Thematic Note on Indian FMCG Sector

Not Marked to Market

September 2013

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Fast Moving Consumer Goods Thematic Note
Executive Summary Sector Outlook Cautious

Not ‘Marked to market’

Date Sep 26, 2013
Irrefutable attractiveness of the Indian FMCG market saw plethora of MNCs entering into the country over the
past two decades. The eminence of emerging markets as India has off-late increased immensely post the Market data
consumption slowdown in western economies. Competitive intensity thereby has significantly multiplied with
BSE SENSEX 19856
various MNCs renewing their global rivalry on the Indian turf. With a lot discussed on the listed players and the
potential impact they could cause to each other we through this note have endeavored to better understand Nifty 5874
the strategy of a few unlisted MNC players. Despite findings of the report not being a direct trigger to our BSE FMCG 6858
recommendations on the stocks under coverage, we attempt to highlight various potential threats that could
emanate from these unlisted MNC players and how it could impact companies under coverage in longer run.
FMCG Index vs. Sensex
Snapshot of views post our study of 4 HPC unlisted players
Procter & Gamble (P&G) : Procter & Gamble, the largest CPG manufacturer globally operates under 3 entities in
India. Present in wide array of categories, they are involved in high intensity competition with Hindustan Unilever (HUL),
Colgate (CLGT), Dabur and Jyothy Labs (JYL) among our coverage companies. Though few companies such as HUL
and CLGT have matched up to the intensity, reinvigorated approach from P&G India could spell trouble for all the four.
Reckitt Benckiser (RB): Armed with an Indian CEO, RB has charted plans to significantly increase the Indian

Apr-13
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contribution to their global pie. Present across mature and nascent categories, the company’s fortunes in India is still
primarily linked to its flagship brand, Dettol. The acquisition of Paras Pharma at a record high valuations clearly
indicates the potential they see in India. Any heightened activity in India could see the fortunes of Godrej BSE FMCG BSE SENSEX
Consumer(GCPL), HUL, JYL and Dabur among coverage companies getting impacted.
L’Oreal: With an aim to make India as one of their top 5 markets in the next decade from the current 15th position, Performance (%)
world’s leading skin care player is venturing into various new categories. Their presence in India is marked by value for
money propositioned Garnier brand and premium L’Oreal Paris brand. Wide global presence and their technical know- 1m 3m 12m
how place them as a serious threat to the skin care portfolio of HUL, MRCO, GCPL, Dabur and Zydus Wellness
(ZYWL) among our coverage. Sensex 10.5% 6.6% 6.2%

Beiersdorf (BDF): Known throughout the globe through its Nivea cream, BDF is finally beginning to find its way in India BSE
11.8% 7.4% 29.0%
post years of tremulous and faulty joint venture. Premium priced products all under its Nivea brand are being extended FMCG
to a range of personal care categories. Among companies under coverage personal care categories of HUL, MRCO,
Dabur and ZYWL are under threat from Beiersdorf. Tejash Shah
Coverage Universe View: With most of the FMCG stocks trading at their all time high valuations, we see that tejash@sparkcapital.in
valuations have overtaken fundamentals. On a relative basis we prefer ITC to HUL among the large caps and prefer +91 22 4228 8155
Bajaj Corp (BJCOR) among the small & mid-cap. Stock Calls: ITC–Buy (TP:Rs.394), HUL-Sell (TP:Rs.520), BJCOR-
Gnanasundaram S
Buy (TP:Rs.295), Dabur–Add (TP:Rs.184), ZYWL–Add (TP:Rs.603), JYL-Add (TP:Rs.184), GCPL-Reduce(TP:Rs.812),
gnanasundar@sparkcapital.in
GSKCH–Reduce(TP:Rs.3780), Marico–Reduce(Rs. 207) CLGT- Reduce (TP:Rs.1177) +91 44 4344 0062

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Fast Moving Consumer Goods Thematic Note
Snapshot of Views on Stocks Sector Outlook Cautious

Company View Watch out for Rating

 Bajaj Corp’s flagship brand Almond Drops Hair Oil (ADHO) continues to drive light hair oil category growth and strengthen its • Light hair oil BUY
Bajaj Corp leadership position in the segment. Revenue diversification plan got a major boost with the recent NOMARKS acquisition. Foray penetration
TP: Rs. 295
into Bangladesh and expected traction in Kailash Parbat should help to diversify revenue base further in medium to long term. • LLP prices

 With toothpaste penetration nearing saturation, volumes to be driven by premiumization and increased usage. With P&G • Intensity of P&G in REDUCE
Colgate announcing their foray into the Indian toothpaste market IN June 2013, competitive intensity in toothpastes have risen . A&P to the toothpaste
rise as Colgate labors to protect its turf. segment TP:Rs. 1177

 Distribution expansion via ‘Project Double’ along with the uptick in rural consumption augurs well for Dabur, who has ~40% of • Good monsoon ADD
Dabur sales coming from rural India. We see sales and PAT growing at a ~15% and ~20% CAGR respectively over FY13-15E. translating to higher
 Though business prospects in Bangladesh, Turkey (Hobi) and MENA remains bleak, GCC & US (Namaste) prospects promising. rural spending. TP: Rs. 184

Glaxo  Despite various competitors indicating slowdown in processed food consumption, GSKCH managed to hold volumes. Continuous • Food consumption REDUCE
SmithKline expansion of Horlicks variants into rural and introduction of variants in Boost to assist in volume growth. slowdown
 Margins should continue to remain healthy despite high A&P outlay as business auxiliary income continues to increase stealthily TP:Rs. 3780
Consumer • Comp intensity

 Low penetration and increasing high decibel advertisements should continue to drive the growth of household insecticides and • Insecticides success REDUCE
Godrej in Africa
hair color. Soaps growth to remain muted despite Palm expected to hold steady until the end of the year.
Consumer TP: Rs. 812
 Megasari and Darling should continue to exhibit sound growth though Kinky, Rapidol, Issue and Keyline prospects are gloomy. • Brand pollination

 Weakening consumer sentiment and the corresponding impact on discretionary spending to hurt volume prospects of HUL. • Uptick in spending SELL
Hindustan
Unilever
Further increase in royalty and incessant A&P spend to lead to lower PAT margins. • Higher contribution
 Slowdown in mass skin care consumption and food consumption to hurt volume growth prospects. TP: Rs. 520
from rural

 ITC cigarette volumes continues to grow despite the macro slowdown and price increases affected by the company as the • Cigarette volume BUY
ITC category remains inelastic to price. Other FMCG business is expected to break-even in FY14. trends.
 With much better comfort on higher growth compared to HUL and comparatively better valuation comfort we prefer ITC over HUL. • Hotels performance TP: Rs. 394

Jyothy  As integration/ restructuring of the Henkel- Jyothy Labs businesses is over; product re-launches with packaging changes/ new • Higher A&P spend ADD
Labs variants, strong brand push and enhanced distribution is expected to aid strong growth in sales and much better profitability. • New product
 Management expects at least ~20-25% sales growth over the coming 2-3 years with ~15-16% EBITDA margin. TP: Rs.184
launches

Marico  Pressure on volumes is evident in hair oils and edible oils category, though benign raw material prices have enable the company • Rigid pack volume REDUCE
to take on selective price cuts to drive volumes, weakening Rupee could end raw material softness. pickup
 Growth in Bangladesh , South Africa and MENA to be a struggle while south east Asia performance should remain robust. TP: Rs. 207
• Copra prices

 We believe Health and Wellness category is likely to outperform the FMCG sector growth in India and ZW with its core focus on • Success of
Zydus ADD
building brands in this category shall continue to deliver far superior growth rates compared to industry peers. rebranding of
Wellness TP: Rs. 603
 Despite struggle against larger players in the face wash category, Sugar free brand equity and growth prospects remain attractive. Everyuth

