INSTITUTIONAL EQUITY RESEARCH Consumer & Retail...

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA-member broker-dealer.

Consumer & Retail sector Healthy operating performance on favourable base, strong festive

season and pent-up demand

INDIA | CONSUMER & RETAIL| 3QFY21 Results Preview

8 January 2021

We expect most consumer companies to report healthy revenue growth (11% yoy for our coverage universe) based on: (1) customers giving higher preference to essentials / necessities (utmost importance to the health / hygiene segment) and increased in-home consumption of packaged foods, even though this trend has moderated from 1HFY21; (2) timely onset of winter season – boosting the skin care/healthcare range; (3) faster-than-expected recovery in high-ticket discretionary items (jewellery/paints) due to the extended festive season and deferment of wedding season in 2HFY21 from 1HFY21; (4) stabilization of the distribution network (specifically modern trade outlets, which were located in high-traffic zones), and (5) gradual unlocking of the economy, helping reduce commutation problems in terms of distribution. Recovery in high-ticket discretionary spending has been faster-than-expected based on increased consumer spending from tier-2/tier-3 cities; but signs of down trading are clearly visible. Metro/tier 1 cities remain under pressure due to localized lockdown and muted consumer sentiment because of job losses and salary cuts, although these have seen massive recovery from 1HFY21. Jewellery demand has seen healthy traction due to increasing preference for gold as an asset class (gold prices are up 31% yoy), higher allocation towards jewellery out of pre-fixed wedding budget (as expenditure towards other functions were sub-scale), store expansions, and better crop output in rural areas. Paint demand has maintained momentum, aided by economy / mid-end products, as customers prefer to spend on home-improvement within the discretionary basket because they are likely to spend an entire year at home; assurance of best-in-class sanitation practices by paint companies has also given a fillip. We even expect the next two quarters to be bumper ones for most companies on a favourable base. Consumer companies under our coverage are likely to see sales/ EBITDA growth of 11%/9% yoy at an aggregate level. But PAT is likely to see 6% growth as ITC (the largest contributor to the overall pool) is likely to decline 15% due to higher taxation vs. the base quarter.

How companies will perform in 3QFY21 in our coverage universe:

Positive

Health and hygiene momentum to sustain for the third consecutive quarter - HUL (soaps), GCPL (soaps, HI), Dabur (ethicals, OTC).

Winter-based portfolio to get a boost – HUL and Emami (skin care), immunity boosting (Chaywanprash - Dabur and Emami).

Out-of-home / discretionary products to see meaningful revival from 1HFY21 as the economy unlocks; healthy festive and wedding season – personal care cosmetic range (HUL), hair colours (GCPL), premium hair oiling (Emami, HUL) and chocolates (Nestle).

Negative

Laundry segment (detergents) has not picked up momentum due to higher salience of modern trade, which is facing challenges. Customers in MT generally purchase large packets and premium products, which is creating a second-level impact.

Packaged foods (more specifically biscuits) momentum will moderate as covid-19 fear recedes and customers start venturing out more, localized / regional players come back to normalcy, and restaurants open up. Negative for Britannia.

Our top picks / avoids recommendations based on 3QFY21 results ONLY: Top picks: Asian Paints, Emami, Dabur, HUL and Thangamayil Jewellery Avoids ITC Vishal Gutka, Research Analyst (+ 9122 6246 4118) [email protected] Preeyam Tolia, Research Associate (+ 9122 6246 4129) [email protected]

mailto:[email protected]:[email protected]

Page | 2 | PHILLIPCAPITAL INDIA RESEARCH

FMCG Q3FY21 RESULTS PREVIEW

Key themes

Essentials to take preference: Indian households continue to prefer essential products over discretionary, while purchase of non-essential HPC products is seeing faster-than-expected revival. Moreover, trade and customers have responded well to discretionary and high-margin winter care portfolio based on the following reasons: (1) timely arrival of season; (2) ongoing winter is relatively harsher than the base season; and (3) faster-than-expected unlocking of the economy boosting consumer sentiment.

