Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Consumer products
India
Takeaways from Godfrey Phillips’ AGM. (1) GPI is endeavoring to diversify into other
forms of tobacco consumption (it had launched ‘Sonna’ bidi, ‘Pan Vilas’ pan masala and
has recently ventured into the chewing tobacco business). (2) It is concerned about high
VAT rates at state level—VAT rate in its key state Rajasthan is the highest in India.
(3) Marlboro has sales of US$3 mn per month—it has an annualized ~Rs1.8 bn sales or
~0.6% value market share in the Indian cigarette market. It has a pan-India distribution
coverage of ~70,000 outlets (compared with ITC’s competing products’ coverage of
>2mn outlets, in our view). We had expected significant challenges for Marlboro’s
ramp-up in India (due to difference in blend, distribution challenges etc).
GPI a committed player but gaining foothold in a market with an undisputed leader is difficult
Godfrey Phillips India (GPI) has launched ‘FS1’ cigarette—another attempt in the King Size filter
cigarette (KSFT) segment, ‘Sonna’ bidi and ‘Pan Vilas’ pan masala. Pan Vilas has achieved sales
of Rs240 mn in FY2011, Rs360 mn in YTD FY2012 and the management expects it to achieve
Rs1.1 bn sales (~3% of GPI’s sales). The company recently ventured into the chewing tobacco
business as well.
Our view: GPI’s endeavor is to capture a higher share of wallet of the panwalla
(tobacco/cigarette retailer in India). Considering the market dominance of ITC in
cigarettes, GPI needs to increase its relative importance with the panwalla to improve its
trade presence. While the efforts are commendable, probability of sustained success in the
new categories for GPI looks limited due to the highly unorganized nature of bidi, pan
masala and chewing tobacco categories (where the terms of trade are likely very different
to a relatively professional cigarette industry).
The company is concerned about the high VAT rates across states, particularly the recent steep
increase in many states.
Our view: GPI derives most of its revenues from North and West India (key states are
Delhi, Rajasthan, Maharashtra etc.). The VAT rates in its key states are one of the highest
in India (Delhi and Maharashtra at 20% and Rajasthan 40%). This taxation structure has
the potential to relatively weaken the market position of GPI, in our view.
According to GPI, Marlboro is currently clocking monthly sales of US$3 mn. The company
confirmed that it has withdrawn the pouch pack of Marlboro Compact (2 cigarettes for Rs7)
from the market.
Our view: Marlboro has an annualized Rs1.8 bn or ~0.6% value market share in the Indian
cigarette market. It has distribution coverage of ~70,000 outlets (compared with ITC’s
competing products’ coverage of >2mn outlets, like Gold Flake Kings, Wills Classic, India
Kings etc., in our view). We had expected significant challenges for Marlboro’s ramp-up in
India (due to difference in blend, distribution challenges etc.). Please refer our notes
dated September 16, 2011 and October 29, 2010.
GPI intends to increase its geographical presence by expanding to Andhra Pradesh (it had
aggressively tried to enter Tamil Nadu and West Bengal in the past few years). The GPI
management was very bullish on the prospects of the geographical expansion opportunity—GPI
is a major player in North and West India and has negligible presence in the South and East.
Our view: We maintain our view that the push-based sales at the retail outlet level
have been difficult for Marlboro to implement considering the market dominance of
ITC (~75-80% market share).
GPI expects modest upside from manufacturing and distribution of Marlboro in India by
GPI—manufacturing and distribution margins which will accrue to GPI based on the
‘tolling’ arrangement with Philip Morris (PM).
GPI will likely have enhanced ability and inclination to invest in existing brands (Four
Square, North Pole, Cavanders and Red & White) as these are now ‘irrevocably’ licensed
to GPI by PM (as against an earlier arrangement of short-term licensing contracts).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Consumer products
India
Takeaways from Godfrey Phillips’ AGM. (1) GPI is endeavoring to diversify into other
forms of tobacco consumption (it had launched ‘Sonna’ bidi, ‘Pan Vilas’ pan masala and
has recently ventured into the chewing tobacco business). (2) It is concerned about high
VAT rates at state level—VAT rate in its key state Rajasthan is the highest in India.
(3) Marlboro has sales of US$3 mn per month—it has an annualized ~Rs1.8 bn sales or
~0.6% value market share in the Indian cigarette market. It has a pan-India distribution
coverage of ~70,000 outlets (compared with ITC’s competing products’ coverage of
>2mn outlets, in our view). We had expected significant challenges for Marlboro’s
ramp-up in India (due to difference in blend, distribution challenges etc).
GPI a committed player but gaining foothold in a market with an undisputed leader is difficult
Godfrey Phillips India (GPI) has launched ‘FS1’ cigarette—another attempt in the King Size filter
cigarette (KSFT) segment, ‘Sonna’ bidi and ‘Pan Vilas’ pan masala. Pan Vilas has achieved sales
of Rs240 mn in FY2011, Rs360 mn in YTD FY2012 and the management expects it to achieve
Rs1.1 bn sales (~3% of GPI’s sales). The company recently ventured into the chewing tobacco
business as well.
Our view: GPI’s endeavor is to capture a higher share of wallet of the panwalla
(tobacco/cigarette retailer in India). Considering the market dominance of ITC in
cigarettes, GPI needs to increase its relative importance with the panwalla to improve its
trade presence. While the efforts are commendable, probability of sustained success in the
new categories for GPI looks limited due to the highly unorganized nature of bidi, pan
masala and chewing tobacco categories (where the terms of trade are likely very different
to a relatively professional cigarette industry).
The company is concerned about the high VAT rates across states, particularly the recent steep
increase in many states.
Our view: GPI derives most of its revenues from North and West India (key states are
Delhi, Rajasthan, Maharashtra etc.). The VAT rates in its key states are one of the highest
in India (Delhi and Maharashtra at 20% and Rajasthan 40%). This taxation structure has
the potential to relatively weaken the market position of GPI, in our view.
According to GPI, Marlboro is currently clocking monthly sales of US$3 mn. The company
confirmed that it has withdrawn the pouch pack of Marlboro Compact (2 cigarettes for Rs7)
from the market.
Our view: Marlboro has an annualized Rs1.8 bn or ~0.6% value market share in the Indian
cigarette market. It has distribution coverage of ~70,000 outlets (compared with ITC’s
competing products’ coverage of >2mn outlets, like Gold Flake Kings, Wills Classic, India
Kings etc., in our view). We had expected significant challenges for Marlboro’s ramp-up in
India (due to difference in blend, distribution challenges etc.). Please refer our notes
dated September 16, 2011 and October 29, 2010.
GPI intends to increase its geographical presence by expanding to Andhra Pradesh (it had
aggressively tried to enter Tamil Nadu and West Bengal in the past few years). The GPI
management was very bullish on the prospects of the geographical expansion opportunity—GPI
is a major player in North and West India and has negligible presence in the South and East.
Our view: We maintain our view that the push-based sales at the retail outlet level
have been difficult for Marlboro to implement considering the market dominance of
ITC (~75-80% market share).
GPI expects modest upside from manufacturing and distribution of Marlboro in India by
GPI—manufacturing and distribution margins which will accrue to GPI based on the
‘tolling’ arrangement with Philip Morris (PM).
GPI will likely have enhanced ability and inclination to invest in existing brands (Four
Square, North Pole, Cavanders and Red & White) as these are now ‘irrevocably’ licensed
to GPI by PM (as against an earlier arrangement of short-term licensing contracts).
No comments:
Post a Comment