3
Fast Moving Consumer Goods Thematic Note
Valuation Matrix Sector Outlook Cautious

Sales (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) EBITDA Margin

Company FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E
GCPL 64,074 80,337 98,389 10,152 12,211 14,955 6,934 8,246 10,236 20.4 24.2 30.1 15.8% 15.2% 15.2%
Dabur 61,761 71,025 81,963 10,298 12,094 14,248 7,671 9,060 10,967 4.4 5.2 6.3 16.7% 17.0% 17.4%
Marico 45,962 51,061 57,852 6,258 7,078 8,102 3,726 4,346 5,128 5.8 6.7 8.0 13.6% 13.9% 14.0%
Jyothy Lab 11,060 13,382 16,326 1,297 1,930 2,471 626 1,137 1,745 3.9 7.0 10.8 11.7% 14.4% 15.1%
Colgate India 31,653 36,113 41,018 6,583 7,167 8,190 4,967 5,454 5,927 36.5 40.1 43.6 20.8% 19.8% 20.0%
GSKCH 30,794 35,829 41,281 4,653 5,267 5,891 4,368 4,904 5,802 103.9 116.6 138.0 15.1% 14.7% 14.3%
Zydus Wellness 3,880 4,495 5,135 966 1,112 1,272 970 1,116 1,310 24.8 28.6 33.5 24.9% 24.7% 24.8%
ITC 299,013 344,970 400,542 106,275 128,184 155,910 74,184 89,215 109,515 9.5 11.5 14.1 35.5% 37.2% 38.9%
HUL 270,040 289,741 331,462 42,459 44,259 50,761 37,100 35,138 38,814 17.1 16.2 17.9 15.7% 15.3% 15.3%
Bajaj Corp* 6,067 7,400 8,679 1,729 2,119 2,502 1,674 2,016 2,345 11.3 13.7 15.9 28.5% 28.6% 28.8%

P/E (x) EV/EBITDA (x) EV/Sales (x) Target ROE ROCE

CMP Mkt Cap Rating
FY14 FY14
Company FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E (Rs) (Rs. bn) P/E Price

GCPL 40.7 34.2 27.6 28.8 23.8 19.6 4.6 3.6 3.0 829 282 27x 812 REDUCE 22.7% 17.0%
Dabur 37.9 32.1 26.5 27.9 23.4 19.4 4.7 4.0 3.4 167 291 29x 184 ADD 38.0% 26.7%
Marico 38.6 33.1 28.0 23.6 20.3 17.3 3.2 2.8 2.4 223 144 26x 207 REDUCE 20.0% 16.4%
Jyothy Lab 42.1 23.2 15.1 25.0 16.3 12.3 2.9 2.3 1.9 164 27 17x 184 ADD 17.0% 14.7%
Colgate India 33.8 30.7 28.3 24.8 22.6 19.7 5.2 4.5 3.9 1233 168 27x 1177 REDUCE 103.4% 96.8%
GSKCH 40.5 36.0 30.5 37.8 32.0 27.9 5.7 4.7 4.0 4203 177 27x 3780 REDUCE 33.0% 31.2%
Zydus Wellness 21.7 18.9 16.1 19.7 16.4 13.6 4.9 4.1 3.4 540 211 18x 603 ADD 37.6% 37.3%
ITC 35.8 29.8 24.2 24.2 20.0 16.3 8.6 7.5 6.3 341 2702 28x 394 BUY 36.6% 35.0%
HUL 36.9 39.0 35.3 31.4 29.9 25.9 4.9 4.6 4.0 633 1367 29x 520 SELL 111.0% 103.3%
Bajaj Corp* 22.8 19.0 16.3 19.5 15.5 12.7 5.6 4.4 3.7 259 38 19x 295 BUY 38.4% 38.3%
* Write offs pertaining to Nomarks brand acquisition not factored
Source: Company & Spark Capital Research

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Fast Moving Consumer Goods Thematic Note
Industry Overview Sector Outlook Cautious

Volume growth of our coverage universe

Volume continues to reel under
10.5% 11.1% 11.1%
9.7% 10.0% pressure as consumption in key
8.4%
7.9%
categories slow down. Volume growth
Pressure on volumes 6.5%
6.0%
has dropped to single digits as off-
takes in food and mass skin care
categories have come under significant
stress. We see that categories with
even a minimal discretionary shading
Prominently are to be the first impacted.
1QF12 2QF12 3QF12 4QF12 1QF13 2QF13 3QF13 4QF13 1QF14
discussed
Source: Company & Spark Capital Research

Gross margin of our coverage universe

The companies did resort to price cuts
50.8%
51.6%
50.8%
51.7% for sustained volume growth as raw
50.5%
Raw material pressure 50.0% material price scenario was benign
49.3% however given the Rupee weakening,
49.0%
cost of imported raw material (esp
47.4% palm and crude) is set to increase
ruling out further price cuts for volume
growth. Dual pressure to maintain
volumes and margin to be a challenge
1QF12 2QF12 3QF12 4QF12 1QF13 2QF13 3QF13 4QF13 1QF14

Source: Company & Spark Capital Research

FMCG sector market share (ex tobacco)

Listed companies in order to thwart
Increasing Competitive 9.8
competition from the unlisted players
Intensity
and listed counterparts are
4.2 increasingly beginning to engage in
3.2 2.9 2.6 2.6 2.5 2.4 2.1 2.1 higher advertisement spend. However
disproportionate spending by the
Least discussed unlisted players could tilt the scale in
favour of the unlisted players

Source: Company & Spark Capital Research

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Fast Moving Consumer Goods Thematic Note
Industry Overview Sector Outlook Cautious

Unlisted players comprise of 25% share of the FMCG market We have discussed the prominent 4 in HPC categories.

Competition

Listed
Companies Unlisted MNC's Domestic
25%
Unlisted
32% Listed private
MNC’s
players

Indian Private 1, PGHC

companies 2, Reckitt Benckiser
43% 3, L'Oreal
4, Beiersdorf
Source: Bloomberg & Spark Capital Research Source: Spark Capital Research

Why do the unlisted players matter?

Strategy Reasoning Impact on coverage companies

Volume decline & share loss/ Margin

Focus on long term strategy Disruptive competition to gain share
contraction.

Emerging market focus Increasing number of players fighting for

Tough macro economic conditions in west
market share.

Solid Financial muscle Inorganic growth opportunities. Severe margin pressure could be exerted

Strong brand portfolio Strong plethora success laden brands. Increase in brand investments.

Source: Spark Capital Research

Fast Moving Consumer Goods Thematic Note
Industry Overview Sector Outlook Cautious

Expanding reach continues to be a strong driver… … so as the incessant A&P spend

Retail Outlets reach (in mn) A&P/Sales

HUL
ITC
P&G
Jyothy Lab
ITC
Brittannia
Dabur
Colgate
Colgate
HUL
GCPL
Reckitt Benckiser
Marico
Marico
Brittannia
Dabur
Bajaj Corp
Bajaj Corp
Jyothy Lab
GCPL

Reckitt Benckiser
L'Oreal

L'Oreal
Beiersdorf

Beiersdorf
GSKCH

GSKCH
Emami

Emami Zydus Wellness

Zydus Wellness P&G

0.0 2.0 4.0 6.0 8.0 0.0% 5.0% 10.0% 15.0% 20.0%
Source: Company & Spark Capital Research Source: Company & Spark Capital Research

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Fast Moving Consumer Goods Thematic Note
Procter & Gamble – Global overview Sector Outlook Cautious

Procter & Gamble Emerging markets Contribution

Procter & Gamble is the largest CPG (Consumer Packaged Goods) manufacturer
operating in over 80 countries with 24 USD Billion brands including Pampers, Tide,
Ariel, Pantene, Gillette and Duracell.
Latin America
The company reported revenues of USD ~84bn and operating margins of ~14% in 10%
FY13.
The Cincinnati based company was established in 1837 and operates in Skin care, Developed
Emerging
Oral care, Hair care, Health care, House care, Foods and many more categories. 61%
39% CEEMEA
13%
P&G commands worldwide leadership position in 50 brands and these brands Asia
contribute 90% of the sales. 16%

Company’s key markets are USA, China, and European markets, the emerging
markets contribute to ~1/3rd of the sale.

Source: Company & Spark Capital Research

Change In Guard New Global Strategy

Mr. Alan.G.Lafley, CEO of P&G from 2000-2009 had resorted to a simplistic
approach of multiplying the growth of company’s biggest brands rather than
developing new products from scratch. The approach was successful as the number
of billion dollar brands doubled during his tenure.
However sales and margins took a hit post Mr.Bob Mcdonald, (2009- June 2013)
took charge. The new CEO resorted to improve the new product pipeline to arrest the
sales decline from big brands, however long development cycle, slowdown in
developed economies and faulty pricing strategy led to further revenue and margin
decline.
The disruptive innovations as Tide Pods, Crest White Strips and Swiffer also resulted
in product cannibalisation and led to sales decline in key brands.
However things seemed to have brightened up post Mr.A.G.Lafley resuming as the
CEO in June 2013, post investor unrest.
Decline in sales led to huge investor unrest, forcing the company to announce a
‘40-20-10’ strategy, where P&G would focus on the 40 largest markets, its 20
best innovations and the most important 10 developing markets. The plan also
included discontinuing disruptive innovations.
As per the strategy the company looks to increase its concentration on
existing emerging markets rather than expanding into new one leading to
enhancing its activities in India.
The company has outlined in the 40-20-10 plan that India remains one of
their key emerging markets, where they expect growth to be a function of
increasing disposable income and expanding middle class.
The go ahead for the strategy however seems to be ambiguous now given the
change in leadership, however the focus on India is surely set to improve given
Mr.Lafley’s optimist view on India.

