COVID and Inflation; the Two Demons to Be Slayed!

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FMCG COVID and Inflation; the two demons to be slayed!

Investment rationale

In this report we have attempted to analyze; raw material cost trend, price hikes,  DABUR’s international market exposure is more immune to COVID and impact of COVID uncertainty on Indian FMCG companies. Our primary In international market, out of 23 countries where Indian FMCG companies have observations and conclusions are as follows; (i) raw material cost for edible oil, maximum exposure; 88% countries have already witnessed either 3rd or 4th wave. packaging material and paint-related-products (TIO2, VAM etc) rose significantly Also, around 61% countries are witnessing meaning full decline in number of during 1QFY22; category leaders (MRCO in Edible Oil, HUL in soaps) have taken daily COVID cases. Dabur’s exposure to international market is relatively more nd rd larger price hikes compared to 2 /3 brand to protect margins (ii) in international immune compared to other FMCG companies in India (exhibit 15). market; 88% of the regions, where Indian FMCG company has significant business  India to unmask by Dec’21; expect discretionary segment to recover faster presence, have already witnessed 3rd/4rth wave and is now more stable; we Based on current vaccination rate (at 28 lakh doses per day) and government of observe that subsidiaries of DBUR are relatively more immune to COVID India target of vaccinating adult population by Dec 21, the discretionary disruptions as most of the countries where the company has presence are consumption, led by increase in the mobility of people at malls and other public witnessing significant decline in number of daily COVID cases. (iii) We expect places will improve significantly. And thus the recovery in companies having normalization of mobility and lockdown by end of Dec’21; this would help business exposure to discretionary segments (apparel, juices, cola drinks paints etc.) to be recovery of TRENT, TCNS, DMART, JUBI to accelerate. In our coverage universe; faster in 2HFY22. We also concur with the view that there will be significant DMART, BRIT and GCPL are our preferred pick. normalization of mobility and lockdown by Dec’21 as India is most likely to  Top executors to drive outperformance achieve 80% vaccination rate; this would help business recovery for TRENT, nd During 2 COVID wave the strategy of micro-containment used by India has TCNS, DMART, JUBI FOOD to faster than expected. helped FMCG companies to report better business recovery compared to the  Top picks; DMART, BRIT, GCPL strategy of blanket-lockdown during the 1st wave. We observe that; post COVID We like DMART, BRIT, and GCPL amongst our coverage universe. We believe crisis companies which are top executors (HUL, BRIT, DABUR, GCPL, MRCO, DMART is a classic case of a platform company; as it is creating an expensive- APNT, DMART, JUBI, TRENT) outperformed competition (exhibit 18). We expect platform (DMART owns the land parcel and does its own construction) where these companies to continue outperformance as India moves to gradual manufacturers can keep their products while customers can buy it. We believe, unlocking. DMART can compound revenue/EPS growth at 25-30% over next 25 years. In  Inflationary pressure continues; price hikes taken in 1QFY22 to support margin case of BRIT; we are bullish on the company’s approach to drive premiumization On raw material, cost of packaging material and edible oil witnessed major in the value segment through milk-bikis portfolio. Poor people love to indulge in inflation (+40-62% YoY) during 1QFY22. FMCG companies have taken price hikes cheap luxury; we expect BRIT to drive success in premiumization through top- to offset any impact on margin. We note that; category leaders (MRCO, HUL) class execution. On GCPL; we are bullish on turnaround of South Africa business have taken larger price hikes compared to 2nd/3rd brand (exhibit 2 to 10). We while HI business in India likely to continue growth momentum. understand this symbolizes the power of brand.

