Macquarie - India Consumer Sector - Shifting To Higher Orbit of Growth - Aug 2018

Macquarie Research | EQUITIES
India Consumer Sector

Shifting to higher orbit of growth
Amit Sinha
Macquarie Capital Securities (India) Private Limited
92, 2nd North Avenue, Maker Maxity, BKC, Mumbai, India
+91 22 6720 4085
Amit.sinha@macquarie.com
August 2018
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Contents
India Consumer sector – Rising Tide may not lift all boats ..………………………………….……………............................. 3
Coverage Universe – Top picks HUVR, GCPL, Titan and JUBI ……………………...……..…….…………………………4
GST – Advantage organized players ………………………………………………..……………………….….………………….5
Macro data around Consumption, Rural recovery ……………………………………………………………............................7
Sector Valuation charts, global comparison …………………………………………………………………………….………..11
Company Section
HUL …………………………………………………….…….......…………………………………………………………….…….12
ITC ………………………………………….…….......…………………………………………………………….…….......……...14
GCPL .……………………………………….…….......…………………………………………………………….…….......……16
Titan ………………………………………….…….......…………………………………………………………….…….......……18
BRIT ………………………………………….…….......…………………………………………………………….…….......……20
UNSP ……………………………………….…….......…………………………………………………………….…….......……22
Jubilant Foodworks ………………………….…….......…………………………………………………………….……........…..24
Marico ………………………………………….…….......…………………………………………………………….…….......….26
Dabur ………………………………………….…….......…………………………………………………………….……........….28
Emami ………………………………………….…….......…………………………………………………………….…….......….30
Bajaj Corp …………………………………….…….......…………………………………………………………….…….......…...32
PAGE 2
India Consumer – Shifting to higher level of growth

India Consumer Staples - Remain overweight in the run-up to the general elections: We believe the government’s focus on social
run-up to the general elections, with higher spending on social schemes and rural infra projects.
1. Government has reduced GST rates on most of the consumer goods, increased MSPs (minimum support prices) to help get higher
realization for the farm output.
2. loan waivers are gaining traction across the country. Further, the government intends to exceed the current credit limit for agricultural.
The current limit is US$160b
3. Spending on rural infrastructure (mainly irrigation projects, roads and housing) has seen significant jump.
4. Various other government schemes like the new Health Insurance scheme are mainly targeted towards the rural population.
 Rural recovery – Can it lead to double-digit volume growth for consumer staples? Rural recovery has started, with some of the
companies commenting on sequential recovery in rural economy. Some of the reasons why we believe a recovery is around the corner: 1)
third consecutive good monsoon; 2) water levels in dams significantly higher in FY18; 3) government increasing MSP;
 GST regime leading to strong comparative advantage and market share gains for larger players- We see the trend of market
share gains for organized players further gaining momentum in the GST regime. We expect the government to go ahead with some of the
key regulations under the GST regime which will further help organized players to gain market share.
 Urban consumption continues to be very strong: Consumer discretionary companies (auto companies, jewellery companies QSR) all
showing signs of improvement in SSG growth.
 Distribution disruption because of GST and demonetization – worst is behind us: We believe in the GST regime 15-20% of the
existing wholesale business has shifted to larger players/cash and carry modes/direct distribution. However, the trade has settled now and
there should be no further impact of disruption due to GST and demonetization.
 Margin to remain supported – input cost inflation will be countered by higher operating leverage
PAGE 3
Coverage universe
 Top picks in FMCG – HUL, Godrej Consumer products, Dabur

 Top picks in discretionary space – Titan, Jubilant Foodworks
 Top Underperform – United Spirits, Britannia
 Small cap pick – Bajaj Corp
Valuation of our coverage companies
Bloomberg Upside/ Market Cap PER PER EV/EBIDTA EV/EBIDTA ROE Dividend
Consumer Sector Code CMP TP (Downside) Rating (US$mn) FY19E FY20E FY19E FY20E (FY18E) Yield
Hindustan Unilever HUVR IN 1,680 1,870 11% OP 54,831 55.3 46.1 38.4 32.2 80% 2.0%
Godrej Consumer GCPL IN 1,290 1,465 14% OP 13,827 48.8 41.1 33.8 28.3 27% 0.6%
Titan Company TTAN IN 900 1,240 38% OP 11,473 43.1 34.0 31.1 24.6 27% 0.7%
Jubilant Foodworks JUBI IN 1,406 1,600 14% OP 2,839 62.0 45.7 30.1 23.2 21% 0.2%
Bajaj Corp BJCOR IN 410 637 55% OP 908 21.4 18.8 17.9 14.5 45% 2.3%
Dabur DABUR IN 410 430 5% OP 10,013 39.8 34.4 33.0 28.4 27% 1.0%
Marico MRCO IN 360 331 -8% Neutral 7,150 49.1 41.3 35.1 30.1 35% 1.6%
Emami HMN IN 560 590 5% Neutral 1,886 18.3 16.0 14.6 12.6 34% 0.7%
ITC ITC IN 300 304 1% Neutral 50,871 27.1 24.4 17.1 15.3 25% 2.7%
Britannia BRIT IN 6,500 4,210 -35% UP 12,010 70.4 61.8 46.3 40.3 33% 0.5%
United Spirits UNSP IN 590 443 -25% UP 6,484 70.3 54.5 38.7 31.8 23% 0.2%
Asian Paints* APNT IN 1449 1,300 -10% Neutral 19,184 50.4 42.1 31.2 26.4 27% 0.9%
Berger Paints* BRGR IN 315 276 -12% Neutral 4,478 53.7 44.8 33.7 28.1 25% 0.6%
Average (weighted Mcap) 46.3 39.0 31.0 26.2 41.7% 1.6%
Average (ex- ITC) (weighted Mcap) 53.0 44.2 35.8 30.1 42% 1.6%
PAGE 4
GST- Advantage Organized Sector

 Reverse charge to increase tax compliance: Under the GST regime, the receiver of the goods becomes liable to pay taxes if the
goods do not have GST paid from the supplier. This will restrict transactions from the players who are evading taxes and more
importantly will discourage businesses not to put in extra cost in the P&L to reduce tax liability.
 GST to plug tax evasion through VAT input set off against CST: We understand that since the VAT input credit was allowed to set
off CST (Central Sales Tax), it was misused by some players to pay less tax. The goods used to be sold in the same state with only
CST (net basis) paid. The significant differential between VAT rates and CST rates encouraged the evasion.
 GST ‘Compliance Rating System’ will discourage players to deal with non-compliant trade: The government will assign a rating to
the trade and industry on the basis of their compliance standards, which includes who they are dealing with.
 E-way bill will further enhance the traceability of tax evasion: The introduction will increase the traceability of tax evasion. Under the
system, the transporter (for goods > Rs50k) will have to generate an e-way bill on the GSTN platform. The vehicle carrying the goods
can be verified for inter-state and intra-state movements.
Unorganized segment contributes significant part for most of the consumer products in India (FY17)
%
80% 75%
70%
60%
50%
40% 36% 35%
30%
22%
20%
10%
0%
Cigarettes Biscuits Coconut Oil Jewellery
% of organized to total market