8
Fast Moving Consumer Goods Thematic Note
Procter & Gamble – Indian operations Sector Outlook Cautious

Top 10 emerging economies P&G has outlined Procter & Gamble divisions in India

China PG India
Nigeria India

Mexico Top 10 Russia

Procter &
GILLETTE PGHH
emerging Divisions Gamble Home
(20%) (20%)
care (60%)
Poland economies Brazil

Indone- South Laundry

-sia Africa
Turkey Hair care Batteries
Fempro
Categories Skin Care Shaving
OTC
Diapers Oral Care
Source: Company & Spark Capital Research Air Care

P&G India contribution by category

Ariel, Tide
Pantene, Head & Duracell
Shoulders Whisper
Batteries Laundry Care Brands Gillette
Olay Vicks
1% 30% Oral - B
Pampers
Hair Color Others
2% 8% Ambi Pur

Anti Ageing
2% Shampoo HUL,
Diapers 16%
Jyothy Labs
3% Competing HUL, Dabur Colgate, HUL
Oral Care Company those
OTC HUL, Dabur HUL Dabur
4% under coverage)
7% Sanitary Grooming HUL
Napkins 14%
GCPL
13%

Source: Company, ROC & Spark Capital Research Source: Company, ROC & Spark Capital Research

9
Fast Moving Consumer Goods Thematic Note
Procter & Gamble – Category snapshot Sector Outlook Cautious

Procter & Gamble India category snapshot

Category Diaper/
Laundry Shampoo Oral care Skin care Air care Grooming OTC
name fempro

Global
27%(1) 20%(1) 19%(2) 5%(5) 14%(3) 33%(1) 26%(1) 3%(6)
share

India share 12%(3) 29%(2) 7%(4) 2%(7) 19%(2) 27%(1) 56%(1) 11%(2)

Pantene,
Head &
Brands in Ariel, Tide, Pampers,
shoulder, Oral-B Olay Ambi pur Gillette Vicks
India Tide plus Whisper
herbal
essence

Hindustan Emami,
Hindustan Hindustan Colgate, Hindustan
Unilever, Reckitt Hindustan Dabur,
Key Unilever, Unilever, Hindustan Unilever,
Dabur, Benckiser, Unilever(JV) GlaxoSmith
competitors Jyothy Dabur, Unilever, Reckitt
L’Oreal, GCPL , J&J Kline
Labs, RSPL Cavin Kare Dabur Benckiser
Beiersdorf Consumer

~Category
size(Rs. Bn) 150 40 60 85 3 15 17 8

~Category
penetration 90% 60% 73% 23% 5% 30% 20% 35%

Source: Company, ROC & Spark Capital Research

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Fast Moving Consumer Goods Thematic Note
Procter & Gamble Vs Hindustan Unilever Sector Outlook Cautious

P&G Vs Unilever – Global facts P&G Vs Unilever – Global & India share P&G’s impact on HUL revenues
P&G Unilever Global Share India Share
Parent name Procter & Gamble Unilever

Incorporated in. / at. Cincinnati, Ohio. Rotterdam/London. P&G Unilever Diff P&G HUL Diff
1837 1930 No threat
25%
Number of countries. 180 190
Laundry 27.0% 15.0% 12.0% 12.0% 37.0% -25.0% Currently
Emerging Mkt. Contri. 39% 55% overlapping
45%
India contribution ~1% ~7.5% Shampoo 20.0% 14.0% 6.0% 29.0% 42.0% -13.0%
HPC sales contribution 100.0% 53.0%
Potential
Foods sales contribution 0.0% 47.0% Oral care 19.0% 7.0% 12.0% 7.0% 24.0% -17.0% overlapping
30%
Nos ‘billion USD brands’ 24 14
Skin care 5.0% 5.0% 0.0% 2.0% 54.0% -52.0%
Current CEO Alan G. Lafley Paul Polman

Source: Company, Spark Capital research Source: Company, Bloomberg & Spark Capital research Source: Company & Spark Capital research

Indian Ops - Operating Laundry: With price undercutting still

metrics
Brands in India
visible from P&G, HUL forced to
HUL P&G Laundry Shampoo Oral care Skin care incessantly invest in A&P to maintain
market leadership.
Revenue
258 66 Shampoo: Though P&G edges in
Premium

(Rs. bn.)
terms of offerings and technology
Gross
47.7% 50.4% more brands ensure HUL maintains
Margin
supremacy.
A&P
32 13 Oral Care: With invigorated approach
(Rs. bn.)
Popular

over the past two years the company

A&P/Sales 12.5% 19.5% continues to gain share despite being
present only in toothbrushes.
Op profit
41 1 Skin Care: Olay, globally a billion
Mass

(Rs. bn.)
dollar brand is beginning to attain
Op Margin 15.9% 1.6% significant market share developing a
loyal customer base
Source: Company, ROC Source: Company & Spark Capital research

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Fast Moving Consumer Goods Thematic Note
Procter & Gamble Vs Colgate Sector Outlook Cautious

Colgate dominates emerging markets Over the 3 years, P&G A&P has increased Low impact despite 95% overlap
Colgate P&G
China 30% 20% 29.1%
25.4%
Malaysia 57% 9% 23.6%
Philippines 46% 14% 20.9%
18.7%
17.5%
Russia 26% 19% Currently
16.9% overlapping
Brazil 50% 15% 15.5% 14.8%
Potential 95%
overlapping
USA 17% 33% 11.2% 5%
9.9% 9.8%
France 14% 16%
Germany 20% 25% 2008 2009 2010 2011 2012 2013
Turkey 23% 36%
Gillette India Colgate India
United Kingdom 27% 18%
Source: Company, Bloomberg & Spark Capital research Source: Company, ROC & Spark Capital research Source: Company & Spark Capital research

Colgate Vs Procter & Gamble (P&G)

Toothpaste Toothbrush P&G till recently operated only in toothbrushes in India under the Oral-B
brand. The brand relaunched in 2010 in India has already cemented itself
Brand
as a number 2 player in toothbrushes behind Colgate. P&G dominates the
offerings in the developed markets but they have not been able to break
Premium

Oral B Pro Total, Cross Section, 360° Relief,

health Sensitive, Colgate’s supremacy in the emerging market
Action Pro, Max Fresh
Superior Clean Actiflex, In June 2013, P&G announced the launch of Oral-B toothpaste under 3
variants encompassing all price points. This latest launch has come in
All rounder Gel Colgate Max
Popular

Gum Protect Zig Zag contrasting style to the earlier launches by P&G, where they usually enter
Advantage Sensitive
the premium category first and then drill down other price points .
Sensitive Gum Comfort
Colgate realising the potential damage that Oral-B toothpaste can cause
All rounder 32 Cibaca, Dental 123 Clean gum to their market share, has immediately ensured higher shelf space buying,
Mass

Cream, Ultra Clean Kids 2+, 2-4 increased advertisement spending and relaunching its premium portfolio.
Strong. Delicate White Cibaca 123

Source: Company & Spark Capital research

12
Fast Moving Consumer Goods Thematic Note
Procter & Gamble Vs Dabur Sector Outlook Cautious

Domestic personal care of Dabur overlap P&G’S offerings Despite being in similar price points, minimal competition threat

Shampoo Oral Care Skin Care

Currently
overlapping
Premium
24%

No threat Potential
70% overlapping Popular
6%

Mass

Source: Company & Spark Capital research

P&G is clearly way-ahead in terms of A&P spend Dabur Vs Procter & Gamble (P&G)
Procter & Gamble could impact Dabur’s hair care, oral care and skin care
revenues.
25.0% 6.2 6.5
As in the case with Toothbrush, P&G might not take on the market leader

No of retail outlets (mn)

20.0% 5.8 6.0 Colgate in toothpastes. If they go by the line of strategy adopted for
toothbrush, Dabur could be one of the most impacted. The comfort
A&P/Sales