International business is doing relatively well: Marico / GCPL is likely to see high single-digit constant currency revenue growth.

Raw-material index – mixed trends: We believe some pressure on gross profits is due to increased down-trading, inflationary pressure in the vegetable oil basket (palm oil, sunflower oil and rice bran oil), cash crops (tea) and crude derivatives (HDPE and LLP). However, the agri-commodities basket (mentha, wheat, sugar and milk) continues to remain very much benign. HUL and GCPL are likely to see GM headwinds (160/60 bps respectively) due to higher PFAD (up 45% yoy) and tea (up 60% yoy – this is more applicable to HUL). Although both companies have initiated pricing action during 9MFY21 (3-4% price hikes in soaps, 15-20% price hike in tea portfolio), but it is not adequately sufficient to cover up sharp spike seen in RM costs. Marico, Bajaj Consumer, and Agro-Tech foods are also to see considerable pressure due to higher vegetable oil basket and LLP (more applicable to hair oil companies). We expect consumer companies to start resorting to balanced and gradual price hikes, as the economy comes back to normalcy in coming quarters, which will help to mitigate inflationary pressures.

Adoption of the online platform: Consumers are now more inclined towards digital and e-commerce – as one of the safest modes of transactions. We saw companies putting more emphasis on online sales, which could see meaningful contribution over other categories in the near term.

Margins rising: Despite ad spends coming back to normal and a spike in RM costs for most companies, most are in a position to show EBITDA margin expansion yoy, due to stringent controls on operating overheads.



Quarterly snapshot

Volume 3QFY21E 3QFY20 yoy change (%)

(Rs mn) est. (%) Revenue EBITDA PAT Revenue EBITDA PAT Revenue EBITDA PAT

Large caps

ITC (8.0) 1,22,595 43,109 36,207 1,19,122 46,127 41,419 2.9% -6.5% -12.6%

HUL 3.0 1,15,392 28,885 20,504 96,960 24,450 16,910 19.0% 18.1% 21.3%

Asian Paints 12.0 60,707 14,714 9,800 54,203 11,894 7,644 12.0% 23.7% 28.2%

Total 2,98,694 86,708 66,512 2,70,284 82,471 65,974 10.5% 5.1% 0.8%

Mid caps

Colgate 5.0 12,286 3,674 2,405 11,360 3,161 2,094 8.2% 16.2% 14.9%

Marico 12.0 20,429 4,335 3,150 18,240 3,730 2,720 12.0% 16.2% 15.8%

Emami 10.0 9,163 3,199 1,715 8,126 2,640 1,444 12.8% 21.2% 18.7%

Dabur 10.0 25,883 5,675 4,835 23,530 4,929 4,177 10.0% 15.1% 15.8%

GCPL 7.5 30,443 7,267 5,208 27,551 6,313 4,230 10.5% 15.1% 23.1%

Total 98,203 24,150 17,313 88,807 20,773 14,665 10.6% 16.3% 18.1%

Foods

Nestle -NA 35,137 8,203 5,491 31,307 6,941 4,726 12.2% 18.2% 16.2%

Britannia 8.0 32,343 5,969 4,137 29,360 5,020 3,726 10.2% 18.9% 11.0%

Total 67,480 14,172 9,628 60,667 11,961 8,453 11.2% 18.5% 13.9%

Retail

Titan 72,864 8,870 5,873 62,062 7,606 4,884 17.4% 16.6% 20.3%

Jubilant Foods (5.0) 10,076 2,655 1,151 10,596 2,536 1,463 -4.9% 4.7% -21.3%

Thangamayil 5,862 692 450 4,408 264 124 33.0% 162.2% 262.3%

Total 88,802 12,217 7,474 77,066 10,406 6,471 15.2% 17.4% 15.5%

Small caps

Bajaj Corp 8.0 2,311 621 566 2,055 616 574 12.5% 0.8% -1.4%

Agro Tech Foods 2,528 153 80 2,283 145 75 10.7% 5.6% 6.4%

Total 4,839 774 645 4,338 760 649 11.5% 1.7% -0.5%

Total Consumer & Retail 5,58,018 1,38,020 1,01,572 5,01,163 1,26,371 96,211 11.3% 9.2% 5.6%

