedic positioning of Dabur’s products and the opportunity that they
present in the long term, retain SELL due to (1) moderation in domestic sales growth and
likely market share losses in hair oil, (2) limited pricing power and continuing high
competitive intensity in key categories, (3) input cost inflation impacting margins and (4) rich
valuations with uncertain domestic sales outlook. Retain estimates and SELL rating on Dabur
(TP Rs110).
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