 Varun Singh | [email protected] | +91-22-2217 1727 Kuber Chauhan | [email protected] | +91-22-2217 1860 July 2, 2020

FMCG | Sector Update

Exhibit 1: Valuation Table CMP TP Mkt Cap Revenue (Rs mn) EPS (Rs) PER (x) EV/EBITDA (x) RoE(%) RoCE(%) Companies (Rs) (Rs) Reco (Rs mn) FY22E FY23E FY22E FY23E FY22E FY23E FY22E FY23E FY23E FY23E Hindustan Unilever Ltd 2,477 2,607 ACCUMULATE 58,19,345 5,19,301 5,72,603 42.9 47.4 57.5 52.1 39.8 35.9 21.4 23.5 Asian Paints Ltd 3,023 2,444 HOLD 28,99,943 2,49,371 2,83,788 38.5 44.4 77.6 67.3 50.4 43.7 24.6 29.1 ITC Ltd 203 274 BUY 24,98,695 5,27,584 5,80,426 12.8 14.0 15.9 14.4 12.5 11.2 27.3 30.0 Avenue Supermarts Ltd 3,315 3,502 BUY 21,47,049 3,07,874 4,30,447 26.1 38.1 128.2 87.7 84.6 57.2 16.2 20.9 Nestle India Ltd 17,642 16,195 HOLD 17,00,928 1,52,949 1,70,974 260.6 294.4 65.6 58.0 43.2 38.2 97.2 74.9 Dabur India Ltd 590 526 HOLD 10,43,033 1,09,551 1,18,948 10.3 11.7 55.4 48.7 43.2 37.1 22.7 23.9 Godrej consumer products ltd 888 961 ACCUMULATE 9,08,325 1,22,061 1,31,621 19.9 21.3 43.8 40.7 30.3 28.1 20.2 24.5 Britannia Industries Ltd 3,594 4,395 BUY 8,65,572 1,44,055 1,58,637 79.0 87.9 46.2 41.5 34.5 30.6 37.8 34.2 Berger Paints Ltd 809 628 SELL 7,85,389 79,891 93,370 9.3 11.4 87.0 70.5 52.7 43.4 25.9 29.6 Marico Ltd 535 450 ACCUMULATE 6,90,375 88,343 97,886 9.7 11.2 54.5 47.2 39.4 33.9 37.7 40.9 Jubilant Foodworks Ltd 3,113 2,774 HOLD 4,10,780 47,126 54,530 38.8 50.5 79.4 61.0 33.4 27.1 31.1 26.8 Kansai Nerolac Ltd 572 599 ACCUMULATE 3,08,208 55,155 64,022 12.1 15.0 46.7 37.6 30.3 24.4 16.4 20.5 Trent Ltd 858 559 SELL 3,04,955 37,234 44,348 6.0 7.5 142.1 114.0 42.0 32.5 11.1 8.3 TCNS Clothing Co Ltd. 576 476 SELL 35,458 10,819 13,615 13.5 15.9 42.7 36.2 15.2 10.2 16.4 11.1

Source: Company, IDBI Capital Research

FMCG | Sector Update

Inflationary pressure continues; but price hike is also following up

 On raw material; we observe that cost of packaging material and the edible oil basket continues to witness significant amount of inflation during 1QFY22. Price of LDPE and Polypropylene rose by 62%YoY in 1QFY22. In edible oil basket; price of copra and palm oil increased by 37% and 46% YoY respectively.  Raw material cost inflation in paint sector also continues to rise as the price of TIO2, VAM and Acetic Acid rises by 13%, 22% and 164% YoY in Q1FY22.  We note that companies have already taken price hikes in 4QFY21 and is likely to take more hike in 1QFY22 to offset inflationary pressure;

 MRCO has already taken 30% price hike in 2HFY21 and 15-20% hike in 1QFY22 for Saffola brand. In parachute brand; MRCO has taken 9% price hike in 2HFY21.  BRIT expects to take 3% price hike to offset inflation in material cost primarily coming from edible oil, packaging material and rise in diesel cost.

 DABUR has taken 3% price hike in 4QFY21 and expects to take 2nd round of hike in 1QFY22.  APNT has taken 2.8% price hike in 1QFY22

 BRGR has taken 2.2-2.5% price hike in the month of May’21. The company expects more price hike in coming months.