Source: Company data, Macquarie Research, August 2018
PAGE 5
Structural Consumption story in India Intact

 Higher urbanization leading to higher middle class population: The urban population currently accounts for only 33% of India’s
population. We expect urbanisation to rise sharply over the coming years as workers move from farms to the non-farm employment
sectors, mainly manufacturing and services, which are considered to be more productive.
 Strong demographic distribution: India will add ~100m people to its working age population (Global demographics report) in the next
10 years (~20% of world’s working age population). 69m people will be added to Empty Nesters with high disposable income.
 Reforms like GST and infrastructure building process to boost economic growth and consumption in the medium to longer term.
Better infrastructure has also led to demand of new product categories for ex Household Insecticides.
 Poverty alleviation programs: According to government, 22% of India’s population is under the poverty line. We expect schemes like
UBI (Universal Basic Income) or higher allocation schemes like MNREGA will lead to a significant recovery in the rural economy.
India Household consumption per capita – CAGR of 5.4% Comparison with Indonesia- Indonesia Household consumption
between CY00-14 per capita – CAGR of 3.2% between CY00-14
US$ US$
800 9% 1200 4% 4% 4.5%
8% 8% 4% 4%
7% 8% 4% 4% 4% 4.0%
700 7% 7% 3% 3%
1000
600 7% 3.5%
6% 6%
6% 800 3% 3.0%
500 5% 5% 2% 3%
4% 4% 4% 5% 2% 1115 2.5%
400 3% 600 2%
4% 10311073 2.0%
954 990
300
3% 400 793 813 828 858 892 923 1.5%
2% 714 729 747 765
200 2% 1.0%
1%
200
100 1% 0.2% 0.5%
0 0% 0 0.0%
India Household consumption per capita growth Indonesia Household consumption per capita growth
PAGE 6
Source: World Bank, Macquarie Research, August 2018
Rural demand to bounce back

 Three back-to-back good monsoons augur well for farm income
 Government increasing MSP (Food subsidy increased by 27% YoY)
 FY18 rural development spending at 18% and government spending on NREGA scheme was much ahead of budgeted
estimates.
 MSP hikes – the current formula suggests ~13.5% YoY hike in MSP for rice
Rural wage growth trend has been improving MSP price hikes a tad higher
20% Total rural wages Nominal Agriculture GDP

18.3%
18%
15.6%
16% 15.0% YoY%
14%
12% 11.5%
10.3%
10% 9.0%
8% 7.3%7.4%
6.6%
5.6%
6% 4.8%5.2%
4%
2%
0%
F2013 F2014 F2015 F2016 F2017 F2018(YTD)
Source: CMIE, Macquarie Research, August 2018 Source: CMIE, Macquarie Research, August 2018
PAGE 7
Volume growth inching higher
 Sector Volume growth CAGR for the last 17 years is 6%; ex- ITC sector volume growth CAGR is 8%.
 Volume growth was boosted during FY07-FY13 on account of significant rural growth, led by the MNREGA scheme launched
by the government
Sector volume growth with ITC Sector Volume growth Ex-ITC
% %
10% 14%
9%
9% 9% 9% 9% 9% 12%
12%
8%
7% 7% 8%
7% 10% 10%
7%
6% 9% 9%
6% 6% 8%
5% 7% 7% 8%
5% 7% 7%
4% 6% 6% 6%
4% 4% 6% 6%
4% 5% 5%
4% 5% 5%
3% 3% 3% 4% 4%
3%
2% 2%
1% 2% 2%
1%
0% 0%
Sector Volume Growth Sector Volume growth (ex-ITC)
Source: Company data, Macquarie Research, August 2018 Source: Company data, Macquarie Research, August 2018
PAGE 8
Urban recovery led by Seventh Pay Commission & OROP
 Urban recovery to be led by Seventh Pay Commission pay hikes and OROP scheme
 Government has announced 23.6% hike in salaries of central government employees (4.7mn) and pensioners (5.3mn)
effective from Jan-16 onwards and entailing a wage bill of US$15bn or 0.7% of GDP
 OROP (one rank one pension) will further entail US$1.2b/year higher consumer spend in the economy.
 FMCG – Management of companies have said that Urban growth is recovering significantly.
 Consumer discretionary – most of the consumer discretionary names are showing good results.
Central government wage increase – Can boost the State government to follow in-line with centre hikes
economy significantly
US$ bn as % of GDP US$ bn as % of GDP

60 3.0% 120 6%
50 2.5% 100 5%
40 2.0% 80 4%
30 1.5% 60 3%
20 1.0% 40 2%
10 0.5% 20 1%
0 0.0% 0 0%
FY11
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY12
FY13
FY14
FY15E
FY07
FY03
FY04
FY05
FY06
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15E
FY16E
FY17E
Source: Finmin, Macquarie Research, August 2018
PAGE 9
New giant in the room – Patanjali Ayurveda

 Patanjali (PAL, not listed) – fast growing diversified FMCG company
 Leverages on its herbal, naturals, organic platform
 PAL has achieved revenue of Rs100b in FY17 (HUVR FY17 revenues: ~Rs350b)
 Focusing on i) new product launches and ii) distribution expansion
PAL – revenue break-up by segment (FY16) Most impacted by Patanjali (product overlap as % of
FY16 sales)
Edible oil 8% 8% 8%
1%
7%
Others 6%
9% Cosmetics/ 6%
6% 6%
Toiletries
19% 5% 5%
4%
Other foods Healthcare
29% 12% 3%
2%
Wheat Oral care 1%

flour Hair 6%
8% Clarified 0%
10% butter
Colgate Dabur Bajaj Corp Jyothy Labs Emami Britannia
6%

PAGE 10
India Consumer PER chart

 Between FY00 and FY12, the PER band for consumer was 20x-30x.
 Multiple re-rating happened beginning FY12 on account of 1) double-digit volume/earnings growth for the sector; 2) other
sectors failing to show earnings growth; 3) globally, the consumer sector saw multiple re-rating; and
4) higher vulnerability to external shocks led to more focus on domestic consumption stories vs other outbound sectors.
India Consumer Staples PER
x
50
45
40
35
30
25
20
15
10
5
-
Apr-00
Apr-01
Apr-02
Apr-03
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Inida Consumer PER 30x 20x 40x
PAGE 11
HUL- Strong volume growth to continue
 Strong volume growth to continue

 Strong focus on volume growth through strong investments in market development and competitive pricing strategy .
 Tailwind from rural uptick and GST rate cuts to continue.
 Further rural demand recovery in store based on good monsoon and higher MSP hike .
 We are building 9% volume growth estimates in FY19/20E
 Margin expansion to continue driven by premiumization, operating leverage and supply chain optimization
 GST rate cuts provide cushion for price hikes to compensate for input cost inflation .
 We believe the supply chain optimization initiative can further aid in margin expansion in the medium term.
 LEVER Ayush- can counter players like Patanjali & capture growth in the naturals space
 HUVR has launched the LEVER Ayush master brand, with products ranging from soaps, shampoos, tooth paste, hand washes and face washes in
South India.
 The Naturals/Ayurvedic segment has grown the fastest over the last 2-3 years, and we believe this is a very positive move from HUVR to capture the
part of growth and to counter players like Patanjali Ayurved.
 Company targeting savings of 6% of turnover through various initiatives