Source: PhillipCapital India Research ; ITC – Cigarette volume growth ; Marico – overall volume growth

(including international) ;GCPL – Domestic volume growth ; Jubilant Foodworks – SSS growth



Commodity snapshot

Commodities Base Unit INR Unit Q3FY21 Q3FY20 yoy (%) Q2FY21 qoq (%)

HPC

Soda Ash INR/50kg INR/50kg 1,240 1,230 0.9% 1,223 1.4%

PFAD USD/mt INR/mt 53,702 36,827 45.8% 44,867 19.7%

Copra INR/qt INR/qt 17,375 14,653 18.6% 15,337 13.3%

Mentha oil INR/kg INR/kg 1,125 1,429 -21.3% 1,130 -0.4%

Corn (Sorbitol) USD/bu INR/bu 30,654 27,085 13.2% 25,307 21.1%

Palm oil (India) INR INR 870 643 35.2% 746 16.7%

Food & Beverages

Barley INR/qt INR/qt 1,402 2,100 -33.2% 1,374 2.0%

Maize USD/bu INR/bu 30,654 27,085 13.2% 25,307 21.1%

Coffee Robusta USD/mt INR/mt 98,013 94,262 4.0% 1,02,524 -4.4%

Coffee Arabica USD/lb INR/lb 8,363 7,986 4.7% 8,511 -1.7%

Skimmed Milk Powder EUR/mt INR/mt 1,93,085 1,96,961 -2.0% 1,84,547 4.6%

Wheat INR/qt INR/qt 1,827 2,250 -18.8% 1,875 -2.5%

Milk Powder INR/ltr INR/ltr 39 46 -14.8% 39 0.3%

Gur & Sugar INR/qt INR/qt 3,533 3,664 -3.6% 3,557 -0.7%

Sunflower INR/10kg INR/10kg 1,208 838 44.2% 1,022 18.2%

Safflower INR/10kg INR/10kg 1,664 1,973 -15.7% 1,667 -0.2%

Rice Bran INR/10kg INR/10kg 837 644 30.1% 768 9.0%

Packing materials

HDPE INR INR 99 85 15.9% 92 6.8%

LLP INR INR 49 45 9.5% 42 17.1%

Other data

TiO2 INR/kg INR/kg 262 257 1.7% 254 3.0%

Vinyl Acetate Monomor USD/mt INR/mt 77,501 64,424 20.3% 59,317 30.7%

Brent Crude USD/bbl INR/bbl 3,339 4,457 -25.1% 3,221 3.7%

Gold spot (MCX) INR/10g INR/10g 50,206 38,162 31.6% 51,198 -1.9%

Diamond USD/carat INR/carat 8,205 8,212 -0.1% 8,184 0.2%

Currency

USD INR INR – US Dollar

73.81 71.23 3.6% 74.37 -0.8%

EUR INR INR – Euro

87.96 78.91 11.5% 86.90 1.2%

CNY INR INR - China Yuan

11.14 10.11 10.2% 10.75 3.6%

INR BDT INR-Bangladesh

1.15 1.19 -3.6% 1.14 0.7%

INR BRL INR-Brazilian

0.07 0.06 26.6% 0.07 1.2%

INR EGP INR-Egyptian Pound

0.21 0.23 -6.3% 0.21 -0.6%

INR IDR INR-Indonesia

194.35 197.41 -1.6% 197.25 -1.5%

INR KES INR-Kenya shilling

1.48 1.44 3.2% 1.45 2.2%

INR NGN INR-Nigerian Naira

5.22 5.09 2.6% 5.19 0.7%

INR SAR INR-Saudi Riyal

0.21 0.21 2.6% 0.23 -6.9%

INR AED INR-UAE Dirham

0.05 0.05 -3.5% 0.05 0.7%

