Vol 6. Issue 3. 1 - 31 MAY 2019 | For Private Circulation Only pg 4. India Detergents: Goldilocking Premiumisation

pg 33. Interview – Mr. Rajnikant Sabnavis

pg 35. Indian Economy – Trend Indicators

pg 37. Valuation Summary Ground View - Previous Issues Letter from the MD CONTENTS

There is less than a fortnight left for the 17th Lok Sabha elections results, which will decide the destiny GROUND VIEW Vol 6. Issue 3. 1 - 31 MAY 2019 of Indians for the next five years. Mr Market is more worried about a hodgepodge government forming, MANAGING DIRECTOR & CEO IT SERVICES Vineet Bhatnagar Vibhor Singhal rather than whether it would be a Congress or BJP-led Shyamal Dhruve one. A stable central government will ensure continuity EDITORIAL BOARD Manish Agarwalla INFRASTRUCTURE of economic policies and allow FMCG companies to Kinshuk Bharti Tiwari Vibhor Singhal make further inroads into and drive premiumization. Deepika Bhandari DESIGN, ILLUSTRATION The incumbent government’s actions – including GST Chaitanya Modak LOGISTICS, www.inhousedesign.co.in TRANSPORTATION and demonetisation – have encouraged formalization Vikram Suryavanshi in India, which historically boosts demand of branded EDITOR Roshan Sony MEDIA, CONSUMER and premium products, because the price difference st st DISCRETIONARY 1 February 2018 Issue 1 1 April 2018 Issue 2 between mass-market products and premium products RESEARCH Ankit Kedia 4. COVER STORY: AUTOMOBILS narrows with formalisation. Premiumization is generally Saksham Kaushal METALS seen as a ‘win-win’ scenario for both consumers and INDIA DETERGENTS: Vipul Agrawal Vikash Singh companies – the former improve their lifestyles while Goldilocking Premiumisation AGRI INPUTS MIDCAP the latter improve their margins. It is likely that after Deepak Chitroda Deepak Agarwal elections, formalisation is likely to become even Akshay Mokashe BANKING, NBFCs more stringent (in spirit as well as letter) with stricter Manish Agarwalla REAL-ESTATE implementation of the E-way Bill and other moves. Pradeep Agrawal Vaibhav Agarwal Sujal Kumar Dhaval Somaiya For this edition of Ground View, our analysts Vishal CONSUMER STRATEGY Gutka and Preeyam Tolia dived into the bubbly and Vishal Gutka Anjali Verma frothy world of detergents to see what is driving Preeyam Tolia Neeraj Chadawar premiumisation, what it will look like in the future, and CEMENT TECHNICALS challenges ahead. To understand the dynamics, they Vaibhav Agarwal Subodh Gupta talked to umpteen urban and rural households, met 1st September 2018 Issue 3 1st November 2018 Issue 4 ECONOMICS PRODUCTION MANAGER technicians, detergent distributors, Anjali Verma Ganesh Deorukhkar Aditi Mohol and contract manufacturers across India. The subject EQUITY SALES & EVENTS is particularly interesting because premiumisation in ENGINEERING, Rosie Ferns detergents has forged ahead even as other FMCG 33. INTERVIEW: Mr. Rajnikant Sabnavis CAPITAL GOODS Jonas Bhutta SALES & DISTRIBUTION categories have lagged behind. COO of Jyothy Laboratories, talks of the Vikram Rawat Ashka Gulati premiumization theme playing out in the Archan Vyas In this GV edition, Vishal and Preeyam also interviewd detergent segment. HEALTHCARE, Jignesh Kanani Mr. Rajnikant Sabnavis, COO of Jyothy Laboratories, to SPECIALTY CHEMICALS Sneha Baxi Surya Patra Amarinder Sabharwal understand the premiumization theme playing out in Mehul Sheth the segment. Mr Rajnikant has close Rishita Raja CORPORATE 35 . Indian Economy: Trend Indicators COMMUNICATIONS to 30 years of experience in the FMCG sector across Zarine Damania various key functions.