15.0% 5.5
though may be is that the positioning of the variants is different.
10.0% 19.5% 5.0 Dabur’s promotion continues to be aligned towards promotions and
13.5% distributor offerings while P&G continues to be heavily dominant on
5.0% 4.5 advertisements.
0.0% 4.0 Though Dabur shampoo pricing is in line with P&G popular offerings,
Dabur P&G Dabur has managed to stay away for share fight and create a niche for its
A&P/Sales Number of retail outlets
own. P&G’s brand mileage in Skin Care is far superior to Dabur and P&G
should continue to dominate skin care offerings.
Source: Company, ROC & Spark Capital Research

13
Fast Moving Consumer Goods Thematic Note
Procter & Gamble Vs Jyothy Labs Sector Outlook Cautious

Laundry category overlaps between the two. JYL is under severe threat across all price platforms

P&G Jyothy Labs

Currently
overlapping Premium
27%
No threat
39%

Popular

Potential
overlapping
34%
Mass

Source: Company, Spark Capital Source: Company & Spark Capital

JYL’s severe shortage in terms of A&P impacts their revenue Jyothy Labs(JYL) Vs Procter & Gamble (P&G)
Procter & Gamble matches the offerings of Jyothy Labs across product
JYL PGHC portfolio ranging from Matic version to bar offerings.
Henko, which did enjoy far superior mileage to Ariel in the initial years,
Revenue (Rs.bn) 11 40 lost out to the latter due to their supply chain issues.
Post the takeover, JYL has managed to align the supply chain but lack of
A&P(Rs.bn) 1 7 high decibel advertisements continue to hurt the brand mileage of Henko.
JYL’s rural presence however gives them a definitive advantage over
A&P/Sales 9.0% 16.4%
P&G. Though P&G does manage to match on the reach the acceptability
is far superior for JYL.
Laundry margins for JYL is heavily dependent on premium offering
Number of outlets reach (mn) 2.9 5.8 ‘Henko’, any intensified move by P&G on Ariel is for sure to hurt JYL
margins from the segment.
Source: Company, ROC & Spark Capital Research

14
Fast Moving Consumer Goods Thematic Note
Procter & Gamble Impact summary Sector Outlook Cautious

Impact summary

India Mkt Global Mkt Potential global Global share Most impacted companies under coverage
Segment India Brands
share share brands position Company 1 Mkt share Company 2 Mkt share

Gain, Bold, Jyothy

Laundry 12% Ariel, Tide 27% 1 HUL(28%) 37% 5%
Dash, Lenor Labs(40%)

Pantene, H&S,
Shampoo 29% 20% Rejoice, Gillette 1 HUL(7.5%) 42% Dabur(8%) 7%
Herbal essence

Oral care 7% Oral B 19% Crest 2 Colgate(95%) 47% HUL(6%) 28%

Skin care 2% Olay 5% SK-II 5 HUL(14%) 54% Dabur(1%) 4%

Air care 19% Ambi pur 14% Febreze 3 Dabur(3%) 35% GCPL(1%) 2%

Jyothy
Dish wash - - 20% Dawn, Cascade 1 HUL(3%) 60% 18%
Labs(28%)

House hold Ace, Mr. clean,

- - 10% 2 HUL(3%) 54% Dabur(1%) 4%
cleaners Swiffer

Personal care - - 6% Safe guard 3 HUL(22%) 49% GCPL(17%) 12%

Source: Company, ROC & Spark Capital Research

15
Fast Moving Consumer Goods Thematic Note
Reckitt Benckiser – Global Overview Sector Outlook Cautious

Reckitt Benckiser Reckitt Benckiser global revenue mix

• Sir Isaac Reckitt and John Benckiser begin their individual business venture
in early 1800’s. The two companies since then expanded geographically and
product wise.
RB Health
• In 1999, Reckitt & Colman and Benckiser merged to become the world no 1 Pharmaceuticals 22%
in household cleaning player. 9%
• The company is known for its 19 global “power brands”, which drive the
company’s revenues at a global level and span across beauty & personal Food
care, consumer health and home care. 3%
Hygiene
• The company continues to invest heavily behind brands and had introduced a 38%
Portfolio brands
new metric by the name ‘brand equity building’ metric to measure its return 7%
on investments on brand building activities. Home
21%
• In addition to the successful ‘Powerbrands’ strategy, the company has
identified 16 ‘Powermarkets’ for increased focus and investment, most of
which are in emerging markets.
Source: Company, Spark Capital

EBITDA contribution from emerging markets way lower. Reckitt Benckiser global financial snapshot

16.7% 16.2% 16.2% 15.7% FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

26.3% 26.3% 22.3% Turnover

27.7% 5,269 6,563 7,753 8,453 9,485 9,567
(GBP mn)

Growth %, 7.0% 24.6% 18.1% 9.0% 12.2% 0.9%

55.6% 57.5% 57.5% 62.0% Gross Profit
3,072 3,890 4,664 5,121 5,449 5,537
(GBP mn)

Margin % 58.3% 59.3% 60.2% 60.6% 57.4% 57.9%

Revenue Operating Profit Revenue Operating Profit
2012 contribution 2013 contribution
EBITDA
1,283 1,612 2,030 2,375 2,644 2,718
(GBP mn)
ENA LAPAC RUMEA
Margin % 24.3% 24.6% 26.2% 28.1% 27.9% 28.4%
Europe and North America/ Latin America, North Asia, South East Asia And Australia and New
Zealand/ Russia and CIS, Middle East, North Africa, Turkey and Sub-Saharan Africa Source: Company, Spark Capital
Source: Company, Spark Capital

16
Fast Moving Consumer Goods Thematic Note
Reckitt Benckiser – Indian Operations Sector Outlook Cautious

Reckitt Benckiser India timeline Reckitt Benckiser (RB) India

Formation of Atlantis (East) Ltd, moves made toward direct sale without  Reckitt Benckiser is a wholly-owned subsidiary of the global consumer goods
1934
use of agencies. major Reckitt Benckiser Plc. The roots of the company were sown way back in
1936 Dettol introduced in India (imported from Hull, UK). 1934, when the parent company’s products were first brought to India.
 RB brands in India include but are not limited to, Air Wick, Mortein, Vanish,
1942 Local manufacture of Dettol commenced Cherry Blossom, Dettol and Harpic, in air care, insecticides, laundry care,
polishes, surface care and toilet care respectively.
1951 Formation of Reckitt & Colman India Ltd  Reckitt Benckiser acquired Indian consumer health and personal care player
Paras Pharmaceuticals towards the end of 2010. This gives them access to a
1981 Dettol Soap was launched in India. number of well-known brands including Moov, D’Cold, Krack cream and Itch
Guard.
1984 Launch of Harpic nationally in India.  Reckitt Benckiser (India) owns six production plants in the country. These are
spread throughout the country, and cover the states of Himachal Pradesh,
1990 Launch of Mortein insecticide. Jammu and Kashmir, Karnataka, Tamil Nadu and Uttaranchal.

1996 Mortein Coils launched nationally.

1997 Lizol launched in India.

Reckitt Benckiser India contribution by category
Reckitt & Colman plc and Benckiser N.V. merge to become Reckitt
1999
Benckiser globally and in India.
Others
2003 Reckitt Benckiser India Ltd restructuring of sales and marketing team 0%
Laundry Soap
2004 Veet launched in India. 4% 33%

Personal Care
2005 Vanish is launched India 4%
Disinfectants
2008 Air Wick, Reckitt Benckiser’s largest global brand is launched in India. OTC 16%
6%
2009 Reckitt Benckiser revitalised its Brand (logo).
Formulation Household Insecticides
Mortein launched the new Mortein PowerGard range of Coils, Liquid 9% 15%
2010 products
Vaporizers and Aerosols. 13%
Reckitt Benckiser agreed to buy Paras Pharmaceuticals Limited (Paras).
Source: ROC & Spark Capital research

17
Fast Moving Consumer Goods Thematic Note
Reckitt Benckiser – Category Snapshot Sector Outlook Cautious

Reckitt Benckiser India category snapshot

Category Fabric
Soap Insecticides Dish wash Depilatories Air Care Toilet Care Surface Care
name Conditioner

Global
1.9% (8) 8% (2) 13% (2) 16% (2) 24.9% (1) 16.4% (2) 12.9% (2) 12.5%(1)
share

India share 8% (3) 24% (2) 1% (10) 23% (2) 10% (3) 8.4% (4) 70% (1) 60% (1)