INR MYR INR-Malaysia Ringgit

17.97 17.11 5.0% 17.70 1.5%

INR VND INR-Vietnam Dong

313.76 325.70 -3.7% 311.77 0.6%

Source: PhillipCapital India Research



Raw material composition – company wise

Company Raw material % of total RM Company Raw material % of total RM

HUL Palm Oil/PFAD 25 Nestle Milk 25

LAB 10

SMP 7

Tea/coffee 10

Palm oil 10

Packaging/HDPE 10

Sugar 5

Caustic Soda 5

Wheat 9

Soda Ash 5

Coffee 9

LLP 5

Cocoa 5

Other crude derivatives 5

Packaging/HDPE 10

Asian Paints Tio2 20 Marico Copra 35

Solvents 20

Coconut oil 5

PAN/PENTA/Resins 10

Rice Bran Oil 15

Packaging/HDPE 10

Safflower oil 5

Monomers 8

LLP 10

Vegetable oils 5

Packaging/HDPE 15

Dabur Sugar 5 GCPL Caustic Soda 5

Coconut oil 5

Palm Oil/PFAD 20

Groundnut oil 5

Other crude derivatives 10

LLP 5

Packaging/HDPE 15

Juice concentrate 5

Packaging/HDPE 20

Colgate Sorbitol 10 Britannia Wheat 25

Mentha oil 10

Palm oil 15

Packaging/HDPE 20

Sugar 20

Milk 10

Packaging/HDPE 15

Source: PhillipCapital India Research



Valuation snapshot

Mcap

Target ______P/E (x)_____ _____EV/Ebitda______ __% Cagr ( FY20-FY23)__ ROE

Large Caps (Rs bn) Rating P/E (x) FY20 FY21 FY22 FY23 FY20 FY21 FY22 FY23 Rev Ebitda PAT FY23

Large Caps

ITC 2,631 BUY 15 17 19 16 14 14 15 12 11 8 8 7 26

HUL 5,610 BUY 55 77 69 59 51 58 49 42 36 14 17 18 22

Asian Paints 2,662 NEU 55 98 96 86 72 64 62 56 48 9 10 11 25

Food companies Nestle 1,779 BUY 60 89 82 70 60 61 54 47 40 11 15 14 65

Britannia 859 BUY 50 61 47 48 40 48 35 35 29 11 18 15 46

Indian companies Colgate ** 429 SELL 30 52 46 43 40 35 30 28 26 8 10 9 48

Marico 524 NEU 35 50 45 41 37 35 32 30 27 8 10 10 34

Emami 188 BUY 30 37 30 28 25 27 23 22 19 7 11 13 33

Dabur 944 BUY 50 61 56 50 45 52 46 42 37 9 11 11 22

GCPL 756 BUY 40 53 45 39 35 35 31 27 25 9 13 16 22

Retail & Discretionary Titan 1,384 NEU 50 92 138 75 61 58 84 50 41 10 12 15 22

Jubilant Foods 369 BUY 55 115 463 81 55 43 63 34 26 12 18 28 37

Thangamayil 8 BUY 8 17 8 10 8 10 6 7 6 13 21 31 22

Small - Caps Bajaj Corp 32 SELL 9 17 14 13 12 13 11 10 9 6 12 12 20

Agro Tech Foods 21 BUY 35 65 61 47 34 37 31 26 20 10 23 24 12

Source: Company, PhillipCapital India Research * We value Jubilant Foodworks on EV / EBITDA basis ** Colgate is a MNC