FOR EDITORIAL QUERIES PhillipCapital (India) Private Limited. No. 1, 18th Floor, Urmi Estate, 37. PhillipCapital Coverage Universe 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400 013 Vineet Bhatnagar Valuation Summary 1st January 2019 Issue 1 1st February 2019 Issue 2 [email protected]

2 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 3 COVER STORY

BY VISHAL GUTKA, PREEYAM TOLIA INDIA DETERGENTS: GOLDILOCKING PREMIUMISATION

The GV team travelled across India along to the next level – increasing and met key stakeholders of the penetration of automatic washing detergent industry (distributors, machines, easy financing of machines, washing machine OEMs, customers, hard-water problem aggravating washing technicians, and marketing not abating, higher household executives) to understand what is electrification, and development of pg. 6 PREMIUMISATION IN DETERGENTS driving premiumisation. India’s US$ superior formulated products that Premiumisation – still a long way to go 50bn consumer market story is littered consume less water and cause less ______with buzzwords such as ‘Demographic damage to the environment. FMCG pg. 12 PREMIUM DETERGENT & WM ARE HIGHLY CO-RELATED Dividend’, ‘Under-penetration’ and companies are also getting their ducks Washing machines driving premiumisation ‘Premiumisation’. While to some in a row and working in close touch ______extent, the Indian consumer story has with consumer durables companies pg. 18 SOFT WATER IS THE PANACEA OF DETERGENT PROBLEMS already played out, it is still miles away India’s hard-water problem and premiumisation for product development, customer from its full potential due to hurdles ______such as adequate job creation, which education, and innovation capabilities. pg. 21 AT A TIPPING POINT mellows demand for aspirational and Some consumer durables companies What ails liquid detergents? are even launching their own premium ______premium products. Two recent events – demonetisation and GST – have detergents, including laundry pods. pg. 23 PRICE WARS - BOON OR BANE? changed the consumer story and Can competition spoil premiumisation? ______enabled organised FMCG players to flex Challenges exist. Consumers are not pg. 26 CRYSTAL GAZING their muscles and accelerate the process easily opening up their wallets to The future of premiumisation of premiumisation across categories. purchase premium detergents and are ______finding ways (the great Indian jugaad) The Indian consumer remains highly to make do with regular detergents. value-conscious and will consume Another looming threat is technological premium products only if they tick innovation – what if making hard all boxes on price-value-proposition water soft becomes easy (premium parameters. Premiumisation within detergent not needed) or waterless detergents has taken a considerable machines become viable at a retail lead over other FMCG categories, as level? To answer all these questions customers find that these detergents and more, this issue of Ground View offer the right bang for the buck. delves into the squeaky clean world Consumers have already moved up from bars to powders over the past few of detergents, checks how sustainable decades, but FMCG companies are now the premiumisation trend is, tries to trying to push them up the premium get a feel of how customers perceive ladder a notch – to matics and liquids. premium and normal detergents on the price-value chain, and also looks at In general, things seem to be coming challenges that FMCG companies might together for pushing premiumisation face in their premiumisation journey.

4 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 5 to wash clothes with Rin is relatively lower and PREMIUMISATION IN DETERGENTS and dirt go away more quickly. Also, I think detergent Detergent revenue mix - region wise (%) is also more cost-effective on a per kg basis because bars dissolve fast. For my special clothes, I use Surf Premiumisation – still a long way to go Excel small packs.”