Lizol, Dettol,
Brands in Dettol Mortein Dettol Veet Vanish Air Wick Harpic Easy-off,
India Colin

Hindustan GCPL, Hindustan Jyothy Labs, Dabur,

Key GCPL, Hindustan
Unilever, Jyothy Labs, Unilever, Hindustan Dabur, P&G Hindustan
competitors Wyeth Unilever
GCPL SC Johnson Jyothy Labs Unilever Unilever

~Category
size(Rs. Bn) 110 18 15 4 0.6 3 2 4

~Category
penetration 88% 40% 26% 5% 2% 10% 20% 10%

Source: Company, ROC & Spark Capital

18
Fast Moving Consumer Goods Thematic Note
Reckitt Benckiser Vs Hindustan Unilever (HUL) Sector Outlook Cautious

Impact on Hindustan Unilever (HUL) revenues Hindustan Unilever (HUL) Vs Reckitt Benckiser (RB)

Fabric
Dish Toilet Surface
Company Soap Condition
Currently
wash cleaner cleaner
er
overlapping
26%

No threat Hindustan
49% Unilever
(HUL)
Potential
overlapping
25% Reckitt
Benckiser
(RB) India

Source: Company & Spark Capital research Source: Company & Spark Capital research

Hindustan Unilever (HUL) Vs Reckitt Benckiser – Operating metrics Hindustan Unilever (HUL) Vs Reckitt Benckiser
Soaps: With positioning of Dettol impacting multiple brands of HUL, the
HUL Reckitt Benckiser company began to align lifebuoy offering and positioning similar to Dettol
to make the fight for hygienic offering between Lifebuoy and Dettol. We
Revenue (Rs.bn) 258 29 see any disruptive activity in terms of price cuts or extended promotions
to gain share could impact HUL volumes.
Gross Margin (%) 47.7% 38.8% Dish Detergent: Given RB’s global supremacy in dish wash, it’s a
surprise that they continue to remain dormant in India. The launch of
Dettol dishwash did ring the alarm bells for HUL, however until RB is all
A&P/Sales (%) 12.5% 10.4% set to invest heavily behind its dish wash brands the impact could be
minimal
Op Margin (%) 15.9% 19.6% Cleaners: Domex contributes negligible amount to HUL top-line, however
with the category gaining momentum in acceptance, the fight for the
cleaner segment to intensify.
Source: Company, ROC & Spark Capital research

19
Fast Moving Consumer Goods Thematic Note
Reckitt Benckiser Vs Godrej Consumer (GCPL) Sector Outlook Cautious

Impact on Godrej Consumer (GCPL) domestic revenues. Godrej Consumer (GCPL) Vs Reckitt Benckiser (RB)

Electric Insecticide
Company Soap Coils
Insecticides Spray
No threat
15%
Potential
overlapping Godrej
6%
Consumer
(GCPL)

Currently
overlapping
79% Reckitt
Benckiser
(RB) India

Source: Company, Spark Capital

Source: Company, Spark Capital

Godrej Consumer (GCPL) Vs Reckitt Benckiser (RB)– Operating Metrics Godrej Consumer (GCPL) Vs Reckitt Benckiser
Soaps: RB’s aggression is expected to have least impact on GCPL given
Reckitt Benckiser GCPL that the brands do not overlap each other in terms of offerings and
positioning. In terms of pricing, GCPL holds an edge with Godrej No.1.
Revenue (Rs.bn) 35 36
With the category fairly mature, niche positioning are the growth drivers in
soaps. We see that increased activity from RB in the soaps category
Gross Margin(%) 45.8% 52.6%
could have direct impact on HUL soaps volume while any disruptive
A&P (Rs.bn) 3.0 3.4 activity in terms of price cuts or extended promotions to gain share could
impact volumes.
A&P/Sales(%) 10.2% 9.4% Mortein Vs Good Knight: Good Knight continues to maintain leadership
on increased A&P and continuous innovation. With all the top three
Op profit (Rs.bn) 5.9 6.4 brands spending extensively on A&P and with very little differentiation
available in terms of offering, brands as Good Knight benefit out of
Op Margin(%) 17.0% 17.9% growing distribution and innovation (Hit magic paper)
Source: Company, ROC & Spark Capital research

20
Fast Moving Consumer Goods Thematic Note
Reckitt Benckiser Vs Jyothy Labs (JYL) Sector Outlook Cautious

Impact on Jyothy Labs (JYL) revenues. Jyothy Labs (JYL) Vs Reckitt Benckiser (RB)– Brand pricing
0%
-5% -7%
-15%
-10%
No threat -15%
30% Currently
-36%
overlapping -20%
-43%
43%
-25%
-30%
-35%
Potential -40%
overlapping -45%
27%
-50%

Source: Company & Spark Capital research Source: Company & Spark Capital research

Jyothy Labs (JYL) Vs Reckitt Benckiser (RB)– Reach Jyothy Labs (JYL) Vs Reckitt Benckiser

11.0% 2.9 Fabric Conditioner: In the whitener category, JYL dominates with its
2.8
Ujala brand despite RB’s Robin blue and HUL’s Rin Ala trying to wrest
Number of outlets reach(mn)
10.5% 2.8
away share. JYL, a pioneer in the whitener category has established
2.7 Ujala synonymous with whiteners. The widespread rural network of JYL
10.0%
A&P / Sales

2.6 also assists them in maintain category supremacy despite being priced at
9.5% a slight premium to competitors.
10.4% 2.5
9.0%
2.4 Dish wash: JYL faces the brunt as RB’s immediate target seems to be to
8.5% 2.4 9.0%
establish itself as the second strongest player in the market. RBs absence
2.3
in bar should assist JYL holding market share though.
8.0% 2.2
RB JYL Insecticides: With the pricing between the brands remaining similar, the
brand popularity of Mortein helps RB gain better traction in the market. No
A&P/Sales Number of outlets reach (mn) price undercutting possible as margins are dismal in coils.

Source: Company, ROC & Spark Capital research

21
Fast Moving Consumer Goods Thematic Note
Reckitt Benckiser Vs Dabur Sector Outlook Cautious

Dabur Vs Reckitt Benckiser (RB)– Brand portfolio Impact on Dabur’s domestic revenues

Reckitt Benckiser Dabur

Market Share Market Share Currently

Category Brand Brand overlapping
Share Position Share Position
16%

Potential
Soap 8.0% 3 1.0% 15 overlapping
15%
No threat
69%

Depilatories 23.5% 2 26.5% 1

Source: Company & Spark Capital research

Dabur Vs Reckitt Benckiser (RB)

Depilatories: Fem enjoys brand leadership mainly due to its first-mover
Air Care 8.4% 4 40.0% 1 advantage, and strong distribution network of Dabur , Reckitt Benckiser
Veet has been however catching up fast on heavy A&P spends. Usage of
Bollywood superstars gave the brand the mileage to take on Dabur’s Fem
despite being a late entrant. RB has a significant advantage in this
category and we could see that the company might look to over run
Toilet Care 70.0% 1 25.0% 2 Dabur’s Fem primarily on advertisements. We see no price undercutting
in this segment as it would hurt the premium image of the brand.
OTC: Post acquisition of Paras Pharma in December 2010, Reckitt’s OTC
portfolio in India competes with Dabur in Combination medicines of Dabur
primarily in the cold, cough, hay fever segment. With RB looking to further
Herbal/traditio
3.6% 7 15.4% 2 iinvest behind these brands, Dabur’s OTC portfolio could be under threat,
nal products
however Dabur’s niche herbal offerings are least under threat.