Earnings Estimates

(Rs mn) Q3FY21 Q2FY21 QoQ (%) Q3FY20 yoy (%) Key expectations

ITC

Volume growth (est.) (8.0) (15.0) 2.5 Cigarette volume to remain under pressure, FMCG momentum to

slow down sequentially

Inferior mix and higher input cost led to gross margin pressure

Negative operating leverage on account of subdued business across

verticals led to margin pressure

Revenues 1,22,595 1,18,919 3.1% 1,19,122 2.9%

Gross Profit 73,864 71,550 3.2% 73,657 0.3%

Gross margin (%) 60.3 60.2 8bps 61.8 -158bps

EBITDA 43,109 40,606 6.2% 46,127 -6.5%

EBITDA margin (%) 35.2 34.1 102bps 38.7 -356bps

PBT 48,929 42,743 14.5% 51,676 -5.3%

PAT 36,207 32,324 12.0% 41,419 -12.6%

EPS (Rs) 3.0 2.6 12.0% 3.50 -15.2%

Hindustan Unilever

Volume growth (est.) 3.0 1.0 5.0 Essentials (c.80% of portfolio) remains strong and Horlicks to drive

topline growth; discretionary and out of home consumption portfolio

to recover sequentially

Down trading, RM inflation will weigh on gross margins

EBITDA margin to remain flat despite gross margin pressure on

account of operating cost efficiency

Revenues 1,15,392 1,12,760 2.3% 96,960 19.0%

Gross Profit 60,390 59,010 2.3% 52,060 16.0%


EBITDA 28,885 28,690 0.7% 24,450 18.1%

EBITDA margin (%) 25.0 25.4 -41bps 25.2 -18bps

PBT 27,709 26,610 4.1% 23,280 19.0%

PAT 20,504 20,350 0.8% 16,910 21.3%

EPS (Rs) 9.5 9.4 0.8% 7.8 21.3%

Asian Paints

Volume growth (est.) 12.0 12.0 11.0 Reduced fear towards covid-19, extended Diwali season and market

share gain will lead to double digit volume growth

Lower crude and other input cost will lead to gross margin expansion

Operating leverage to drive EBITDA margin expansion

Revenues 60,707 53,502 13.5% 54,203 12.0%

Gross Profit 27,075 23,758 14.0% 23,313 16.1%

Gross margin (%) 44.6 44.4 19bps 43.0 159bps

EBITDA 14,714 12,652 16.3% 11,894 23.7%

EBITDA margin (%) 24.2 23.6 59bps 21.9 229bps

PBT 13,375 11,337 18.0% 10,381 28.8%

PAT 9,800 8,304 18.0% 7,644 28.2%

EPS (Rs) 10.2 8.7 18.0% 8.0 28.2%

Colgate

Volume growth 5.0 3.0 2.3 Volume growth improvement sequentially on favourable base and

increased traction towards company's natural products

Soft packaging costs and maize price to drive gross margin expansion

EBITDA margin to expand on benign input cost and cost efficiency

programs

Revenues 12286 12777 -4% 11360 8%

Gross Profit 8293 8680 -4% 7429 12%

Gross margin (%) 67.5 67.9 -44bps 65.4 211bps

EBITDA 3674 4093 -10% 3161 16%

EBITDA margin (%) 29.9 32.0 -213bps 27.8 208bps

PBT 3250 3689 -12% 2674 22%

PAT 2405 2409 0% 2094 15%

EPS (Rs) 8.8 10.1 -12% 7.7 15%

Marico Industries

Volume growth (est.) 12 11 (1) Continued momentum in Saffola, gradual recovery in coconut hair oil