 KNPL has taken 3-8% price hike in industrial coating products; 8% hike in Powder Coating, 5% hike in refinish and 3% hike in general industrial coatings.  Based on our survey of SKUs that we conduct on monthly basis, we observe following;

 MRCO has taken price hike c. 300bp higher than competition in edible oil basket (Saffola vs Fortune) during Jan- Jun’21. This reflects brand power of Saffola as a brand. Saffoly enjoys c. 81% volume market share in premium edible oil category.

 In Soap’s portfolio we note that HUL has taken price hike of c. 17% which is c. 900bp higher compared to competition (GCPL, Reckitt B., Patanjali, Private Labels)

 In Shampoo segment; HUL has taken 8-10% price hike over Jan-June’21

FMCG | Sector Update

 In tea; we observe that HUL has been laggard in taking price hike compared to Tata Consumer. Over last six months; HUL has taken c. 5% price hike while Tata Consumer has taken price hike in 1-2 SKUs only.

Exhibit 2: Cost of packaging material trend (%YoY)

Financial year FM LDPE ($/ton) Polypropylene ($/ton) 2020 Q1 -14.71% -11.21%

Q2 -18.69% -16.21% Price of LDPE and Polypropylene has Q3 -21.55% -16.02%

Q4 -18.37% -14.08% risen significantly over last 3 quarters 2020 Total -18.27% -14.38%

2021 Q1 -25.68% -26.64% Q2 -4.66% -11.51%

Q3 15.69% 7.95%

Q4 35.19% 38.74%

2021 Total 3.45% 0.52%

2022 Q1 62.84% 61.55%

Source: Bloomberg, IDBI Capital Research

FMCG | Sector Update

Exhibit 3: Food related raw material cost basket (%YoY) trend Exhibit 4: Edible oil raw material cost basket (%YoY) trend Tea Coffee Milk Powder Mentha Paraffin Palm Malaysian FY FM Barley Wheat Sugar FY FM Copra Groundnut PFAD Index Index - Delhi oil Wax oil Palm oil 2020 Q1 24% 12% 11% 13% NA 33% 2020 Q1 11% 22% -20% 6% 3% -10% -17% Q2 14% 9% 2% 11% NA 64% Q2 -7% 17% -17% -24% -6% -13% -7%

Q3 11% 10% 5% 12% NA 69% Q3 -14% 7% 36% -24% -20% -3% 30%

Q4 8% 7% 2% -8% NA 58% Q4 -26% 20% 46% -23% -21% 20% 34%

2020 Total 14% 9% 5% 7% NA 56% 2020 Total -9% 16% 8% -17% -11% -2% 8%

2021 Q1 -14% 1% -1% -13% NA 9% 2021 Q1 -27% 36% 24% -18% -16% 18% 15% Q2 -25% -13% -1% 26% NA -11% Q2 -15% 24% 50% -22% -14% 25% 37%

Q3 -32% -19% -3% 32% -11% -17% Q3 -2% 32% 42% -21% -6% 28% 35%

Q4 -26% -14% -2% 26% -3% -12% Q4 31% 28% 41% -17% -4% 25% 46%

2021 Total -25% -12% -2% 17% -7% -9% 2021 Total -5% 30% 39% -20% -10% 24% 34%

2022 Q1 21% -4% 3% 17% 13% -5% 2022 Q1 37% 14% 90% -14% -2% 46% 92%

Source: Bloomberg; IDBI Capital Research Source: Bloomberg; IDBI Capital Research

Exhibit 5: Raw material cost for paint industry is up by 20% over last 3-4 quarters Exhibit 6: Break up of raw material cost basket for paint industry

125 122 TIO2 (Rs Turpentine Oil Acetic Acid Glacial VAM (INR / FY FM 120 Paint Industry Raw Material Cost Index /kg) Rs/ltr or KG price Rs/KG ($/MT) USD) 115 2020 Q1 6% 28% -27% -11% 4% 110 Q2 1% 17% -43% -11% 0% 105 102 99 Q3 -6% 16% -32% -5% -1%