 There is a strong focus within the company to cut costs, which we believe is in line with Unilever’s (parent) target to increase margins through
1) targeting higher returns on brand marketing investments;
 2) efficiency in logistics and manufacturing and;
 3) tight control on overhead. This has already started delivering results, and we believe it is sustainable. We are building in 250bps margin expansion
in the next three years.
PAGE 12
HUL Financials and Valuation
 Top pick in the Consumer staples. High valuations likely to sustain on higher multiples.
 HUVR is trading at ~47x FY20E PER, in-line with sector peers valuation.
Financials- we expect ~21% earnings growth in FY17-20E We value HUL at 50x FY20E PER, 15% premium to the
sector multiple
Segment Sales (Rsb) FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
HomeCare 88 113 116 133 152 171 Details EPS Valuation
Personal Care 138 163 166 190 217 244 FY20 37.4
Foods 41 11 12 13 15 17 Multiple 50 15% premium to sector multiple
Refreshments 49 48 52 60 68 77 Target Price 1,870
Others 10 20 16 19 22 25
Net Sales 291 318 322 332 355 415 475 532
growth 8% 9% 1% 2% 7% 17% 14% 12%
Raw Material Cost 149 162 159 163 167 193 220 246
Gross Margin 48.8% 49.1% 50.7% 50.8% 52.9% 53.4% 53.7% 53.7%
EBITDA 47 54 60 63 75 93 111 128

EBITDA Margin 16.3% 17.0% 18.7% 19.1% 21.1% 22.4% 23.4% 24.0%
Adjusted PAT 38 39 42 43 53 67 81 93
EPS (Rs) 17.4 18.0 19.3 20.1 24.3 30.8 37.4 43.0
EPS growth 12% 3% 7% 4% 21% 27% 21% 15%
B/S & Return Ratios FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Debt equity ratio (D/E) -132% -125% -130% -68% -75% -103% -110% 0%
Working capital days -30 -29 -28 -22 -13 -6 -1 0
ROE 117% 102% 104% 81% 75% 87% 95% 0%
ROCE 84% 75% 70% 69% 70% 70% 70% 70%
PAGE 13
ITC – Cigarette EBIT to remain under pressure

 Cigarette- volume recovers, pricing growth to taper off
 We believe acceleration in cigarette volume growth to continue. However, the same will be offset by lower pricing growth.
 In FY18 volume declined ~3.5% due to significant price increases in July-17. We are building in 3.5% volume growth for FY19E.
 FY19 Cigarette EBIT growth could be under pressure on no price increase and down-trading
 ITC has not taken price increases in its cigarette portfolio in FY19 until now. We are now building in 5% price growth (vs 9% earlier) for FY19E.
 In case of no price increases in the near term, pricing growth from 2Q19 onwards would be muted. Further, we expect down-trading trends to
continue with the 64mm segment being the main volume growth driver.
 Significant improvement in FMCG profitability

 1Q19 FMCG EBIT margin came at 1.7% (vs 0.2% in 1Q18) on account of a better product mix, cost savings and operating leverage.
 We believe a benign commodity price regime helped the margin growth.
 We expect 1.9%/3.6% EBIT Margin for FY19E/20E for the FMCG business.
 Price hike in cigarettes imperative for double digit cigarette EBIT growth
 We believe recovery in cigarette volume growth to be a healthy sign, however, we believe pricing growth to taper off from 2Q19. .
 While valuations remain attractive and ITC has significantly underperformed peers, we would like to see a recovery in the earnings growth trajectory
before turning decisively positive.
PAGE 14
ITC Valuation- We have a Neutral rating with TP of Rs304
 ITC is trading at ~23x FY19 PER. We maintain Neutral rating with TP of Rs304.
Our Target Price is Rs304

Sum-of-parts value per share Comments Segment Sales (Rsb) FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Contributio Contributio Cigarettes 304 319 341 359 206 222 241 262
n to value n to value
FMCG-Others 81 91 98 105 114 125 145 168
of ITC (Rs of ITC (Rs/
Metric Multiples m) share) Hotels 12 13 14 14 15 20 23 25
Agri business 78 84 76 84 82 86 90 94
10% premium to the long term average Paper 52 53 53 54 60 66 71 78
Cigarettes PER 25.0 2,768,348 228 multiple
Others 16 18 18 20 22 25 27 30
40% discount to Britannia Industries
FMCG-Others EV/Sales 3.6 513,845 42 valuation on lower profitability Gross Sales 496 532 551 583 474 482 533 589
In-line with Indian Hotels EV/EBITDA
Hotels EV/EBITDA 18.0 85,639 7 multiple Net Sales 353 388 392 424 431 482 533 589
In-line to global peers (for ex- Universal
growth 12% 10% 1% 8% 2% 12% 11% 11%
Agri business EV/EBITDA 6.0 48,551 4 Corp)
Paper EV/EBITDA 9.0 141,498 12 20% premium to BILT multiple
Raw Material Cost 132.4 147.7 135.7 160.5 158.6 165.1 183.3 204.4
Net (debt)/ cash 134,398 11.1 Gross Margin 63% 62% 65% 62% 63% 66% 66% 65%
Total value per share (Rs) 304
EBITDA 131 142 145 154 165 182 203 225
EBITDA Margin 37.0% 36.6% 36.9% 36.4% 38.2% 37.8% 38.1% 38.2%
Adjusted PAT 89 97 95 105 112 122 136 151

EPS (Rs) 7.3 8.0 7.8 8.6 9.2 10.0 11.1 12.2
EPS growth 17% 9% 6% 10% 7% 9% 12% 11%
Debt equity ratio (D/E) -27% -22% -21% -15% -13% -13% -12% 0%
Working capital days 85 54 53 52 32 5 3 0
ROE 35% 33% 29% 26% 23% 23% 24% 0%
ROCE 49% 46% 43% 38% 33% 33% 35% 0%
PAGE 15
Godrej Consumer – The tough get going!

 Growth momentum to sustain in India HI segment
 Our belief in the growth momentum in India HI segment will continue is based on a) strong scale-up of the new product launches which are
addressing the key issues of affordability and penetration; b) strong innovation pipeline- we expect more launches in FY19 and c) higher rainfall
trends in Southern states where GCPL is very strong .
 We are building in 12% revenue growth in India HI in FY19E .
 Indonesia- outperformance in a subdued market

 Indonesia business grew 9% YoY in 1Q19 driven by an improvement in HI.
 New product launches have led to strong market recovery making GCPL back to market leader in HI segment.
 Despite the decline in promotional intensity, promotional up-stocking has impacted market growth.
 Africa- the new problem child