/ VAHO to drive sales growth

Higher input costs to put pressure on gross margin expansion

Revenues 20,429 19,890 2.7% 18,240 12.0%

Gross Profit 9,757 9,550 2.2% 8,960 8.9%

Gross margin (%) 47.8 48.0 -25bps 49.1 -136bps

EBITDA 4,335 3,890 11.4% 3,730 16.2%


PBT 4,256 3,750 13.5% 3,580 18.9%

PAT 3,150 2,970 6.0% 2,720 15.8%

EPS (Rs) 2 2 6.0% 2 15.8%

Emami

Volume growth (est.) 10.0 10.0 (2.0) Volume growth improvement sequentially is on back of favourable

base and increased traction towards company's natural products

Soft packaging costs and maize price to drive gross margin expansion

EBITDA margin to expand on benign input cost and cost efficiency

programs

Revenues 9,163 7,348 24.7% 8,126 12.8%

Gross Profit 6,387 5,163 23.7% 5,545 15.2%


EBITDA 3,199 2,571 24.4% 2,640 21.2%


PBT 2,066 1,477 39.9% 1,891 9.2%

PAT 1,715 1,193 43.8% 1,444 18.7%

EPS (Rs) 3.8 2.6 43.8% 3.2 17.9%




Dabur India Ltd

Volume growth 10.0 16.8 5.6 Health supplement, oral care to see strong growth, juices to remain

under pressure

Despite raw material inflation gross margin to improve owing to

better mix

EBITDA margins expected to see modest expansion of c.100bps only

due to higher A&P spends

Revenues 25,883 25,160 2.9% 23,530 10.0%

Gross Profit 13,081 12,802 2.2% 11,785 11.0%


EBITDA 5,675 5,694 -0.3% 4,929 15.1%


PBT 5,894 5,899 -0.1% 5,025 17.3%

PAT 4,835 4,817 0.4% 4,177 15.8%

EPS (Rs) 2.7 2.7 0.4% 2.3 21.6%

Godrej Cons. Products

Revenues 30,443 28,939 5.2% 27,551 10.5% Domestic soaps to see healthy traction; V-shaped recovery in hair

colours

Africa business to see high-single-digit CC growth, while Indonesia

continues to bear the brunt of a weak macro-economic environment

Gross margin to see a c.60bops decline owing to higher PFAD prices

Gross Profit 16,977 16,106 5.4% 15,528 9.3%


EBITDA 7,267 6,844 6.2% 6,313 15.1%


PBT 6,677 6,045 10.5% 5,574 19.8%

PAT 5,208 4,580 13.7% 4,230 23.1%

EPS (Rs) 7.6 6.7 13.7% 6.2 23.1%

Nestle

Volume growth Domestic volume growth to accelerate, as chocolate consumption

comes back and challenges relating to manufacturing ease off

Benign milk price to drive gross-margin expansion

Healthy operating leverage, cost-efficiency programme to drive

EBITDA margin expansion

Revenues 35,137 35,254 0% 31307 12.2%

Gross Profit 20,028 20,412 -1.9% 17693 13.2%


EBITDA 8203 8836 -7.2% 6941 18.2%


PBT 7341 7865 -7% 6141 19.5%

PAT 5491 5871 -6% 4726 16.2%

EPS (Rs) 56.9 60.9 -6.5% 49.0 16.2%

Jubilant Foodworks

SSSG -5.0 -20.0 5.9 Store closures will have major impact on SSSG, but introduction of

delivery charges will offset the impact to some extant

Lower RM cost (milk prices are trending lower) led to gross margin

expansion

Negative operating leverage will impact profitability

Revenues 10,076 8,055 25.1% 10,596 -4.9%

Gross Profit 7,890 6,346 24.3% 7,937 -0.6%


EBITDA 2,655 2,147 23.7% 2,536 4.7%


PBT 1,538 1,016 51.4% 1,815 -15.3%

PAT 1,151 769 49.6% 1,463 -21.3%

EPS (Rs) 8.8 5.9 49.6% 7.9 11.0%

Thangamayil

Revenues 5,862 3,417 71.6% 4,408 33.0% Faster-than-expected recovery in discretionary consumption, better

festive and wedding season, higher gold price will lead to healthy top

line growth

Un-hedged gold will led to higher strong margin expansion

Gross Profit 959 914 5.0% 485 97.6%


EBITDA 692 778 -11.1% 264 162.2%


PBT 608 701 -13.3% 186 227.0%

PAT 450 523 -14.1% 124 262.3%

EPS (Rs) 32.8 38.2 -14.1% 9.1 262.3%

Bajaj Corp

Volume growth 8.0 2.0 -8.6 Expecting volume to recover sequentially on favourable base