Source: Company, ROC & Spark Capital research

22
Fast Moving Consumer Goods Thematic Note
Reckitt Benckiser Impact summary Sector Outlook Cautious

Impact summary

Global Companies under coverage

India Mkt Global Mkt
Segment India Brands share Mkt
share share Company 1 Company 2 Mkt share
position share
Godrej
Soap 8% Dettol 2% 8 HUL(22%) 49% 12%
consumer(18%)

Godrej Jyothy
Insecticides 24% Mortein 8% 2 26% 9%
consumer(18%) Labs(15%)

Jyothy
Dish wash 1% Dettol 13% 2 HUL(3%) 60% 18%
Labs(28%)

Depilatories 23% Veet 16% 2 Dabur(1%) 26% - -

Fabric Jyothy
10% Vanish 25% 2 - HUL(1%) -
conditioners Labs(26%)

Godrej
Air care 8% Airwick 16% 2 Dabur(3%) 35% 2%
consumer(1%)

Surface care 65% Harpic/ Lysol 13% 2 Dabur(1%) 11% HUL(1%) 7%

Skin care Shampoo/

Dettol Brand Male grooming HUL - JYL -
lotions medicated

Source: Company, ROC & Spark Capital research

23 23
Fast Moving Consumer Goods Thematic Note
L’Oreal - Global summary Sector Outlook Cautious

L’Oreal 27 International brands

 L'Oréal Group is the world's largest cosmetics and beauty manufacturer Brand Division
headquartered in Paris. The company known for its cosmetics also has prominent L'oreal Professional Professional
global presence in hair colour, skin care, sun protection, make-up, perfumes and Redken Professional
hair care.
Kerastase Professional
 L’Oreal is a listed company, majority share holders include founder's daughter
Matrix Professional
Liliane Bettencourt and the Swiss food company Nestle with each controlling
around 30 percent of the shares L’Oréal Paris Consumer Products
 Company’s brands are primarily classified under Loreal Luxe, Consumer Garnier Consumer Products
Products, Professional Products, Active Cosmetics and the Body Shop. Maybelline New York Consumer Products
 With the objective to reach 1 bn consumers, expansion into emerging markets has Softsheen Carson Consumer Products
gained momentum over the past few years. The company has begun establishing Essie Consumer Products
exclusive regional hubs in emerging markets as Brazil, China and India to
Lancôme Loreal Luxe
understand consumption requirements and patterns
Giorgio Armani Loreal Luxe
Yves Saint Laurent Loreal Luxe
Biotherm Loreal Luxe
Emerging markets Contribution Kiehl’S Loreal Luxe
Ralph Lauren Loreal Luxe
Africa, Middle Shu Uemura Loreal Luxe
East Diesel Loreal Luxe
3%
Western Europe Cacharel Loreal Luxe
35%
Latin America Helena Rubinstein Loreal Luxe
9% Clarisonic Loreal Luxe
Viktor Rolf Loreal Luxe
Eastern Europe Vichy Active Cosmetics
7% North America
25% La Roche Posay Active Cosmetics
Skinceuticals Active Cosmetics
Asia, Pacific
21% Roger & Gallet Active Cosmetics
Inneov Active Cosmetics
Body Shop Active Cosmetics
Source: Company & Spark Capital research Source: Company & Spark Capital research

24
Fast Moving Consumer Goods Thematic Note
L’Oreal - Indian Operations Sector Outlook Cautious

L’Oreal India L’Oreal India contribution by division

 L’Oreal India has its roots in 1993, when it first entered the country in a joint-
venture with MJ Group. The company’s first product was the Ultra Doux hair
care range. Within a year, the company terminated the agreement, and set up its
own subsidiary in 1994, naming it Indelor India. In 2000 the company adopted its
current name, L’Oreal India Pvt Ltd. The subsidiary is 100% owned by the
parent, L’Oreal Group. Consumer
 The company’s only business in India is beauty and personal care. L’Oreal India Luxury Products,
Products, 77.7%
has a country-wide presence, although it has historically chosen to focus on the 1.3%
top 100 cities and towns only, given the nature of its brands.
Active
 L’Oreal intends to place India high on the L’Oreal global map by leveraging its Cosmetics, 0.9% Professional
products, 20.1%
global brands, customising its marketing strategy to India and ensuring high
visibility with a clear positioning for each of its brands. These are to be
supported by the expected expansion of modern retail channels, whereby the
company is set to promote both its mass and premium brands.

Source: Company, ROC & Spark Capital research

Category split-up Brands in India

Fragrances Brand Division Range
Hygiene 5%
8% L'oreal Professional Professional Salon Hair dressers offering
Kerastase Professional Premium, luxury hair care
Body Care
6% Hair Color Matrix Professional Popular hair colour, hair care, texture
14%
L’Oréal Paris Consumer Popular Skin care, Hair care, Hair coloring
Garnier Consumer VFM Skin care, Hair care
Maybelline Consumer Popular Cosmetics
Hair care
28% Lancôme Loreal Luxe Luxury cosmetics
Face care
32%
Giorgio Armani Loreal Luxe Beauty care
Kiehl’S Loreal Luxe Quality skin care and hair care products
Ralph Lauren Loreal Luxe Fragrance
Make Up
Diesel Loreal Luxe Fragrance
7%
Vichy Active Cosmetics Complete range of skin care products
Source: Company & Spark Capital research La Roche Posay Active Cosmetics Range of daily skin care

25
Fast Moving Consumer Goods Thematic Note
L’Oreal Category snapshot Sector Outlook Cautious

L’Oreal category snapshot

Category Color
Shampoo Deodorants Skin Care Face Wash Hair Color Fragrance
name Cosmetics

Global
16% (2 2.6% (3) 10.8% (1) 9% (1) 31.3% (1) 19.5% (1) 9% (1)
share

India share 13% (3) 5% (7) 6% (10) 16% (3) 25% (1) 16% (2) 1.9% (10)

L'Oreal Paris,
Maybelline,
L'oreal Paris, Garnier,
Brands in L'Oreal Paris, Lancome, Ralph Lauren,
Garnier,Keras Garnier Kiehl's, Vichy, Garnier
India Garnier Giorgio Diesel
tase, Matrix La Roche
Armani
Posay

Hindustan
Hindustan Hindustan Hindustan Hindustan
Key Unilever, Hindustan
Unilever, Unilever, Unilever, GCPL Unilever,
competitors Zydus Unilever
Dabur Marco Dabur, Marico Titan
Wellness

~Category
size(Rs. Bn) 40 15 85 12 18 10 -

~Category
penetration
60% 30% 23% 10% 4% 10% -

Source: Company, ROC & Spark Capital research

26
Fast Moving Consumer Goods Thematic Note
L’Oreal Vs Hindustan Unilever Sector Outlook Cautious

Impact on Hindustan Unilever (HUL) revenues L'Oreal Vs HUL share comparison

Global Share India Share

L'Oreal Unilever Diff (%) L'Oreal Unilever Diff(%)
Currently
overlapping Shampoo 16.6% 14.1% 2.5% 13.0% 42.0% -29.0%
22%
Deodorants 2.6% 35.1% -32.5% 5.0% 30.0% -25.0%
No threat Potential
66% overlapping Skin Care 10.8% 5.2% 5.6% 6.0% 50.0% -44.0%
12%
Face Wash 9.3% 4.7% 4.6% 16.0% 30.0% -14.0%

Cosmetics 19.5% 0.5% 19.0% 14.0% 29.0% -15.0%

Fragrance 9.0% 0.6% 8.4% 3.8% 1.8% 2.0%

Source: Company & Spark Capital research Source: Company & Spark Capital research
L’Oreal Vs Hindustan Unilever brand portfolio analysis HUL Vs L’Oreal

Shampoo Deodorants Skin Care Face Wash Cosmetics Shampoo & conditioners: L’Oreal dominates the conditioner category,
however the conditioner market size is less than 10% of shampoos. Given
the brand equity that L’Oreal enjoys, any price disruption could tilt HUL
and Dabur market share. Minimal price cut expected though given that
any price cuts could impact brand image and margins in the category as
HUL such remains low.
Skin Care: The key battle in the segment will evolve around increasing
volumes by building brands. HUL stands at a definitive advantage given
their multiple brands at multiple propositions however their strategy in
niche categories as Anti ageing remains weak. HUL set to rule the rooster
until skin whitening remains the key proposition in the skin care market.
L’Oreal Cosmetics: L’Oreal remains a key threat to Lakme, especially given their
superior proposition. No undercutting in question but better variants could
impact Lakme losing out to L’Oreal
Source: Company & Spark Capital research

27
Fast Moving Consumer Goods Thematic Note
L’Oreal Vs Godrej Consumer (GCPL) Sector Outlook Cautious

Impact on GCPL domestic revenues Proposition based offerings share in the market

No threat
56% Currently Others, 20%
overlapping
10%
Powder, 50%

Crème, 30%
Potential
overlapping
34%

Source: Company & Spark Capital research Source: Company & Spark Capital research