 Gains in Indonesia were offset by muted growth in constant currency terms in GUAM (includes Africa, USA & Middle East) due to weakness in South
Africa.
 Margin was impacted on higher input cost & upfront A&P investments.
 We believe the ramp-up in the in wet hair care with local manufacturing in place and a macro turnaround in South Africa will lead recovery.
 Higher chance of earnings surprise, top pick in the India consumer space
 GCPL is trading at a 40x FY20E PER. We believe GCPL will continue to deliver earnings growth ahead of peers on account of lower penetrated
categories and the higher innovation factor.
 We maintain Outperform with TP of Rs1,465.
PAGE 16
GCPL Financials – we expect earnings growth of 23% CAGR in FY18-20E
Financials- we expect We maintain Outperform with TP of Rs1,465
Segment Sales (Rsb) FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Rsm PAT EPS (Rs/share) Multiple Value Comments
Consolidated EPS 22,171 32.6 45.0 1465 Based on FY20 PER
Household Insecticides 15.1 16.5 23.1 23.7 22.6 25.4 28.8 32.6
Soaps 9.9 11.2 15.9 15.5 18.0 20.6 22.5 24.6 Total 1465
Hair Colours 4.9 5.6 5.8 5.7 6.2 7.1 8.2 9.2
Others 0.9 3.6 4.2 6.2 7.4 8.7 10.5 12.4
Indonesia 13.6 14.5 14.5 15.3 13.5 15.6 17.9 20.1
Africa 10.0 11.7 13.2 20.3 28.2 32.6 38.0 42.4
Others 12.2 12.9 13.5 14.1 14.0 15.8 17.8 20.1
Net Sales 76 83 84 92 98 115 132 148

growth 19% 9% 2% 10% 6% 17% 15% 13%

Gross Margin 47% 46% 46% 45% 43% 43% 43% 43%
EBITDA 11.5 13.7 16.4 18.7 20.7 25.1 29.8 34.1

EBITDA Margin 15% 16% 19% 20% 21% 22% 23% 23%
Adjusted PAT 7.6 9.1 8.3 12.8 16.3 18.4 22.2 25.7
EPS (Rs) 22.1 27.1 34.1 37.7 21.4 27.0 32.6 37.8
EPS growth 13% 23% 26% 10% 16% 27% 20% 16%
Debt equity ratio (D/E) 63% 63% 57% 68% 45% 39% 31% 0%
ROE 21% 23% 25% 25% 25% 27% 28% 0%
ROCE 18% 20% 21% 20% 21% 24% 26% 0%
PAGE 17
Titan Company – Market Share gains at inflection point
 Strong growth in wedding, high-value diamond jewellery

 There is a renewed focus from management to increase share in these two segments.
 We believe dedicated sub-brands, increased inventory and focussed marketing will lead to 25-35% revenue growth in both these segments, which
accounted for ~25% of FY17 sales.
 Tanishq’s changed value proposition (lower jewellery-making charges) and bulk discounts for high-ticket purchases should boost wedding jewellery
sales.
 GST to reduce price differential with unorganized players

 We believe premium pricing has been one of Tanishq’s biggest hindrances to gaining market share. We believe GST will help reduce the price
differential with other players, as it will be incrementally difficult for the unorganised players to evade taxes in the GST regime.
 Further, the input tax credit on various costs and purchase tax should also help the organized players.
 Excise duty was only for jewellers with annual turnover over of Rs150m; however, under GST, the GST rate will apply to all jewellers with turnover
above Rs7.5m. GST’s reverse charge concept will further enforce tax compliance.
 Improving macro, new positioning to win new franchisees

 The last two Pay Commissions led to a significant uptick in gold demand, and we expect a similar impact due to the 7th Pay Commission payouts.
Also, revenue growth for consumer discretionary companies has recovered in FY17.
 We believe higher same store sales, a better value proposition and increased local focus will help attract more franchise partners. We are building in
25-30 new stores in the next three years vs average of 16 stores in the last five years.
 High valuations to sustain

 TTAN is trading at 36x FY20E PER. We value TTAN at a 50x FY20 PER, a 25% premium to the last three-year average multiple. We believe the
higher valuation will sustain on potential gains in market share and earnings.
 Risks: No pick-up in macro, regulatory headwinds and higher custom duty on gold. Disruptive pricing and technology in watches.
PAGE 18
Titan - Our TP is based on 50x FY20E PER

 We are building in a 20% revenue CAGR for Titan in FY17-20E, mainly driven by higher growth in the jewellery segment.
 We are building in a 34% EPS CAGR in FY18-20E led by strong revenue growth.
We are building in strong revenue growth in the next 3 years Our TP is based on 50x FY20E PER
Rsm FY15 FY16 FY17 FY18 FY19E FY20E Parameter Value (Rsm) Comments
Revenue 119,032 112,645 128,965 156,213 190,269 226,796 FY20 EPS 24.7
Revenue growth 9.0% -5.4% 14.5% 21.1% 21.8% 19.2% PER multiple 50.0 25% premium to the last 3 years average PER multiple
Total Value 1,235
EBITDA 11529 9207 11954 17333 23545 29426
EBITDA margin 9.7% 8.2% 9.3% 11.1% 12.4% 13.0%
Investments in Subs and JVs 6 1x invested amount
PAT 8,226 7,053 8,329 12,500 17,285 21,937 Value per share 1,241
PAT growth 11.1% -14.3% 18.1% 50.1% 38.3% 26.9%
EPS 9.3 7.9 9.4 14.1 19.5 24.7
No of Shares 887.8 887.8 887.8 887.8 887.8 887.8
Net Debt to Equity 0.0 0.5 -0.3 -0.1 -0.3 -0.3

Working Capital Days 59 78 47 58 43 43
Operating Cash Flow 8,128 7,785 18,590 6,810 21,093 19,484
Free Cash Flow 6040 5631 16463 4810 18893 17064
ROE 29% 20% 20% 24% 29% 29%
ROCE 39% 21% 19% 28% 40% 41%
PAGE 19
Britannia – Rising Competition in Cookies
 Higher competition in cookies, GST gains limited

 Consensus is building in ~15% revenue growth CAGR for the next two years for BRIT, assuming significant market share gains.
 We highlight that Parle Products, which is the second-largest biscuit company and primarily focussed on the value segment, has stepped up
investments in the premium segment.
 Our channel checks suggest market share gains for Parle in the premium segment. Also, Parle and some of the regional players (like Surya Foods &
Agro) are focussing on increasing direct distribution significantly.
 Lastly, we understand value segment players are gaining more from a GST-led shift from unorganized, and BRIT has a limited offering in the value
segment
 Higher margin vs lower ROCE, low hanging fruits taken

 Consensus is building in 150bps of EBITDA margin expansion in FY18-20E. We believe the street is ignoring the higher volume promotions and
higher A&P spend due to higher competitive intensity, which is likely to cap margin expansion despite benign commodity prices.
 We believe significant margin expansion going forward will be challenging, as competition is increasing and the low-hanging fruit is mostly taken.
 One of the major reasons for the margin expansion in the last 5 years was the increase in in-house manufacturing, which led to significant capex
leading to lower return ratios. ROCE & ROEs have come down to ~40% & 33%, respectively, in FY18E, from 63% & 50% in FY14.
 Premium valuation despite inferior capital allocation

 BRIT is trading at ~48x FY20E EPS, a 20% premium to the sector leaders like HUVR and 20% premium to its last three years’ average.
 BRIT’s dividend payout (@30%) is one of the lowest in the industry. Also, there are significant investments in inter-corporate deposits, which limit
dividend payouts.
 We value the company at 40x FY20E PER, in-line with our target multiple for the sector.
PAGE 20
BRIT- Our TP is based on 40x FY20E PER