Gross margins to remain flat yoy

Ebitda margin to see c.310 bps yoy owing to higher A&P and gross

margin pressure

Revenues 2,311 2,218 4.2% 2,055 12.5%

Gross Profit 1,519 1,460 4.1% 1,371 10.8%


EBITDA 621 627 -0.9% 616 0.8%


PBT 690 694 -0.6% 680 1.5%

PAT 566 573 -1.2% 574 -1.4%

EPS (Rs) 3.4 3.9 -12.6% 4.1 -16.6%




Britannia

Volume growth (est.) 8.0 9.0 2.0 Volume momentum to sustain despite consumption of packaged

foods slowing down on favourable base

Benign input costs to drive gross margin expansion

Ebitda margin will expand due to on-going cost-efficiencies program

Net income growth to be lower than Ebitda growth owing to payment

of a special dividend

Revenues 32,343 33,544 -3.6% 29,360 10.2%

Gross Profit 13,290 13,892 -4.3% 11,718 13.4%


EBITDA 5969 6754 -11.6% 5020 18.9%


PBT 5550 6706 -17.2% 4969 11.7%

PAT 4137 4986 -17.0% 3726 11.0%

EPS (Rs) 17.2 20.8 -16.9% 15.5 11.0%

Agro Tech Foods

Revenues 2,528 2,282 10.8% 2,283 10.7% Lower-end edible oil continues to remain under pressure. Foods

business growth momentum continues, we expect foods business to

grow c35% yoy owing to commencement of new plants

Gross margins to see pressure on higher vegetable oil prices, but

higher salience of the food business to mitigate the impact

Operating margin to see c.100bps decline due to gross margin

headwinds

Gross Profit 731 738 -1.0% 685 6.6%


EBITDA 153 163 -6.1% 145 5.6%


PBT 107 118 -9.2% 100 6.6%

PAT 80 88 -9.5% 75 6.4%

EPS (Rs) 3.3 3.6 -9.5% 3.1 6.4%

Titan

Revenues 43,969 18,620 136.1% 44,350 -0.9% Faster-than-expected recovery in discretionary consumption, better

festive and wedding season, and higher gold price will lead to healthy

top-line growth

Gross margin to remain under pressure due to higher salience of low-

margin gold coin / bars and reduction in purchase of studded

jewellery

EBITDA margin to remain flat despite inferior GM mix on healthy

operating leverage

Gross Profit 15,435 12,972 19.0% 14,246 8.3%


EBITDA 4,507 (2,460) -283.2% 5,132 -12.2%

EBITDA margin (%) 10.3 (13.2) 2346bps 11.6 -132bps

PBT 3,559 (3,350) -206.2% 4,294 -17.1%

PAT 2,634 (2,700) -197.5% 3,202 -17.7%

EPS (Rs) 3.0 (3.0) -197.5% 3.6 -17.7%

Source: Company, PhillipCapital India Research



Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. We have different threshold for large market capitalisation stock and Mid/small market capitalisation stock. The categorisation of stock based on market capitalisation is as per the SEBI requirement.

Large cap stocks Rating Criteria Definition

BUY >= +10% Target price is equal to or more than 10% of current market price

NEUTRAL -10% > to < +10% Target price is less than +10% but more than -10%

SELL = +15% Target price is equal to or more than 15% of current market price

NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%

SELL



1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No

4 PCIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the company(ies) covered in the Research report

No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.

Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.

Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.

Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety.

Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. Investment in securities market are subject to market risks, you are requested to read all the related documents carefully before investing. You should carefully consider whether trading/investment is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. PhillipCapital and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by you. You are further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek independent third party trading/investment advice outside PhillipCapital/group/associates/affiliates/directors/employees before and during your trading/investment. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PhillipCapital and any of its employees, directors, associates, and/or employees, directors, associates of PhillipCapital’s group entities or affiliates is not inducing you for trading/investing in the financial market(s). Trading/Investment decision is your sole responsibility. You must also read the Risk Disclosure Document and Do’s and Don’ts before investing.

Kindly note that past performance is not necessarily a guide to future performance.

For Detailed Disclaimer: Please visit our website www.phillipcapital.in IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report is a product of PhillipCapital (India) Pvt. Ltd. which is the employer of the research analyst(s) who has prepared the research report. PhillipCapital (India) Pvt Ltd. is authorized to engage in securities activities in India. PHILLIPCAP is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor.

Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc, 40 Wall Street 59th Floor, New York NY 10005, a registered broker dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through PHILLIPCAP. Rosenblatt Securities Inc. accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor.

The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of Rosenblatt Securities Inc. and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account. Ownership and Material Conflicts of Interest Rosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as determined in accordance with Section 13(d) of the Exchange Act, 1% or more of any of the equity securities mentioned in the report. Rosenblatt Securities Inc, its affiliates and/or their respective officers, directors or employees may have interests, or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein. Rosenblatt Securities Inc. is not aware of any material conflict of interest as of the date of this publication Compensation and Investment Banking Activities

http://www.phillipcapital.in/



Rosenblatt Securities Inc. or any affiliate has not managed or co-managed a public offering of securities for the subject company in the past 12 months, nor received compensation for investment banking services from the subject company in the past 12 months, neither does it or any affiliate expect to receive, or intends to seek compensation for investment banking services from the subject company in the next 3 months. Additional Disclosures This research report is for distribution only under such circumstances as may be permitted by applicable law. This research report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient, even if sent only to a single recipient. This research report is not guaranteed to be a complete statement or summary of any securities, markets, reports or developments referred to in this research report. Neither PHILLIPCAP nor any of its directors, officers, employees or agents shall have any liability, however arising, for any error, inaccuracy or incompleteness of fact or opinion in this research report or lack of care in this research report’s preparation or publication, or any losses or damages which may arise from the use of this research report.

PHILLIPCAP may rely on information barriers, such as “Chinese Walls” to control the flow of information within the areas, units, divisions, groups, or affiliates of PHILLIPCAP.

Investing in any non-U.S. securities or related financial instruments (including ADRs) discussed in this research report may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the U.S. Securities and Exchange Commission. Information on such non-U.S. securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect within the United States.

The value of any investment or income from any securities or related financial instruments discussed in this research report denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related financial instruments.

Past performance is not necessarily a guide to future performance and no representation or warranty, express or implied, is made by PHILLIPCAP with respect to future performance. Income from investments may fluctuate. The price or value of the investments to which this research report relates, either directly or indirectly, may fall or rise against the interest of investors. Any recommendation or opinion contained in this research report may become outdated as a consequence of changes in the environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts, assumptions and valuation methodology used herein.

No part of the content of this research report may be copied, forwarded or duplicated in any form or by any means without the prior written consent of PHILLIPCAP and PHILLIPCAP accepts no liability whatsoever for the actions of third parties in this respect.

PhillipCapital (India) Pvt. Ltd. Registered office: 18th floor, Urmi Estate, Ganpatrao Kadam Marg, Lower Parel (West), Mumbai – 400013, India.

2021-01-08T15:24:12+0530VISHAL MAGANLAL GUTKA

Date post:	14-Feb-2021
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