100 Q4 -9% 2% -12% 1% 3%

95 2020 Total -2% 15% -30% -7% 1%

90 2021 Q1 -8% -4% 6% -2% 9% 85 Q2 -4% 2% 4% -4% 6%

80 Q3 2% 10% 18% -3% 4%

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q Q4 10% -18% 68% 2% 1%

2021 Total 0% -3% 24% -2% 5% FY20 FY21 FY22 2022 Q1 13% -2% 164% 22% -3%

Source: Bloomberg; IDBI Capital Research Source: Bloomberg; IDBI Capital Research

FMCG | Sector Update

Exhibit 7: Brand wise edible oil price increase over last 6 months (June 2021 vs Jan 2021) % price hike Company Brand Product Quantity Jan-Jun’21 Adani Wilmar Fortune Fortune Filtered Groundnut Oil 1 L 20% 5 L 14%

Fortune Plus Soya Health Oil 1 L 19%

Fortune Rice Bran Health Oil 1 L 26%

5 L 38% In edible oil; we note that MRCO has Fortune Sunlite Refined Sunflower Oil 1 L 32% taken price hike which is more than 5 L 32% competition. We believe, this is positive for MRCO as it symbolizes power of Marico Parachute Parachute Coconut Oil 1 L 5% Saffola Saffola Active Oil 1 L 21% brand. MRCO commands >80% market 5 L 27% share in premium edible oil. Saffola Gold Oil 1 L 33%

5 L 32%

Saffola Tasty Oil 1 L 45%

Saffola Total Oil 5 L 13%

Source: IDBI Capital Research

Exhibit 8 : In Shampoo’s price increase by the players over last 6 months (June 2021 vs Jan 2021) HUL Brands Quantity Jan'21 June'21 % increase (over the period) Product Clinic Plus Strong & Long Health Shampoo 340 ml 175 189 8% Clinic plus Sunsilk Lusciously Thick & Long Shampoo 340 ml 198 215 9% Sunsilk

In shampoo; there is an price increase of Sunsilk Stunning Black Shine Shampoo 340 ml 198 215 9% Sunsilk 8-10% over last six month Dove Daily Shine Shampoo 340 ml 240 255 6% Dove Dove Hair Fall Rescue Shampoo 340 ml 240 255 6% Dove Sunsilk Stunning Black Shine Shampoo 650 ml 450 500 11% Sunsilk Sunsilk Lusciously Thick & Long Shampoo 650 ml 450 500 11% Sunsilk Dove Hair Fall Rescue Shampoo 650 ml 550 590 7% Dove Dove Daily Shine Shampoo 650 ml 580 590 2% Dove

Source: IDBI Capital Research

FMCG | Sector Update

Exhibit 9: Price increase over last 6 months in Soap category (June 2021 vs Jan 2021) Company Brand Product Quantity % inflation Godrej Consumer Cinthol Cinthol Cool Soap 3x125 gm 5% Cinthol Original Deodorant & Complexion Soap 4x100 gm 9% Godrej Godrej No. 1 Lime & Aloe Vera Soap 3x150 gm 7% Godrej No. 1 Sandal & Turmeric Soap 3x150 gm 7% Hindustan Unilever Hamam Hamam Neem Tulsi and Aloe Vera Soap Bar 150 gm 10% Lifebuoy Lifebuoy Total 10 Soap 5x125 gm 9% 3x100 gm 8% In soap; we observe than HUL has taken 3x125 gm 16% price hikes higher than competition Liril Liril Lemon & Tea Tree Oil Soap 3x125 gm 27% Lux Lux Soft Glow Rose & Vitamin E Beauty Soap 3x150 gm 18% Lux Velvet Glow Jasmine & Vitamin E Beauty Soap 3x150 gm 18% Lux Fresh Splash Water Lily & Cooling Mint Soap 3x150 gm 25% Reckitt B. Dettol Dettol Intense Cool 2X Menthol Soap 4x125 gm 10% J&J Johnson's Johnson's Baby Soap 3x100 gm 5% Patanjali Patanjali Patanjali Neem Kanti Soap 75 gm 20% Other Brands BB Dhanthak's BB Detergent Soap 600 gm 8% Chandrika Chandrika Ayurvedic Soap 3x125 gm 4% Jo Jo Lime Soap 4x150 gm 6% Medimix Medimix Ayurvedic Classic 18 Herbs Soap 3x125 gm 23% 4x125 gm 8% Mild & Clear Soap with Glycerin 5x100 gm 5% Mysore Mysore Luxury Bath Soap 3x150 gm 5% Mysore Sandal Soap 3x150 gm 5% Average 11%