 We are building in a 12% CAGR earnings growth for the next two years.
 We are 9%/15% below consensus for FY19E/20E earnings
We are building in 12% earnings growth for the next two years Our TP is based on 40x FY20E PER
Year Ending FY15 FY16 FY17 FY18E FY19E FY20E Parameters Rs/share
FY20E EPS 105.2
Income Statement Target multiple 40.0
Sales revenue 78,584 83,972 90,541 97,734 109,176 122,266 Target Price 4210
Sales growth (%) 13.7% 6.9% 7.8% 7.9% 11.7% 12.0%
EBITDA 8,622 12,140 12,757 14,998 16,922 19,073
EBITDA Margin (%) 11.0% 14.5% 14.1% 15.3% 15.5% 15.6%
EBIT 7,177 11,006 11,565 13,668 15,252 17,050
EBIT Margin (%) 9.1% 13.1% 12.8% 14.0% 14.0% 13.9%
Profit before tax 9,498 12,207 13,043 15,144 17,022 19,162
Net profit 6,887 8,246 8,846 9,998 11,235 12,647
Net profit post minorities 6,887 8,246 8,845 9,995 11,227 12,639
Recurring EBITDA 8,622 12,140 12,757 14,998 16,922 19,073

Recurring EBITDA Margin (%) 11.0% 14.5% 14.1% 15.3% 15.5% 15.6%
Recurring EBIT 7,177 11,006 11,565 13,668 15,252 17,050
Recurring EBIT Margin (%) 9.1% 13.1% 12.8% 14.0% 14.0% 13.9%
Underlying Net profit 5,794 8,246 8,845 9,995 11,227 12,639
Underlying Net profit margin (%) 7.4% 9.8% 9.8% 10.2% 10.3% 10.3%
Reported EPS (INR) 57.42 68.72 73.70 83.23 93.49 105.24

EPS Growth 74% 20% 7% 13% 12% 12%
Underlying EPS (INR) 48.31 68.72 73.70 83.23 93.49 105.24
DPS (INR) 16.00 20.00 22.00 30.99 36.22 40.84
Payout ratio (%) 27.9% 29.1% 29.9% 37.2% 38.7% 38.8%
PAGE 21
United Spirits (UNSP IN) – Margin expansion will be gradual

 Sustained volume growth critical for both P&A and popular segments
 1Q19 volume growth of 13% in the P&A segment was led by a favourable base (9.7% decline in 1Q18) some up-stocking impact in UP (due to a
change in route to market).
 Although focus remains on P&A segment, stemming the decline in Popular category would be equally critical.
 We are building in 10% volume growth for the P&A segment for the next two years.
 We are building in 180bp of EBITDA margin expansion for FY18-20E

 We are significantly below the street, as 1) we believe a similar price increase (as in FY18) being repeated will be difficult in the run-up to the
elections, 2) our channel checks suggest incremental discounting schemes in Popular segment brands in Maharashtra (to mitigate the share loss, as
the price is closer to Pernod’s Imperial Blue).
 Moreover, we believe that reversal in input cost deflation will limit gross margin expansion.
 A&P spend to remain high on higher competitive intensity

 Following on Pernod, ABD has stepped up investments in their P&A segment in key markets .
 We are building in A&P cost at ~9.5% as % of sales in FY19 With an upside risk to our numbers
 Recent stock movement provides a good exit point

 UNSP shares are trading at a 53x FY20E PER and 38x FY20E EV/EBITDA, significant premiums to peers .
PAGE 22
UNSP De-rating imminent on higher disruption in Industry
 Higher multiple cannot sustain on earnings disappointment

 UNSP shares are trading at a 53x FY20E PER and 38x FY20E EV/EBITDA, significant premiums to peers.
 We are 19-23% below the street estimate on account of lower volume and EBITDA margin assumptions.
 We maintain our anti-consensus Underperform rating with a TP of Rs443 .
Segment Sales (Rsb) FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E
We value UNSP at 40x FY20 PER @Rs443/share
Prestige & Above 34 37 46 50 51 59 68 77
growth 9% 26% 8% 3% 16% 16% 12%
Details Valuation Per Share Comments Popular 47 44 36 34 29 30 33 35
FY20E PAT 7765 10.7 -7% -18% -5% -16% 5% 8% 8%
Multiple 40 40 In-line with consumer sector average multiple
Valuation/ TP 310,590 428 Net Sales 106 93 85 88 84 91 103 114
growth -1% -12% -9% 4% -5% 9% 13% 11%
Sale of UBT shares (at current price) 10902 15
Target Price 321,492 443
Gross Margin 55% 56% 56% 56% 52% 51% 51% 51%
EBITDA 8.8 7.3 9.8 10.0 10.3 12.3 14.4 16.9

EBITDA Margin 8% 8% 12% 11% 12% 13% 14% 15%
Adjusted PAT -0.2 -1.1 1.7 3.3 4.3 6.0 7.8 9.8
EPS (Rs) -1.1 -7.9 11.5 22.6 29.7 8.3 10.7 13.5
EPS growth nm nm nm 97% 31% -72% 29% 27%
B/S & Return Ratios FY14 FY15 FY16 FY17E FY18E FY19E FY20E FY21E
Debt equity ratio (D/E) 274% 723% 209% 214% 127% 107% 88% 73%
ROE 0% -6% 14% 18% 21% 23% 24% 26%
ROCE 11% 7% 16% 16% 17% 20% 22% 23%

PAGE 23
Jubilant Foodworks – EDV-led momentum to continue in FY19
 EDV-led momentum to continue in FY19

 Significant enhancement in the value for money factor through EDV in core Pizza portfolio.
 Strong investments in digital infrastructure to drive delivery growth and improving customer experience to further boost delivery sales.
 Improved product quality and aggressive media campaigns to drive demand.
 We are now building in 14%/ 10% SSG CAGR forFY19E/20E vs a 10% CAGR earlier.
 Normalization of A&P spend to help cushion margins in subsequent quarters

 JUBI stepped A&P spend in 1Q19 significantly with major spend in IPL T20 season. We believe this is a right step for sustainability of SSG.
 Management guidance for normalization of A&P spend in subsequent quarters should help margins to improve going ahead.
 Operating leverage thesis to play out on higher SSG

 Inflation in employee cost (due to an increase in minimum wages, competition from food aggregators) will be mitigated by higher efficiency of fixed
manpower and higher variabilization with the help of technology.
 The gross margin for 1Q19 remained similar to 4Q18 due to benign commodity prices and better mix
 Other factors for margin expansion include: 1) Higher online ordering (60% of delivery sales in 3Q18 vs 49% in 3Q17); 2) Re-negotiations of rental and
A&P cost leading to cost savings; 3) Dunkin’ Donuts’ loss impact on the EBITDA margin came down to 112bps and 4) the removal of the discounts
helped maintain gross margins .
 Top pick in Consumer discretionary space