Mrs Jain’s take is not entirely correct. Bars are actually more cost effective if customers are vigilant and wash While people have moved from bars to popular detergents, there is still clothes carefully. They have to apply detergent bars quite a ways before they adopt matics and liquid detergents only on areas where dirt or germs are accumulated and rinse it off. Detergent powders clean the entire cloth, leading to more wastage. Of course, this logic Kumud Gosrani, 48, lives in Chella village on does not work for people whose jobs entail more dirt Source:Dupont Awareness of detergents’ the outskirts of Jamnagar City, Gujarat, home to accumulation on clothes – labour-intensive jobs such the world’s largest petrochemical complex. She as labourers, office boys, and factory workers. detrimental effects on shifted to better quality detergents due to medical Detergent revenue mix - category wise (%) hands and skin in rising reasons. “I was diagnosed with a nail infection in 2015. The doctor told me to either use gloves Top-end customers prefer powders 2013 2018 2021 while washing clothes (if I wanted to continue over bars as the latter need a lot of with my usual detergent) or to switch to a better Matic Powder 18.2 22 26 STEP 2 quality detergent.” She says that once she started time and manual effort, but bars using branded detergents such as Wheel, she Matic Liquid 0.3 0.8 1.5 Premium could be the most efficient way to STEP 1 feels ‘comfortable’. “Better quality detergent (read detergents Hand wash detergent 55.9 54.7 52.4 Local to branded national brands) improved my life. Not only do my wash clothes clothes come out cleaner but my nails are getting Detergent Bar 25.1 22 20 better,” she said happily. Competitive intensity continues to remain very Locally manufactured products are believed to be high in popular detergents, which constitute much Others 0.8 0.5 0.1 Source : Dupont, PhillipCapital estimates PhillipCapital : Dupont, Source very harsh on skin due to their high soda-ash content Others have made the shift because they are of the market (c.58%) in volume terms. Local compared with branded products. As a result, tired of the effort that has to be put in while using players are strong in popular detergents – they are most households in India – in rural areas and small bars. Sujata Jain, 42, a native of Jabalpur, Madhya nimble, have a strong understanding about local towns – are moving to branded detergents. Those in Pradesh said, “I have moved on from using bars to taste and preferences, offer higher margin to trade GST and demonetisation semi-urban areas (tier 3-4 cities) have taken the lead Rin powder (mid-end product) as the effort needed channels, and are priced much more competitively in making a switch from bars to popular or mid-end than national brands. HUL and P&G dominate actually accelerated detergents. in premium and mid-tier detergents because of better-formulated products, customer affinity for premiumisation consuming branded products in urban areas, and Customer appetite for their extensive distribution network. Pre-GST and demonetisation – local players premium (or aspirational P&G – no longer looking at Tide bars for used to rule the popular segment products) remains quite high. competing Before GST, many small and unorganised They get ‘hooked’ once these A while ago, P&G shifted its focus away from the bar players held clout by evading taxes, knowing are made affordable (for e.g., format (for the Tide brand) due to lower profitability their own backyard, and distributing goods in this segment. After its in-house manufacturing to local wholesalers – strongmen who liked to available in Rs 10 sachets) facility began, it restarted sales of Tide detergent deal mainly in cash. HUL weakened in the mass and accessible (increased bars, but with an objective to have a presence in the (popular) segment as many unorganised players market rather than to compete. during 2014-16 used low crude oil prices to their distribution reach) Kumud Gosrani said using a local detergent powder led to a nail infection, advantage (LAB, a key raw material used to make but her situation is improving after switching to a national brand detergents, is a crude derivative). In addition,

6 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 7 MT making inroads in smaller towns MT: In rapid expansion mode

Sangam Detergent – a local detergent brand of Madhya Pradesh Source: Nielsena, Company Nielsena, Source:

two consecutive years of low monsoon and droughts (FY15-16) led to an increase in down- Notably, in the last 2-3 years Premiumisation in detergents trading across FMCG categories, especially (after demonetisation and GST), in rural areas – which hurt the growth of large organised detergent players that were not very premiumisation is no longer confined strong in the popular detergent segment. to metros and tier-1 cities. It has moved

Even today, some local players continue to use quite swiftly to tier-2 and 3 cities and their clout in their areas to sell the detergent of MT players have aggressively expanded their choice. Sanjay Singh, a small shopkeeper in Satna, MP, said that he is forced to stock their reach in these areas Mera Sangam – a local detergent powder in the popular segment. If he doesn’t, the manufacturer will not provide him stocks of from General Trade (GT) during demonetisation