Source: IDBI Capital Research

FMCG | Sector Update

Exhibit 10: Tea segment price increase over the last 6 months (June 2021 vs Jan 2021) Company Brand Product Quantity % hike Jun'21 Hindustan Unilever Brooke Bond Brooke Bond Red Label Natural Care Tea 1 kg 7% Hindustan Unilever Brooke Bond Brooke Bond Red Label Natural Care Tea 500 gm 3% Hindustan Unilever Brooke Bond Brooke Bond Red Label Natural Care Tea 250 gm 7% Hindustan Unilever Brooke Bond Brooke Bond Red Label Tea 1 kg 4% Hindustan Unilever Brooke Bond Brooke Bond Red Label Tea 500 gm 4% Hindustan Unilever Brooke Bond Brooke Bond Red Label Tea 250 gm 8% Hindustan Unilever Brooke Bond Brooke Bond Taj Mahal Tea 500 gm 6% Hindustan Unilever Lipton Lipton Green Tea Powder 250 gm 6% TGBL Tata Tata Tea Teaveda 250 gm 0% TGBL Tata Tea Tata Tea Agni 1 kg 0% TGBL Tata Tea Tata Tea Agni 500 gm 0% TGBL Tata Tea Tata Tea Agni 250 gm 0% TGBL Tata Tea Tata Tea Gold 1 kg 0% TGBL Tata Tea Tata Tea Gold 500 gm 5% TGBL Tata Tea Tata Tea Gold 250 gm 0% TGBL Tata Tea Tata Tea Premium 1 kg 0% TGBL Tata Tea Tata Tea Premium 500 gm -7% TGBL Tata Tea Tata Tea Premium 250 gm -4% TGBL Tetley Tetley Long Leaf Green Tea Powder 250 gm 20%

Source: IDBI Capital Research

Inflation outlook; management expects cost inflation to subside in 2HFY22. Management commentary on inflation outlook are as follows;

 MRCO expects inflation in edible oil to start subsiding from Jul’21 onwards as there is no major increase in the demand of the raw material; increase in current price is due to supply constraints and speculation in international market. MRCO expects copra price to decline driven by improvement in seasonal supplies.

 DABUR expects commodity prices to taper off in 2HFY22 hence expects margin loss in 1st and 2nd quarter of FY22 to be offset in 2HFY22.  KNPL hints at supply tightness as chief reason for raw material cost to reach at peak. The company expects cost to normalize with improvement in supply.

FMCG | Sector Update

DABUR to outperform in international market

 We note that in the international market (c.23 countries) where Indian FMCG companies have maximum exposure; 61% countries are already witnessing meaningful decline in number of daily COVID cases. Positively, 88% countries have already experienced either 3rd or 4rth COVID wave. We observe that; ever since the start of vaccination drive, there has been significant control over the rise in number of new COVID cases.  We expect; DABUR to outperform in international geography as the top 5 country (where DABUR has 86% of total international market revenue ) is experiencing either flat or declining number of new COVID cases. In case of GCPL; Indonesia and South Africa is struggling with 3rd wave and rising number of daily new COVID cases. Similarly, Bangladesh and Vietnam which are major geographies for MRCO also facing 4rth/3rd wave and rising number of daily new COVID cases.