 JUBI is trading at a 24x FY20E EV/EBITDA and 38x FY20E PER. We believe a higher SSG trajectory will help re-rate the stock.
PAGE 24
Jubilant FoodWorks - Our TP is based on 27x FY20E EV/EBITDA

 We are building in a 31% EBITDA CAGR for FY18-20E
 JUBI is trading at 24.0x FY20E EV/EBITDA.
Strong earnings growth Our TP is based on 27x FY20 EV/EBITDA
Parameter Value (Rsm) Comments

Rsm FY15 FY16 FY17 FY18 FY19E FY20E FY21E
FY20 EBITDA 7,663
Revenue 20,745 24,102 25,461 29,804 35,704 41,312 47,362 EV/ EBITDA multiple 27.0 In-line with other discretionaries
Revenue growth 20.4% 16.2% 5.6% 17.1% 19.8% 15.7% 14.6% EV 206,901
Net Debt/ (Cash+ investments) (3,916) FY18 Net Cash
EBITDA 2628 2851 2466 4464 6028 7663 9092 Equity Valuation 210,818
EBITDA margin 12.7% 11.8% 9.7% 15.0% 16.9% 18.5% 19.2% Value per share 1,600
PAT 1233 1146 756 2064 3076 4209 5049

PAT growth -2.0% -7.1% -34.0% 172.9% 49.0% 36.8% 20.0%
EPS 18.8 17.4 11.5 31.3 23.3 31.9 38.3
No of Shares 65.6 65.9 65.9 65.9 131.8 131.8 131.8
Net Debt to Equity -0.2 -0.2 -0.1 -0.4 -0.6 -0.7 0.0
Working Capital Days -50 -47 -32 -42 -41 0 0
Operating Cash Flow 2,886 2,238 1,813 4,995 5,220 6,742 7,848
Free Cash Flow 81 10 221 4493 4206 5333 6172
ROE 20% 16% 9% 22% 26% 0% 0%
ROCE 25% 21% 12% 30% 38% 0% 0%
PAGE 25
Marico – Building in the near-term pain

 Margin to continue to be under pressure in 1H19
 1HFY19 will continue to see margin declines and the company guided for a ~17% EBITDA margin in 1H19 due to the continued impact of high copra
prices.
 Cost savings initiatives, efficiencies in the supply chain and a turnaround in international markets will help offset pressure on EBITDA margins due to
high input cost. Management expects a softening of copra prices in 2HFY19.
 Parachute 4Q18 an aberration, no long-term structural issues

 4Q18 performance (volume decline of 5% YoY) was an aberration both on account of a high base (15% growth in base quarter) and the trade
destocking in anticipation of a price cut from Marico.
 There was a brief period (in 4Q18) of correction in copra prices, which led to trade thinking that Marico will cut prices.
 Saffola edible oil new strategy to help recovery in 1H19

 The premium segment in edible oil is struggling and is leading to muted volume growth in the overall franchise. Management has planned a different
communication, promotional strategy and market focus to get back the growth.
 We are building in 6% volume growth in FY19 for Saffola edible oil.
 We are 4-5% below consensus earnings estimates for FY19E/20E

 We are building in an 8% volume CAGR for the next 2 years. We expect a recovery in the Parachute and Saffola franchise in the near term.
 We are building in a consolidated EBITDA margin of 17.5% and 18.3%, respectively, for FY19&20E.
PAGE 26
Marico Financials – Building in the near-term pain
Financials- pressure on near term margin We maintain Neutral with TP of Rs331
Segment Sales (Rsb) FY14 FY15 FY16 FY17 FY18 FY19E FY20E Details Rs/share Comments
Parachute 13 19 20 18 23 27 30 FY20E EPS 8.7
Saffola edible oil 7 8 8 9 9 9 10 PER Multiple 38 In-line with last 3 years average multiple
VAHO 9 11 13 14 14 16 19 Valuation 331
Other (inc Youth brands) 6 7 7 7 6 7 8
International 10 10 11 11 11 12 14
Net Sales 47 57 60 59 63 74 84
growth 8% 9% 1% 2% 11% 18% 13%
Raw Material Cost 24 31 31 28 33 40 44

Gross Margin 51% 54% 51% 48% 53% 54% 53%
EBITDA 7 9 11 12 11 13 15
EBITDA Margin 16.0% 15.2% 17.5% 19.6% 18.0% 17.5% 18.3%
Adjusted PAT 5 6 7 8 8 9 11
EPS (Rs) 3.8 4.4 5.6 6.3 6.4 7.3 8.7
EPS growth 34% 18% 26% 12% 2% 14% 19%
B/S & Return Ratios FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Debt equity ratio (D/E) -9% -5% -23% -21% -13% -7% -16%
Working capital days 61 49 48 48 48 48 48
ROE 28% 35% 37% 36% 34% 35% 37%
ROCE 31% 41% 47% 48% 41% 42% 45%
PAGE 27
Dabur – Market share gains trend impressive
 Oral care – Shift to Ayurvedic/ Naturals thesis can continue for more than a decade
 We believe the recent trend to the Ayurvedic/Naturals category can continue for another ten years and the category can become ~50% of the total
toothpaste market size from ~20% currently.
 We believe Dabur’s positioning and brand equity in the space is very strong, which can help Dabur to take a leadership position ahead of others. Oral
Care is ~16% of domestic sales, and we believe it can sustain strong growth going forward .
 Strong execution under project ‘Buniyaad’ helping strong growth

 Project ‘Buniyaad’ is mainly to enhance distribution and product penetration both in rural and urban centres. Under the project, the focus is to
increase the number of SKUs and brands with the existing distribution.
 The direct distribution has increased to 1.02m outlets from 0.93m outlets in the last few months. More importantly the focus on promoting more
products and SKUs through the existing distribution infrastructure is helping growth .
 Impressive market share gains across the portfolio

 In toothpaste, Dabur has been gaining market share in the last 5-6 quarters. In honey, the company reversed the declining trend (in the last 2
quarters) helped by the value proposition strategy in the category and consumers coming back to Dabur honey franchise.
 Similarly the market share trends on Juices and Hair Oil has been impressive in the last few quarters. We are impressed by market share gains as it
comes in categories with strong leaders & challenger brands. Trading at 10% discount to the peers, rural recovery key.
 We maintain Outperform with TP of Rs430

 Dabur is trading at 36x FY20E PER. We maintain Outperform .
PAGE 28
Dabur Financials – expect earnings growth of 18% CAGR in FY18-20E