Rajshree Pan Masala, a fast-selling high-margin (after November 2016) have stayed with HUL Source: product that the same company manufactures. MT and have shown a higher propensity to HUL: Home care EBIT growth improved as premium “We somehow manage to sell these sub-par consume premium and branded products HUL passed on GST cuts to consumers at the detergents saw an increase in salience products (detergents available at Rs 30 per across categories. With MT, customers got premium end kg) to customers (despite knowing that its an opportunity to experience (touch and feel) quality is far inferior to mainstream brands) by premium products (matics and liquid detergents), HUL used the opportunity provided by GST rate offering them freebies such as free buckets with which kirana stores were not interested in cuts to accelerate the process of premiumisation, the larger (mainly 5-kg) packs,” said Sanjay. stocking due to lower customer pull. GT is but has taken a ‘portfolio approach’ while passing usually more interested in stocking fast-moving on GST rate cuts to customers. GST on detergents GST + demonetisation has changed things popular and mid-category detergents. was reduced to 18% from 28% in November 2017. quite dramatically for detergents HUL reduced maximum MRP at the premium end The CMD of HUL, Sanjiv Mehta was quoted of its portfolio (vs. the mass or mid-range end), Over the past two years, things have changed by a newspaper as saying – “We are seeing thereby reducing the price difference between for the better for pan-India branded players consumer demand or the off-take moving these products to some extent. This accelerated as strict GST compliance along with reduced up as compared to the real lows that we the process of premiumisation, which reflects in availability of cash (after demonetisation) saw in 2015 and 2016. Markets across urban the EBIT growth of HUL’s home-care segment. provided a more level playing field. Many and rural are seeing a positive trend.”

consumers who moved to Modern Trade (MT) HUL Source:

8 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 9 Sustained premiumisation in detergent can change the fortunes of home care seg

POWDERS LIQUIDS WIMI 14 Consumer Clusters Segment Popular Mid-end Premium Super-premium

Brands Wheel Rin Surf Excel Surf Excel What is WIMI (Winning In Many Indias)

Easywash Quickwash Top load Front load Top load Front load HUL has divided the country into 5 branches Price Per Kg 50 80 105 160 225 250 209 225 and 14 clusters vs. just 4 branches earlier. Its COGS 37.5 52 58 80 105 112 105 110 special focus is on central India (40% of India’s population) which is growing at 1.5 times the Gross Profit 13 28 47 80 120 138 104 115 national average GDP, but where consumption % margin 25% 35% 45% 50% 53% 55% 50% 51% per capita remains low.

% Contribution to HUL detergent sales 33% 23% 42% 2%

Blended Detergent Gross margin 39%

*Matics/liquid gross margin are being calculated excluding the offers that are available in the market. FMCG companies are giving higher promotional offers to encourage adoption of matics Source: PhillipCapital Estimates

Wheel has been able to recover some of its lost ground HUL dominates the detergent segment after competition weakened (particularly Ghadi) after demonetisation and GST, which also led to HUL’s profitability in its home-care segment improving. Meanwhile, increasing focus on profitability led to P&G going slow on its low-margin products (Tide Naturals). Recent media articles indicate that HUL has What is CCBT (Country Category significantly increased its efforts to check counterfeit Business Team)? products, which also helps to tilt the balance in its favour across segments in the detergents category. HUL has carved out 15 teams within the

Customers have shown a preference for branded organisation for each category with separate consumer products over local products, even in the targets given for sales and innovation in an popular segment – if branded products are at a slight effort to be more agile, fight nimbler rivals, premium. This has been visible in paints over the past and mop up higher sales in VUCA world (VUCA few quarters, when branded players showed decent stands for Volatility, Uncertainty, Complexity