Exhibit 11: FMCG Industry in India; country-wise revenue break-up (FY15-20) Exhibit 12: COVID Trend in top 7 countries where FMCG companies have highest exposure

South Africa, 4% Top 7 countries COVID Cases Deaths Recovered Covid wave Daily new casesRecovery rate Mortality rate Bangladesh, 4% Indonesia 21,78,272 58,491 18,80,413 3rd Wave Rising 86% 3% Indonesia, 20% Nepal 6,38,805 9,112 5,96,132 3rd Wave Declining 93% 1% UK, 5% UAE 6,32,907 1,811 6,11,442 4rth Wave Flat 97% 0% USA 3,45,40,845 6,20,249 2,90,26,688 4rth Wave Declining 84% 2% UK 48,00,907 1,28,140 43,24,876 4rth Wave Rising 90% 3% USA, 9% Bangladesh 9,13,258 14,503 8,16,250 4rth Wave Rising 89% 2% Nepal, 16% South Africa 19,73,972 60,647 17,48,042 3rd Wave Rising 89% 3% India 3,04,11,634 3,99,475 2,94,88,918 2nd Wave Declining 97% 1% UAE, 14%

Source: Company; IDBI Capital Research Source: Company, IDBI Capital Research, worldometers.info

FMCG | Sector Update

Out of 23 countries where FMCG Exhibit 13: 23 countries; stages of COVID daily cases Exhibit 14: 23 countries; no. of wave companies from India are engaged in Flat, 9% 1st Wave, 3% 2nd Wave, business activity, we note that; 9% Rising, 30% - 61% countries are witnessing meaningful decline in no. of daily covid cases - 88% countries already witnessed 3rd 4rth Wave, 39% or 4rth COVID Wave 3rd Wave, Declining, 48% - Post the start of vaccination drive, 61% most of the countries have experienced decline/stabilization of no. of new COVID cases Source: wordometers.info, IDBI Capital Research Source: wordometers.info, IDBI Capital Research channel check

Exhibit 15: DABUR; country wise revenue and PAT margin (FY15-20) and COVID trend Exhibit 16: MRCO; country wise revenue and PAT margin (FY15-20) and COVID trend DABUR % Total Revenue PAT margin % Wave No. Daily Covid Cases Marico % Total Revenue PAT margin % Wave No. Daily Covid Cases UAE 38% 13% 4rth Wave Flat Bangladesh 43% 21% 4rth Wave Rising Nepal 17% 7% 3rd Wave Declining USA 13% 1% 4rth Wave Declining Vietnam 26% 9% 3rd WAve Rising Turkey 10% 3% 3rd Wave Declining Egypt 8% 16% 3rd Wave Declining UAE 19% -3% 4rth Wave Flat UK 5% 22% 4rth Wave Rising Bangladesh 2% 9% 4rth Wave Rising South Africa 8% 1% 3rd Wave Rising Sri Lanka 2% -3% 3rd Wave Declining Nigeria 2% -2% 2nd wave Declining Egypt 5% -26% 3rd Wave Declining Pakistan 2% 5% 3rd Wave Declining

Source: Company, IDBI Capital Research, worldometers.info Source: Company, IDBI Capital Research, worldometers.info

FMCG | Sector Update

Exhibit 17: GCPL; country wise revenue and PAT margin (FY15-20) and COVID trend Godrej Consumer % Total Revenue PAT margin % Wave No. Daily Covid Cases Indonesia 39% 7% 3rd Wave Rising South Africa 7% -1% 3rd Wave Rising Mauritius 6% 57% 3rd Wave Declining Nigeria 5% 0% 2nd wave Declining Kenya 5% -5% 3rd Wave Declining USA 5% 6% 4rth Wave Declining UAE 5% 19% 4rth Wave Flat UK 4% 18% 4rth Wave Rising Argentina 4% 5% 4rth Wave Declining Mozambique 4% 14% 3rd Wave Rising Lebanon 3% 26% 3rd Wave Declining Malaysia 3% 100% 2nd Wave Declining Chile 3% 11% 4rth Wave Declining Netherland 1% 91% 4rth Wave Declining Ghana 1% -2% 3rd Wave Declining Bangladesh 1% -21% 4rth Wave Rising Tanzania 1% -10% 1st Wave Declining Sri Lanka 1% -9% 3rd Wave Declining