We maintain Outperform with TP of Rs430
Segment Sales (Rsb) FY14 FY15 FY16 FY17 FY18 FY19E FY20E Details Value Comments
Hair care 11 12 13 12 12 13 14 FY20 EPS 10.7
Oral care 8 7 8 7 8 9 11 Multiple 40 Inline with Consumer sector players
Home care 3 3 4 3 3 4 4 Valuation 430
Skin care 2 3 3 3 3 3 3
Health care 16 18 18 16 16 18 20
Foods (Juices) 8 10 10 10 9 11 12
Others 2 3 3 2 2 3 3
International 23 24 27 24 25 30 35
Net Sales 71 78 79 77 77 90 102

growth 15% 11% 1% -2% 1% 16% 14%
Raw Material Cost 34 37 38 38 38 44 50

Gross Margin 48% 48% 49% 50% 50% 49% 49%
EBITDA 12 13 15 15 16 20 23
EBITDA Margin 16.4% 16.8% 19.3% 19.6% 20.9% 21.8% 22.1%
Adjusted PAT 9 11 13 13 14 16 19
EPS (Rs) 5.2 6.1 7.1 7.3 7.8 9.3 10.7
EPS growth 20% 16% 17% 2% 7% 19% 16%
Debt equity ratio (D/E) -22% -30% -44% 1% 0% -6% -15%
ROE 38% 35% 33% 28% 26% 28% 29%
ROCE 34% 34% 34% 30% 28% 31% 33%
PAGE 29
Emami – Slower-than-expected volume ramp-up
 Kesh King recovery slower than expected

 The Kesh King range came back to growth driven by Ayurvedic oil. However we highlight that the base quarter (4Q17) growth was muted at 1%
growth for Kesh King.
 Better incentive scheme for wholesalers and higher media communication helped the Kesh King franchise come back to growth.
 While double-digit growth in Ayurvedic oil is credible, our channel checks suggest continued higher competitive intensity mainly from Indulekha in
Ayurvedic hair oils.
 Domestic volume growth at 8% YoY led by Navratna and Pain management

 Domestic revenue growth came in at 10% YoY. The Navratna range grew 14% YoY in 4Q18 driven by market share gains. The Pain Management
range grew 13% YoY during the quarter.
 The BoroPlus range declined 2% YoY and the healthcare range declined 2% YoY. The Male Grooming range grew 8% YoY in 4Q18. We are building
in a 10% volume CAGR in the domestic business for the next 2 years
 Higher Mentha oil prices could be a risk to the margin

 The EBITDA margin came in at 35% (down 70 bps YoY). A&P spend was up 13% YoY vs a declining trend in the last few quarters.
 Gross margin expanded 130bps YoY to 69.2%. A significant increase in Mentha oil could lead to pressure on gross margin in FY19. We are building
in a 50bps lower gross margin in FY19 compared to FY18.
 Recovery in Kesh King key for a re-rating

 Emami is trading at 31x FY20E PER. We maintain Neutral rating with a TP of Rs590.
 We believe the EBITDA growth trajectory needs to pick up significantly for a re-rating in the stock.
PAGE 30
Emami Financials – we expect 14% EBITDA CAGR in FY18-20E

We are building recovery with 14% EBITDA growth in FY18-20E
Segment Sales (Rsb) FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Navaratna Hair Oil 3.9 4.6 4.3 4.0 4.6 5.1 5.6 Rs/share Valuation Comments
Boroplus 2.5 2.7 2.6 3.0 3.1 3.5 3.8 FY20 EPS 16.8
Fair & Handsome 2.0 2.7 2.6 2.5 2.5 2.8 3.1 PER Multiple 35 15% discount to sector multiples
Mentho Plus 0.9 1.1 1.1 1.1 1.1 1.2 1.4 Target Valuation 590
Zandu Balm 2.9 3.4 3.2 3.0 3.5 3.8 4.2
Kesh King 1.9 2.5 2.2 2.5 2.9
Others 3.7 4.8 7.0 6.3 8.0 9.2 10.4
International 2.2 3.1 3.5 2.9 2.6 3.2 3.7
Net Sales 18.2 22.2 24.0 24.9 25.3 29.0 33.2

growth 7% 22% 8% 4% 2% 15% 14%
Raw Material Cost 6.8 7.8 8.5 7.9 8.1 9.4 10.7
Gross Margin 37% 35% 36% 32% 32% 33% 32%
EBITDA 4.4 5.4 6.9 7.6 7.2 8.4 9.8

EBITDA Margin 24.2% 24.4% 28.7% 30.5% 28.4% 29.0% 29.4%
Adjusted PAT 4.1 4.9 5.3 5.5 5.1 6.7 7.6

EPS (Rs) 9.0 10.8 11.8 13.3 14.0 17.3 18.2
EPS growth 30% 20% 9% 13% 6% 24% 5%
Debt equity ratio (D/E) -57% -66% 39% -13% 8% -18% -39%
ROE 48% 45% 40% 35% 27% 31% 32%
ROCE 51% 54% 41% 38% 32% 33% 35%

PAGE 31
Bajaj Corp – Strong recovery in domestic business

 Rural leading the recovery in domestic business
 Domestic business saw a strong recovery with comparable revenue growth of 17.5% YoY with increased rural penetration. ADHO gained market
share in 1Q19 in light hair oil both in volume (market share of 59.4%) and value terms (market share of 61.8%).
 We believe there is further scope of rural penetration wherein a rural recovery will boost growth rates significantly, and there is a significant step-up in
rural distribution.
 We are building in 7% CAGR volume growth for ADHO in FY19/20E.
 Gross margin strong on price hikes, EBITDA margin impacted by higher employee cost
 Gross margin continues to remain strong (66.6%) despite higher input cost on account of price hikes taken in ADHO in Apr-18.
 EBITDA margin came in at 31.2% (up 50bps YoY) in 1Q19 due to by higher employee cost (Rs221m vs 199m in 4Q18) on account of higher
international business employee cost.
 International business rebooting led to significant decline

 We believe channel destocking and business reboot to be the prime reasons for the significant decline in international business revenue.
 Management has set an ambitious target to attain international business revenue to Rs1bn/annum by 2020.
 Re-rating imminent on earnings pick-up & diversification

 BJCOR is trading at a PER of 20x on FY20E, a 55% discount to FMCG sector peers and 30% discount to mid-cap FMCG peers.
 We believe the valuation discount will narrow on account of an earnings pick-up and diversification of product portfolio. We value BJCOR at 30x
FY20E EPS, a 30% discount to the sector multiple. We are 2-7% ahead of consensus for FY18-20E
PAGE 32
Bajaj Corp Financials – we expect 16% EPS CAGR in FY17-20E
Financial Summary
Parameters Details Comments
2016 2017 FY20 EPS 21.2
Year Ending FY2015A FY2016A FY2017A FY2018F FY2019F FY2020F
Multiple 30 25% discount to the sector average
Income Statement Target Price 637
Sales 8,213 8,688 7,925 8,418 9,758 11,523

Sales growth (%) na 5.8% -8.8% 6.2% 15.9% 18.1%
EBITDA 2,391 2,744 2,656 2,642 3,096 3,806
EBITDA Margin (%) 29.1% 31.6% 33.5% 31.4% 31.7% 33.0%
EBIT 2,348 2,701 2,608 2,616 3,069 3,734
EBIT Margin (%) 28.6% 31.1% 32.9% 31.1% 31.5% 32.4%
Profit before tax 2,193 2,516 2,809 2,865 3,497 4,217
Net profit 1,733 1,979 2,210 2,243 2,757 3,141
Net profit post minorities 1,733 1,979 2,201 2,243 2,757 3,141
Recurring EBITDA 2,427 2,785 2,700 2,692 3,146 3,856