Godrej Consumer (GCPL) Vs L’Oreal

Three major mass market brands
Most of hair care brands primarily target those with higher disposable
GCPL Garnier L'Oreal Paris incomes, but the trickle-down effect is being felt among those from lower
income groups, especially the youth, as they are compelled to imitate.
~16 variants ~12 variants ~24 variants L’Oreal dominates the Crème based proposition as the buyers here are
aspirational with higher disposable income, GCPL however tried to
capture share in the segment by massive price undercutting in the crème
segment. With margins and growth of powder segment being limited, the
battlefield shifts to the crème based propositions which is said to grow by
~20-25% in the near future.
Despite GCPL’s wide penetrated distributor network, L’Oreal’s brand
equity stands at their advantage, price undercutting might work in crème
as new users tend to be pdrawn towards it, but sustaining them over a
longer run would remain the key.
Source: Company & Spark Capital research

28
Fast Moving Consumer Goods Thematic Note
L’Oreal Vs Zydus Wellness (ZYWL) Sector Outlook Cautious

Impact on Zydus Wellness revenues Unlisted players gaining prominence

Currently
Others, 19%
overlapping Hindustan
26% Unilever, 30%
Zydus Wellness,
7%

Johnson &
No threat Johnson, Himalaya, 18%
74% 11%

L'Oreal, 16%

Source: Company & Spark Capital research Source: Company & Spark Capital research

L’Oreal products priced at significant premium to Zydus Wellness Zydus Wellness (ZYWL) Vs L’Oreal
Face care dynamics changed in India post HUL entering the category in
Garnier 3-in-1 254%
2011-12. The company flooded the shelves with products at multiple price
Garnier pure 213% points affecting players like Zydus and Himalaya who dominated the
Garnier Light Scrub 181% category until then.
Garnier Faireness 181%
Multiple brands assisted HUL in gaining share. The category continues to
Garnier light 160%
be viewed as a premium extension of soaps. As in case with skin care,
Garnier scrub 160%
face washes too are dominated by skin whitening proposition. Brands as
Garnier Naturals 140% Garnier, Fair & Lovely and Ponds are increasingly promoting cleansers
Garnier Orange 56% and moisturizers as combined proposition.
Garnier Neem 56%
Though Zydus Wellness could hold on to share given their mass offerings
Garnier Soothing 56%
and attractive entry price points, entry into margin rich niche premium
Garnier gentle 52%
category to remain a challenge. The failure to mark a place in niche
0% 50% 100% 150% 200% 250% 300% categories to impact in times of downturn as mass market discretionary
spends tend to be the first to be impacted in case of economic slowdown.
Source: Company & Spark Capital research

29
 Fast Moving Consumer Goods Thematic Note
L’Oreal Impact summary Sector Outlook Cautious

Impact summary

India Mkt Global Mkt Potential global Global share Companies under coverage
Segment India Brands
share share brands position Company 1 Mkt share Company 2 Mkt share

L’Oreal Paris, Softsheen

Shampoo 13% 16% 2 HUL(7.5%) 42% Dabur(8%) 7%
Garnier carson/ Essie

Deodorants 5% Garnier 3% Softsheen 3 HUL(1%) 30% Marico(3%) 16%

L’Oreal Paris, Softsheen

Skin care 6% 11% 1 HUL(14%) 54% Dabur(1%) 4%
Garnier carson/ Essie

L’Oreal Paris, Softsheen Zydus

Face wash 16% 9% 1 10% HUL(1%) 30%
Garnier carson/ Essie Wellness(26%)

L’Oreal Paris, Softsheen Godrej

Hair color 25% 31% 1 22% - -
Garnier carson consumer(7%)

Inneov, R&G,
Cosmetics 16% Maybelline 20% 1 HUL(1%) 29% - -
Shu uemura

Ralph lauren,
Fragrance 2% 9% YSL, Biotherm 1 - - - -
Diesel

Personal care - L’Oreal - Softsheen 1 HUL(22%) 49% GCPL(17%) 12%

Source: Company & Spark Capital research

30
Fast Moving Consumer Goods Thematic Note
Beiersdorf - Global Overview Sector Outlook Cautious

Beiersdorf Emerging markets Contribution

 Beiersdorf AG is a German personal care company based in Hamburg,
Germany, manufacturing personal care products. Its brands include Elastoplast,
Eucerin and Nivea. Beiersdorf is controlled by Tchibo Holding AG which directly Western
North America Europe
owns 50.5% of shares. 7% 30%
 The company operates in two key segments - Consumer business segment and
Tesa business. Consumer business is the primary focus – the division
concentrates on the international skin care market. Strong brands and a Latin America
comprehensive consumer focus are the key strategic factors 13%
Africa,
 Tesa business segment forms a separate, independent unit within the Group. Australia, Asia
With around 3,700 employees and operations in more than 100 countries, tesa is 24%
the international no. 2 leading manufacturers of self-adhesive system and Eastern Europe
12%
product solutions for industrial customers and consumers.
Germany
 The 130 year old company is widely known for its innovation. The company has 14%
150 global affiliates spanning across continents.

Source: Company & Spark Capital research

Emerging market contribution increasing significantly Beiersdorf global revenue profile

2008 2009 2010 2011 2012

100%
17.6% 19.7% 21.3% 21.8% 24.0%
80% Sales (Euro Mn) 5,971 5,748 5,571 5,633 6,040
13.9% 14.8% 16.7% 17.6% 19.0%
60%
EBITDA(Euro Mn) 911 722 804 704 835
40%
68.5% 65.5% 61.9% 60.6% 57.0% EBITDA margin 15.3% 12.6% 14.4% 12.5% 13.8%
20%

0% PAT (Euro Mn) 567 380 326 259 451

2008 2009 2010 2011 2012

Europe Americas Africa/Asia/Australia PAT margin 9.5% 6.6% 5.9% 4.6% 7.5%

Source: Company & Spark Capital research Source: Company & Spark Capital research

31
Fast Moving Consumer Goods
Beiersdorf – Indian Operations
Beiersdorf India
 Beiersdorf’ entered India in 1964’s via a licensing agreement with JL Morrison
(JLM). The agreement was for marketing and sales of Nivea brand in India.
 Beiersdorf India observed very high growth rate in the first seven years since
1993. However the growth in the next 4-5 years became stagnant because of
increasing competition and JLM’s erroneous strategy.
 Resulting in Beiersdorf deciding in 2006 that they would take charge of
marketing & sales, brand promotion and product launches via a new
company called Nivea India.
 The JV affected Nivea’s image in India as strategies adopted by JLM in India
were not in line with global Beiersdorf strategy. Brand Nivea despite being the
global leader in skin care was not able to make a mark in the market as they
had by then lost vital first mover advantage to Pond’s, L’Oreal, Avon and
Olay.
Beiersdorf India
 Operates under the single Brand – Nivea. The blue tin brand is synonymous
with traditional, conventional and trust in India.
 Beiersdorf products are positioned as “mass-premium” and the company
goes beyond the popular ‘whitening’ tag in India. The company has outlined
that they would continue to cater to a premium niche set of consumers at the
premium end rather than being just an another average skin care brand.
 The current distribution pattern is heavily aligned towards modern trade and
chemist stores. The company’s focus to remain on metro and tier 1 cities as
they believe majority of their consumers dwell here.
 Though most of the launches have been from the international portfolio, the
company has made sure that the products were customised to match the
need gap in Indian skin care segment.
Thematic Note
Sector Outlook Cautious
Reasons for brand failure in India
 Being perceived as a winter cream, winter not as severe as western markets.
 JLM’s faulty extension strategies into soaps and talcum powder.
 Lack of brand investment from JLM in the initial years.
 Largely in selective distribution lines.
 Unclear strategy in skin care, focus was not towards emerging categories.
 Failure to tap on global brand recognition.
 Large counterfeits in the market.
 Huge inventory order log as most of the goods had to be imported.
 Unable to match local offering prices due to high import duty structures.
India Strategy
 The company initially took massive advertisement campaigns to shake off
the blue tin image and be seen as a contemporary player.
 The company has ~80 products in its portfolio at the moment in India
spanning men’s and women’s face care, men’s grooming including care,
cleansing and shaving, deodorants, lipcare, cold creams and body lotions.
 Of this, the company has already managed to push its brands into the top-
three league in categories such as deodorants, men’s face care, premium
fairness creams, cold and moisturising creams, lip care, toners
• The company’s continuous innovation as ‘whitening deodorant for women’
has widely assisted them in maintaining share
• The company does not have its own production facility in India, most of the
products are imported while a few are manufactured by third party players.
32 32
Fast Moving Consumer Goods Thematic Note
Beiersdorf – Category snapshot Sector Outlook Cautious

Beiersdorf category snapshot

Category Deodorants Body care Face Wash Bath care Sun care Men’s grooming
name

Global share 11% (2 11% (1) 6% (3) 3% (5) 1% 6% (4)