Source: Company, IDBI Capital Research

FMCG | Sector Update

Impact of 2nd wave has been limited on FMCG; expect non-essentials to pick-up by Dec’21

 The strategy of micro-containment during 2nd COVID wave (vs blanket-lockdown during 1st wave) has significantly reduced overall impact on demand and distribution of FMCG products in FY22. Even though localized restrictions created last mile supply chain disruptions, factories were allowed to operate on a normal basis.  Based on management discussion; we understand that this time; FMCG companies don’t expect impact on overall consumption demand to be as severe as the 1st wave. As per DABUR; demand momentum in the month of Mar’21 continued in Apr’21 and the company expects any loss in business during May-Jun’21 to be quickly recovered in the following months. Contrast this with the 1st lock down (Mar25-31 2020) wherein revenue of top FMCG companies declined by 8-12% YoY in 4QFY20.  Companies which has developed strength in e-commerce channel like JUBI got less impacted during the 2nd wave; DOMINOS business recovery stood at 94% in Apr’21 and 88% in May’21.  Ever since COVID hit us; since last 5 quarters, we observe that companies which are top executors have outperformed the peers. Few glaring examples are; JUBI outperformed Westlife, DMART outperformed in retail sector, Trent and VMART outperformed ABFRL. Similarly; HUL, BRIT and GCPL outperformed other companies in FMCG universe. In paint sector; APNT outperformed BRGR and KNPL.

FMCG | Sector Update

Exhibit 18: Revenue growth trend post COVID: BRIT is leading amongst FMCG pack, APNT in Paint, DMART in retail and JUBI in QSR st Post the 1 covid wave; recovery in Revenue (%YoY) 2020 2020 2021 2021 FMCG sector has been fastest followed 1Q 2Q 3Q 4Q Total 1Q 2Q 3Q 4Q Total by the paint sector. In retail sector other FMCG 5% 5% 4% -8% 1% -5% 7% 10% 24% 9% than DMART, rest of the companies HUL 7% 7% 3% -9.39% 1% -7% 3% 7% 21% 6% continues to be impacted by localized Britannia 6% 6% 5% 2.45% 5% 27% 12% 6% 9% 13% store-lockdowns as they fall under non- GCPL -5% -1% 2% -12.18% -4% -1% 11% 10% 27% 11% essential category. QSRs exited FY21 Dabur 9% 4% 7% -12.35% 2% -13% 14% 16% 25% 10% with positive revenue growth; driven by Marico 7% 0% -2% -7.02% 0% -11% 9% 16% 34% 10% increase in revenue share from delivery and takeaways. ITC 4% 3% 3% -11.17% 0% -21% -4% 0% 23% -1% Nestle 11% 9% 9% 10.73% 10% 2% 10% 9% 9% 7% Paints 14% 6% 1% -8.38% 3% -46% 6% 24% 43% 5% APNT 16% 9% 2% -7.13% 5% -43% 6% 25% 43% 7.4% Berger 16% 7% 5% -7.96% 5% -46% 9% 25% 50% 7.1% KNPL 6% -4% -8% -14.32% -4% -59% 4% 18% 35% -5.1% Retail 22% 20% 21% 12.52% 19% -53% -28% -1.4% 12% -17.0% JUBI vs MC’D; during COVID era; DMART 27% 22% 24% 23.05% 24% -34% -12% 10% 18% -3.6% revenue growth of JUBI outperformed Trent 30% 33% 32% 8.09% 26% -87% -45% -17% 7% -35.6% Westlife in every quarter. These are TCNS 18% 0% 10% -24.58% 0% -88% -55% -28% -2% -45.2% signs of top-class execution. JUBI is our ABFRL 8% 14% 12% -5.11% 8% -85% -56% -20% -2% -41% top pick in QSR sector. VMART 25% 20% 21% -3.45% 16% -83% -44% -16% 6% -35% QSR 10% 12% 15% 2.47% 10% -64% -27% -7.4% 17% -20.5% JUBI 10% 12% 14% 3.77% 10% -60% -18% -0.22% 21% -14.2% Westlife 12% 13% 17% -0.86% 10% -75% -47% -24.92% 6.29% -36%