Source : Euromonitor Source growth in distempers (economy segment) after the GST and Ambiguity). Each team – called CCBT – has rate was cut to 18% in July 2018 from 28%. This move representatives from all functions including GST – needed in spirit, not just in letter led to the price difference between organised and sales, R&D, marketing, supply chain, and unorganised players’ products shrinking substantially. finance, and run it as an independent group HUL’s profitability in home care can rise further if GST with an entrepreneurial mind-set. rules and regulations are implemented in spirit. If the Hindustan Unilever has given enough firepower to its E-Way bill (which governs interstate movement of executives at the ‘cluster’ level to take combative action Both these initiatives have enabled the man- goods) is properly implemented, it is highly likely that against state-specific and regional players under its agement to: (1) speed-up the decision-making small and unorganised players will be forced to become initiatives – CCBT (Country Category Business Team) process to take JIT (just in time) action against fully compliant, thereby taking a hit on their margins and WIMI (Winning in Many Indias – dividing the local players who may be more nimble, (2) due to higher cost of compliance. HUL will then be in a country into 14 clusters). Under WIMI, HUL launched accelerate the process of premiumisation and position to gain market share in the popular detergent detergents at different price points in Uttar Pradesh innovation, and (3) make customised products segment, which has been its weakest link so far. to shift consumers from local brands to Rin. in line with local tastes and preferences.

10 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 11 of premium detergents is quite gradual. This is PREMIUM DETERGENT & WM ARE HIGHLY CO-RELATED because many are not willing to pay the premium “About 1% of the FMCG market for detergent powders that provide a better quality is moving from mass and mid- of wash and keep their washing machines in a better Washing machines condition. tier to premium every year. At an overall level, about 28% of

driving premiumisation Washing machine companies are educating the market is premium. Our aim buyers through sales persons and technicians would be to help consumers With increasing penetration due to easy funding, There is hope. Washing machine companies, trade up,” washing machines are at the forefront of the through their sales persons and technicians, have – Sanjiv Mehta, CMD, HUL in a newspaper article shift to premium detergents been advising customers to use matic powder to keep their machines in better working condition. Matics, they tell their customers, dissolve much For Shweta Mehta, 32, a resident of upmarket Easy funding has changed Bajaj Finance consumer durable loan book (Rs mn) faster with water and remove stains effectively. Kemps Corner, it was a crash course about Liquid detergents, they advise, are the best product detergents when she bought an IFB Automatic the dynamics of consumer for washing machines, as they do not damage the Front Load washing machine through IFB Point. durable markets machine as much as other products and they do not She said she was ‘blown away’ by the deep leave residue inside the machine. understanding and knowledge of the manager at the outlet who told her all about appropriate Gone are the days when the family saved Ganesh Pinge, 45, a mid-income resident of Dadar washing machines, depending on what clothes money for months or years to buy electronics in Mumbai shifted to matic powder on the advice need to be washed, and the intensity with which items, when customers had limited options of a machine technician. “Shifting from Surf Excel they should be washed. She said, “I have started to choose from, and when they relied heavily Easy Wash to Surf Excel matic powder based on a using liquid detergent in my washing machine on other peoples’ opinions to buy products. mechanic’s suggestion has eliminated my problem as liquid leaves no residue and increases the life This is the era of the internet and customers of white stains and marks on my shirts, as the matic of my machine. The quality of the wash is also do their own extensive research before powder dissolves much faster in water,” he said. This far superior as liquid detergent dissolves easily buying electronics items. They also step into is due to the higher presence of active ingredients in and contains some amount of conditioner in it. nearby electronics chains to get a feel of their matic powders. “Moreover, my machine is working When you compare matic powders to liquid, shortlisted products. Buying decisions are also much better – has not broken down, and hasn’t the effective cost, at least for me, is somewhat Source : Bajaj Finance Source rapid – people can buy even expensive items clogged in the last three years,” he grins happily. similar.” on the spot through options such as EMIs. Easy availability of finance through NBFCs and Machine penetration and credit cards with no-cost EMIs have changed Detergent category sales mix (%) things for the better in the consumer durables product awareness = sharp market. A strong credit bureau (CIBIL), internal surge in premiumisation data analytics, and strict checks and compliance by NBFCs for KYC through Aadhaar Cards have been able to rein in NPAs in this segment. The reach of washing machines has increased with New players (HDB Financial services, Home declining cost of ownership, increased availability Credit, Capital First) have shown renewed of financing options, and resistance from domestic aggression in tie-up with more dealers, making workers, at least in urban areas, to hand wash credit available in every corner of the country. clothes. With more people buying machines to Recently, Kotak and Axis Bank clearly stated wash their clothes, they are also becoming more their intentions of grabbing a larger pie of the aware about the different types of detergents – consumer durable segment – which means sales normal, matics, and liquids. This knowledge is of consumer durables are set to explode. driving premiumisation. However, even as machine

penetration increases rapidly, the adoption rate Company Source:

12 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 13 Machines are key drivers of premium detergents convenience-seeking or problem-solving. Increasing Consumer durable companies and technicians However, the change also comes from within. rural electrification (almost 100% households strongly recommend using specific washing As Rupesh Patil, who has been in the business In the book, “23 Things They Don’t tell You About have achieved electrification) and rapid strides in machines powders (i.e., matics) and liquid of repairing machines since the last five years Capitalism”, economist Ha-Joon Chang made a developing distribution network in rural and semi- detergents while using automatic machines. With said, “Consumer behaviour changes when they provocative comment: “The internet revolution urban areas has really helped washing machines to most of the new-age automatic washing machines purchase an expensive item like an automatic has (at least as yet) not been as important as take off in a big manner. having inbuilt steel plates, any other detergent washing machine and their tendency to purchase the washing machine and other household (apart from matics and liquids) can cause matics goes up. They want to keep their machine appliances, which, by vastly reducing the amount Shift towards automatic washing machines is significant corrosion to the steel plates and in turn in good order.” of work needed for household chores, allowed inevitable reduce the life of the machine. women to enter the labour market and virtually abolished professions like domestic service.” So far, semi-automatic machines have constituted 55-60% of the washing-machine market in volume Top-loads have grabbed consumer fancy Structural factors that are driving the demand terms due to higher price differential vs. automatic for discretionary and convenience-seeking machines and the electricity problems in rural despite front-loads’ superior wash quality goods – such as increasing disposable income, and semi-urban areas. However, semi-automatic urbanisation, rise in nuclear families, more machines take up too much time and effort, as women entering workforce and aspiration among customers have to keep a close watch on clothes customers – are key reasons for faster adoption of during the entire cleaning process. The worst part is consumer appliances like the washing machines transferring wet clothes from one drum to another among households. Demand for washing for spin-drying. As a result, automatic washing machines and machine detergent powders and machines have seen a sharp uptick in past few liquids (directly correlated) has grown steadily. years, with increasing time constraints, especially for urban households, and decreasing price difference Although labour is quite cheap and available between fully automatic and semi-automatic. in surplus for low-skill jobs, most domestic workers in urban areas are not willing to wash Automatic washing machines are seeing traction clothes because it is time consuming and labour intensive job and usually the compensation is never enough. Demand for household appliances Dryer Tub is not restricted only to metro cities, but also Pulsator visible in rural areas. In 2017-18, washing machine Scrubber penetration was 9% in rural areas vs. just 1% in 2012-13. In these areas, people purchase washing How do automatic top-load machines work? scrubber – removing stains and dirt. When the machines more as a status symbol rather than for wash is finished, the pump at the bottom drains • These machines contain a drum – the key part – out the water and the cycle continues until the placed on vertical axis on which a ‘pulsator’ has clothes are rinsed and spun dry. “With radical changes in lifestyles, the been affixed. This plays a key role in cleaning Indian consumer today seeks convenience clothes. The other two components are the • These machines have cleaning limitations. The detergent chamber and scrubber. Water enters pulsator tangle clothes leading to linting (threads in everything and is willing to pay a through pipes from the top, passes through the coming out of garments); over a period, quality of premium for the comforts that advanced detergent chamber, and flushes the powder/ clothes deteriorate. technology brings in making everyday life liquid onto the clothes, which are placed inside much easier than ever. Hence the current the machine. • To avoid linting, Whirlpool India had come up with an in-built central agitator stick that was to owners of home appliances will always • During the wash cycle, the pulsator turns around prevent clothes from tangling. However, this did seek to upgrade to higher capacities and moving the clothes at the top and the bottom not work as planned. Many customers complained better technologies.” through water and they are brushed by the that the agitator was actually tearing their clothes. – Kamal Nandi, Head and Executive Vice-president, Godrej Appliances.