India share 3% (3) 9% (3) 7% (5) 0.1% 2% (1) 2% (9)

Brands in Nivea Nivea Nivea Nivea Nivea Nivea

India

Hindustan Hindustan Hindustan Hindustan

Hindustan Hindustan
Key competitors Unilever, Unilever, Zydus Unilever, Godrej Unilever, Zydus
Unilever, Dabur Unilever, Marico
Marico Wellness Consumer Wellness

~Category
size(Rs. Bn) 15 10 12 6 5 15

~Category
penetration 30% 5% 10% 5% 5% 30%

Source: Company & Spark Capital research

33
Fast Moving Consumer Goods Thematic Note
Beiersdorf Vs Hindustan Unilever (HUL) Sector Outlook Cautious

Impact on HUL revenues Hindustan Unilever (HUL) Vs Beiersdorf - Share analysis

Global Share India Share

Beiersdorf Unilever Difference Beiersdorf Unilever Difference

Currently
overlapping
36%
No threat
Deodorant 2.6% 35.1% -32.5% 13.0% 30.0% -17.0%
56%

Body care 10.8% 21.3% -10.5% 5.0% 50.0% -45.0%

Potential
overlapping Facewash 5.8% 4.7% 1.1% 6.0% 30.0% -24.0%
8%
Source: Company & Spark Capital research Source: Company, Bloomberg & Spark Capital research

HUL Vs Beiersdorf brand positioning Hindustan Unilever (HUL) Vs Beiersdorf (BDF)

Though HUL dominates in all the three categories, Nivea’s niche
Beiersdorf HUL positioning always does holds a significant threat.
As the case with Nivea, HUL has brands spread across the personal care
portfolio which assists in maintaining superior brand recall.
Deodorant
Given that all the three categories they clash are of premium nature, high
growth and niche, there has been little evidence to suggest that they
would employ disruptive strategies to grab share.
Body care Even in the global scenario, HUL dominates in the deodorant space and
body care offerings due to their different brands at different positioning.
In the high growth face wash category too, HUL’ s presence straddling
price points with different positioning enables them to hold a vital
Facewash
advantage.

Source: Company & Spark Capital research

34
Fast Moving Consumer Goods Thematic Note
Beiersdorf Vs Marico (MRCO) Sector Outlook Cautious

Impact on Marico revenues Deodorants brand share

Currently Set Wet Eva

overlapping 17% 9%
Potential
14% overlapping
8% Spinz
9%
Wild Stone
17% Nivea
7%

No threat
78% Axe
41%

Source: Company & Spark Capital research Source: Company & Spark Capital research

Pricing in comparison to Set Wet Marico Vs Beiersdorf (BDF)

Though Marico and Beiersdorf compete under different positional
Nivea Whitening 19.3% offerings, with deodorants still being widely perceived as unisex they do
Nivea Pearl & Beauty 19.3% take on each other in for the elusive second spot.
Nivea Energy Fresh 18.0% Set Wet primarily positioned as a men offering currently enjoys the
Nivea deodorant 12.7% second spot, given their niche positioning and heavy brand
Nivea whitening 12.7%
endorsements.
Nivea Fresh Active 9.3% Nivea on the other hand is primarily positioned as an offering for women,
Nivea Whitening 9.3% with variants promising differing benefits.
Nivea Silver Protect 9.3% Nivea in an attempt to make up for the lost ground also invests heavily
Nivea Fresh Natural 24h 8.0% behind the brand.
-4.0%
Nivea Fresh Active Though brand equity of Nivea outpaces Set Wet, Marico stands at a
-5.0% 0.0% 5.0% 10.0% 15.0% 20.0%
definitive advantage in terms of availability and reach.

Source: Company & Spark Capital research

35
Fast Moving Consumer Goods Thematic Note
Beiersdorf Vs Zydus Wellness (ZYWL) Sector Outlook Cautious

Impact on Zydus Wellness revenues India Market share in categories they compete
Beiersdorf Zydus Wellness
Face wash 7.0% 3.0%
Currently
overlapping Facial Masks (peel off, packs) 0.0% 24.8%
26%
Sun blocks 2.0% 9.5%

Lotion 8.9% 2.0%

No threat Toners 16.1% 10.0%
74%
Men skin care - (face washes, moisturizer) 3.6% 1.0%

Lip Care 22.0% 0.0%

Source: Company & Spark Capital research Source: Company & Spark Capital research

Pricing premium in comparison to Zydus Wellness offerings Zydus Wellness (ZYWL) Vs Beiersdorf (BDF)
Zydus wellness one of the early entrants into the face wash category
stumbled post the entry of bigger players into the market.
3.5 3.14
Everyuth brand of Zydus wellness plays on the mass brand offering with
3
variants across pricing segment.
2.5 2.25
Nivea meanwhile is positioned at the upper niche end of the market.
2 1.65 1.76
While Everyuth is desperately attempting to grab a place in the premium
1.5
1.07 segment too, the presence of big boys as HUL, Beiersdorf and L’Oreal
1 makes it all the more difficult given Everyuth’s weak brand image in the
premium segment versus a Nivea, Ponds or a Garnier.
0.5
The competition from Beiersdorf on Zydus is expected to be minimal as
0
Nivea Nivea Scrub Nivea Pure Nivea Visage Nivea Men
their offerings differ, Nivea however does act as an hindrance to Zydus’s
Cleansing Milk premium market entry.

Source: Company & Spark Capital research

36
 Fast Moving Consumer Goods Thematic Note
Beiersdorf impact card Sector Outlook Cautious

Impact summary

India Mkt Global Mkt Potential global Global share Companies under coverage
Segment India Brands
share share brands position Company 1 Mkt share Company 2 Mkt share

Eucerin, La
Deodorants 3% Nivea 11% 2 HUL(1%) 30% Marico(3%) 16%
Prairie

Eucerin, La
Body care 9% Nivea 11% 1 HUL(14%) 54% Dabur(1%) 4%
Prairie

Eucerin, La Zydus
Face wash 7% Nivea 6% 3 10% HUL(1%) 30%
Prairie Wellness(26%)

Eucerin, La Godrej
Bath care 0.1% Nivea 3% 5 HUL(22%) 49% 12%
Prairie consumer(18%)

Eucerin, La Zydus
Sun care 2% Nivea 1% - HUL(0.5%) 37% 10%
Prairie Wellness (5%)

Men’s Eucerin, La
2% Nivea 6% 4 HUL(1%) 17% - -
grooming Prairie

Cosmetics - - 0.4% Eucerin, - HUL (1%) 29% - -

Hair care - - 0.2% La Prairie - HUL(8%) 42% Dabur(8%) 7

Source: Company & Spark Capital research

37
Fast Moving Consumer Goods Thematic Note
Where do we see the threat emanating from? Sector Outlook Cautious

Consolidated summary

% of revenue under threat

Year of Key
Company Key brands
entry segments
Hindustan Jyothy Zydus
ITC Colgate Dabur* GCPL* Marico*
Unilever Labs wellness

Laundry, Ariel,
Shampoo, Tide,
Oral care, Vicks,
Procter &
Gamble
1985 Skin care,
Air care,
Oral B,
Gillette,
45% 1% 95% 24% 10% - 27% -
OTC, Olay,
Fempro Whisper

Soap, Mortein,
HI, Dettol,
Reckitt Depilatory, Vanish,
Benckiser
1910
Dish wash, Lizol,
26% 2% - 16% 79% - 43% -
Fabric con, Air Wick,
Air care Veet

Skin care,
L’Oreal,
Shampoo,
Garnier,
Deodorant,
L’Oreal 1992
Face wash,
Maybellin
e,
22% - - 5% 10% 3% - 26%
Hair color,
Lancome
Cosmetics

Skin care,
Deodorant,
Beiersdorf 2005
Body care,
Nivea 36% - - 5% - 14% - 26%
Face wash

Source: Company, ROC & Spark Capital research

* Domestic only

38
Fast Moving Consumer Goods Thematic Note
Sector Outlook Cautious

Absolute Rating Interpretation

Buy Stock expected to provide positive returns of >15% over a 1-year horizon

Add Stock expected to provide positive returns of >5% – <15% over a 1-year horizon

Reduce Stock expected to provide returns of <5% – -10% over a 1-year horizon

Sell Stock expected to fall >10% over a 1-year horizon

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Fast Moving Consumer Goods Thematic Note
Sector Outlook Cautious

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Analyst ownership of the stock No
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