Source: Company, IDBI Capital Research

FMCG | Sector Update

Exhibit 19: Dominos sales recovery in the month of Apr-May’21

Dominos sales recovery during 2nd Covid wave is significantly better (at 87-90%) compared to 1st wave at 40-50%

Source: Company, IDBI Capital Research

FMCG | Sector Update

India to unmask in next 5-6 months by Nov-Dec’21; expect discretionary business to recover faster  As per research, once 70-80% population gets vaccinated, countries are more likely to return back to “life as we know it (without; sanitizers, masks and social distancing)”. Government of India has, , set the target of completing adult vaccination by Dec’21.

 In India; 86 crore population is above 18 years. Assuming 80% people needs to be vaccinated to achieve herd immunity, the target population to be vaccinated is c. 77 crore. As on today’ 33.6 crore people (43% of target population) received at least one dose. Hence, the remaining 44 crore population at the rate of 28 lakh doses per day is likely to take 5-6 more months (July-Dec’21) to reach at 80% vaccination level.  We understand that, similar to other countries globally, few states/cities in India are likely to reach the magic 70% vaccination rate earlier than other states driven by better execution of vaccination drive. The case study of New York sets a look-alike example;  On June’15th, after 15 months of pandemic induced lockdowns, New York is back to "Life as we know it" as 70% of the adult population got at-least 1 dose of vaccine. Except for 30% population who are non-vaccinated, everyone else is allowed to unmask.  However, recently, China has raised the threshold for herd-immunity from 70% to 85% driven by lower efficacy of its vaccines. Hence, the possibility of negative surprise w.r.t deadlines for reaching 100% normalcy in India cannot be ruled out. However, given that India is following the strictest of the lockdown globally, we are hopeful that chances of negative surprise (on meeting deadlines for normalcy) should be minimal.  Restoration of normalcy and improvement in mobility of people will help discretionary companies; which has higher exposure to revenue from Malls (apparel retailers, fast food chains), on the go consumption (beverages; cola drinks, juices etc); to recovery faster during 2HFY22.

FMCG | Sector Update

Exhibit 20: On stringency index; India ranks highest at 82 points

On stringency index India ranks top amongst all other countries globally….in other words, India chooses “JAAN” over “JAHAAN”

Source: Ourworldindata; IDBI Capital Research

FMCG | Sector Update

Exhibit 21: Daily new COVID cases in India

Daily COVID cases is now under strict control

Source: worldometer; IDBI Capital Research

FMCG | Sector Update

Notes

Dealing (91-22) 6836 1111 [email protected]

Key to Ratings Stocks: BUY: Absolute return of 15% and above; ACCUMULATE: 5% to 15%; HOLD: Upto ±5%; REDUCE: -5% to -15%; SELL: -15% and below.

IDBI Capital Markets & Securities Ltd. Equity Research Desk 6th Floor, IDBI Tower, WTC Complex, Cuffe Parade, Colaba, Mumbai – 400 005. Phones: (91-22) 2217 1700; Fax: (91-22) 2215 1787; Email: [email protected] SEBI Registration: BSE & NSE (Cash & FO) – INZ000007237, NSDL – IN-DP-NSDL-12-96, Research – INH000002459, CIN – U65990MH1993GOI075578 Compliance Officer: Christina D’souza; Email: [email protected]; Telephone: (91-22) 2217 1907

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FMCG | Sector Update

Analyst Disclosures

We, Varun Singh, Kuber Chauhan, hereby certify that the views expressed in this report accurately reflect our personal views about the subject companies and / or securities. We also certify that no part of our compensation were, are or would be directly or indirectly related to the specific recommendations or views expressed in this report. Principally, We will be responsible for the preparation of this research report and have taken reasonable care to achieve and maintain independence and objectivity in making any recommendations herein.

Other Disclosure

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