14 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 15 Front-load washing powders need to have superior product any major urge to switch to automatic machines due to higher Front-load machines are a panacea formulation (to work with less water usage) that can remove electricity costs. They also have ample time to manage manual dirt from the root cause with less foaming and without household chores. Cleaning the semi-automatic washing for water shortage and linting issues leaving any residue on clothes. Hence, front-load powders machine regularly (quarterly) with some machine-cleaning are about 10% more expensive than top-load detergents. powder (e.g., Scalegon brand) keeps their machines in While these machines provide the best wash quality, it reasonably good order. Indians have even found a way around comes at a price. They are about 10% more expensive than the problem of continuous high-pressure water supply, even in top-loads and require continuous supply of electricity and automatic front-load machines) by installing pressure pumps water, which may not be possible except in metros and tier- (which cost additional Rs 3-4,000) on their home water-tank 1 cities. outlet pipe.

Technicians also claimed that if front-load machines break Deepika Bhandari, a resident of Udaipur, was proud of how down, getting them up and running like before is a very she has maintained her machine with no problems at all! “I expensive proposition. These machines also require more clean my semi-automatic machine using a mixture of hot water space than top-load washers and space, which has always and washing machine cleaning powder on a quarterly basis been an issue in metro and tier-1 cities. and this has led to zero problems as this mixture removes all the residue from the bottom of the machine despite using it Matics are not failsafe for more than five years,” she said.

Even after taking all precautions and using the best matics, Others have found their way around the white detergent clogging (residue detergent accumulating at the bottom staining problem while using automatic machines. Neeraj of the machine) can happen. This affects the machine’s Ketke of Yawatmal district firmly believes that “all detergents A washer-man () at Dhobi Ghat using the famous Dhobi Pachad performance. Liquid detergents (that fetch the highest are the same” and has no intention of using matics in his Tub technique for laundry Paddle margins for FMCG companies) can significantly enhance the machine anytime soon. “I simply put the detergent powder at performance of washing machines. the bottom of machine instead of putting it in the detergent chamber and the problem of white stains goes away. I use a How do front-load washing machines work? 40-50% less water than top-load machines at all The great Indian jugaad. Yes, even while using machines! different method, almost opposite of what most detergent times. This is why front-load washers use much companies recommend while using matics, and I get the result • Front-load washers work by filling the less water than a standard top loader. Many households in rural and semi-urban areas do not feel that I want,” he grins proudly. bottom of the inner tub with a small amount of water and using the rotation of • Derived from traditional washing techniques, this the tub and gravity to move the clothes machine completely eliminates linting. Detailed comparison of different types of washing machines through the water. The rotation action is similar to the tumbling action found in a Factors Semi-automatic Automatic - TL Automatic – FL . The side paddles on the Presence All over India Most parts of India except rural India Mostly restricted to metro / tier-1 cities inside drum lift the clothes and move them Price (6.5-8 kg) Rs 7,000-14,000 Rs 15,000-22,000 Rs 24,000+ in and out of the water. This provides the Type of detergent Any type of detergent can be used Matic + liquid Matic + liquid mechanical action (scrubbing) needed to remove dirt/stains from fabric. Quality of wash Inferior Good Best Average water consumption 150 litres 80-100 litres 60-70 litres • Since these machines have an in-built Effort Requires manual intervention No manual intervention No manual intervention water-heating mechanism, the process Maintenance cost Local technician can resolve defects Expertise of highly qualified technician Company technician and company parts becomes better as hot water removes at lower cost is required as it has a digital board; are needed; most of the parts are for the IC stains faster and from the root. quite expensive board – expensive

• This type of mechanical wash action (somewhat similar to traditional dhobi Indian machinenomics (jugaad) limits the growth pachad method does not require clothes to be surrounded by water – thus using prospects of premium detergents