Recurring EBITDA Margin (%) 29.6% 32.1% 34.1% 32.0% 32.2% 33.5%
Recurring EBIT 2,385 2,742 2,652 2,627 3,078 3,779
Recurring EBIT Margin (%) 29.0% 31.6% 33.5% 31.2% 31.5% 32.8%
Underlying Net profit 2,102 2,348 2,345 2,377 2,793 3,133
Underlying Net profit margin (%) 25.6% 27.0% 29.6% 28.2% 28.6% 27.2%
Reported EPS (INR) 11.8 13.4 14.9 16.1 18.9 21.2

Underlying EPS (INR) 14.2 15.9 15.9 21.2 18.7 21.3
DPS (INR) 11.5 11.5 11.5 11.5 12.7 13.9
Payout ratio (%) 97.9% 85.7% 77.1% 71.3% 66.8% 65.5%
PAGE 33
Important Disclosures:
Recommendation definitions Volatility index definition* Financial definitions

This is calculated from the volatility of historic price
Macquarie - Australia/New Zealand All "Adjusted" data items have had the following
movements.
adjustments made:
Outperform – return > 3% in excess of benchmark return
Neutral – return within 3% of benchmark return
Added back: goodwill amortisation, provision for
Underperform – return > 3% below benchmark return Very high–highest risk – Stock should be expected
catastrophe reserves, IFRS derivatives & hedging,
to move up or down 60-100% in a year – investors
Benchmark return is determined by long term nominal GDP IFRS impairments & IFRS interest expense
should be aware this stock is highly speculative.
growth plus 12 month forward market dividend yield, which is Excluded: non recurring items, asset revals, property
currently around 9%. High – stock should be expected to move up or down revals, appraisal value uplift, preference dividends &
at least 40-60% in a year – investors should be aware minority interests
Macquarie – Asia/Europe
this stock could be speculative.
Outperform – expected return >+10% EPS = adjusted net profit /efpowa*
Medium – stock should be expected to move up or
Neutral – expected return from -10% to +10% ROA = adjusted ebit / average total assets
down at least 30-40% in a year.
Underperform – expected <-10% ROA Banks/Insurance = adjusted net profit /average
Low–medium – stock should be expected to move up total assets
Mazi Macquarie - South Africa
or down at least 25-30% in a year. ROE = adjusted net profit / average shareholders funds
Outperform – return > 10% in excess of benchmark return Gross cashflow = adjusted net profit + depreciation
Low – stock should be expected to move up or down
Neutral – return within 10% of benchmark return *equivalent fully paid ordinary weighted average
at least 15-25% in a year.
Underperform – return > 10% below benchmark return number of shares
Macquarie - Canada
All Reported numbers for Australian/NZ listed
* Applicable to Australian/NZ stocks only
Outperform – return > 5% in excess of benchmark return stocks are modelled under IFRS (International
Neutral – return within 5% of benchmark return Financial Reporting Standards).
Underperform – return > 5% below benchmark return
Recommendation – 12 months
Macquarie - USA
Note: Quant recommendations may differ from
Outperform – return > 5% in excess of benchmark return Fundamental Analyst recommendations
Neutral – return within 5% of benchmark return
Underperform – return > 5% below benchmark return
Recommendation proportions – For quarter ending 30 June 2018

AU/NZ Asia RSA USA CA EUR
Outperform 52.87% 61.26% 48.86% 47.54% 69.86% 46.61% (for global coverage by Macquarie, 3.51% of stocks followed are investment banking clients)
Neutral 34.10% 27.25% 36.36% 46.72% 21.92% 43.22% (for global coverage by Macquarie, 2.10% of stocks followed are investment banking clients)
Underperform 13.03% 11.49% 14.77% 5.74% 8.22% 10.17% (for global coverage by Macquarie, 0.00% of stocks followed are investment banking clients)
PAGE 34
Company-Specific Disclosures:
Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures.
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Macquarie - India Consumer Sector - Shifting To Higher Orbit of Growth - Aug 2018

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Macquarie Research | EQUITIES

India Consumer Sector

India Consumer – Shifting to higher level of growth

 Top picks in FMCG – HUL, Godrej Consumer products, Dabur

GST- Advantage Organized Sector

40% 36% 35%

% of organized to total market

Structural Consumption story in India Intact

Rural demand to bounce back

20% Total rural wages Nominal Agriculture GDP

Volume growth inching higher

Sector volume growth with ITC Sector Volume growth Ex-ITC

Sector Volume Growth Sector Volume growth (ex-ITC)

Urban recovery led by Seventh Pay Commission & OROP

US$ bn as % of GDP US$ bn as % of GDP

Source: Finmin, Macquarie Research, August 2018

New giant in the room – Patanjali Ayurveda

Wheat Oral care 1%

Source: Company data, Macquarie Research, August 2018

India Consumer PER chart

India Consumer Staples PER

Source: Company data, Macquarie Research, August 2018

HUL- Strong volume growth to continue

 Strong volume growth to continue

 Company targeting savings of 6% of turnover through various initiatives

HUL Financials and Valuation

EBITDA 47 54 60 63 75 93 111 128

Source: Company data, Macquarie Research, August 2018

ITC – Cigarette EBIT to remain under pressure

 Significant improvement in FMCG profitability

ITC Valuation- We have a Neutral rating with TP of Rs304

Our Target Price is Rs304

Adjusted PAT 89 97 95 105 112 122 136 151

Source: Company data, Macquarie Research, August 2018

Godrej Consumer – The tough get going!

 Indonesia- outperformance in a subdued market

 Africa- the new problem child

GCPL Financials – we expect earnings growth of 23% CAGR in FY18-20E

Financials- we expect We maintain Outperform with TP of Rs1,465

Net Sales 76 83 84 92 98 115 132 148

Raw Material Cost 36 38 39 41 43 50 56 63

EBITDA 11.5 13.7 16.4 18.7 20.7 25.1 29.8 34.1

Source: Company data, Macquarie Research, August 2018

Titan Company – Market Share gains at inflection point

 Strong growth in wedding, high-value diamond jewellery

 GST to reduce price differential with unorganized players

 Improving macro, new positioning to win new franchisees

 High valuations to sustain

Titan - Our TP is based on 50x FY20E PER

Net Debt to Equity 0.0 0.5 -0.3 -0.1 -0.3 -0.3

Source: Company data, Macquarie Research, August 2018

Britannia – Rising Competition in Cookies

 Higher competition in cookies, GST gains limited

 Higher margin vs lower ROCE, low hanging fruits taken

 Premium valuation despite inferior capital allocation

BRIT- Our TP is based on 40x FY20E PER

Recurring EBITDA 8,622 12,140 12,757 14,998 16,922 19,073

Reported EPS (INR) 57.42 68.72 73.70 83.23 93.49 105.24

Source: Company data, Macquarie Research, August 2018

United Spirits (UNSP IN) – Margin expansion will be gradual

 We are building in 180bp of EBITDA margin expansion for FY18-20E

 A&P spend to remain high on higher competitive intensity

 Recent stock movement provides a good exit point

UNSP De-rating imminent on higher disruption in Industry

 Higher multiple cannot sustain on earnings disappointment

EBITDA 8.8 7.3 9.8 10.0 10.3 12.3 14.4 16.9