16 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 17 SOFT WATER IS THE PANACEA OF DETERGENT PROBLEMS

India’s hard-water problem and India – premiumisation Water hardness map

For the foreseeable future, India’s hard water problem is unlikely to be resolved, thus driving premiumisation

Apart from the materials that are used to “Higher the content of active manufacture a detergent, water quality is of ingredients, better the quality prime importance for the detergent to perform well. More than 80% of India’s geographical of the detergent powder. So terrain has hard water (it contains high calcium premium detergents soften and magnesium), which makes detergent difficult to dissolve. Magnesium and calcium hard water very quickly, which in hard water can cling to clothing causing gives a better quality wash fabric to feel stiff and dull colours. Here, active ingredients come into play – these help make and keeps washing machines hard water soft and improve the performance of in good condition,” the detergent. Higher the content of the active If soft water ingredients, better the quality of detergents. is available, - Mohit Agarwal (name changed), a leading contract Better detergents do not form scum in the manufacturer in the detergent segment for HUL, based out of machine. Premium detergents (matics and liquid people need not east India. detergents) contains 20-25% active ingredients use premium while mass and popular ones contains only 8-9%. detergents such as matics and liquids Key components of a detergent Source: Ionic systems Source: NAME OF INGREDIENTS PROPERTIES Surfactants Linear alkyl sulfonates (LAS); LAB, dodecylbenzene They are active cleaning agents, which help in penetrating sulfonate (DDBS) and wetting fabric, loosening and emulsifying soils Can water treatment players resolve the companies are quite high – more than double problem of hard water at the household level? the cost at which is water is made available Builders Sodium tripolyphosphate (STPP) They are used to soften hard water to residential units and societies – making the Water treatment players such as Ion Exchange proposition of water-treatment attractive. Alkalis Sodium carbonate, sodium bicarbonate, sodium Help raise the PH (Power of Hydrogen) level of water, which and VA Tech Wabag provide comprehensive silicate, sodium citrate, and ammonium hydroxide in turn helps reduce hardness and integrated water treatment solutions, but These facilities cost Rs 50-100mn (depending so far, their water-treatment business has been upon the capacity installed) and require physical Enzymes Proteases (break down protein), amylases (break Reduces wrinkles, protects fabric colour, removes stains restricted only to B2B clients such as industrial space, which is scarce in metro/tier-1 cities, down starch – a type of carbohydrate), and lipases (break down fats). and manufacturing units, hotels, hospitals, making it unviable for residential buildings and complexes. Also, there is regular annual Quaternary ammonium chlorides Improves fabric whiteness and brightness and commercial offices – basically those enterprises that can afford the solutions and for maintenance cost that needs to be incurred to whom it is feasible. The water costs for these keep these treatment facilities in good condition.

18 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 19 AT A TIPPING POINT

How do water What ails liquid detergents? softeners work? Why have these superior products not made much headway? Hard water becomes softer through a process of ion exchange. The positively charged Liquid detergents are the best solution for the higher costs of manufacturing liquids, calcium and magnesium ions washing machines and are priced at almost to encourage faster conversion. For now, (+2) in hard water are exchanged similar levels to matic detergents. Why then have competition from unorganised players is also with sodium and potassium they not made much headway? low due to the higher investment required to ions (+1), which also have a manufacture liquids. In the medium to long positive charge. Each calcium or It is mainly due to the constraints mentioned term, it is likely that detergent companies magnesium ion is exchanged for below: can add more value to liquids (such as two sodium or potassium ions, including softeners and conditioners), which which in turn makes water soft. • Customers do not understand the price- will become difficult for unorganised / local value proposition: Most households go with players. This will build a durable moat for The exchange process that makes frontline pricing without understanding price- these products that could allow companies to hard water soft requires the Source: Kent value proposition of liquid detergents. Lack price these products at significant premiums presence of tiny beads of resin in of awareness among customers about the to matics. a holding tank. The sodium and everywhere, people would need between Rs 3,000 to Rs 12,000, effective price of liquid detergents is pushing potassium ions cling to the resin. just regular detergents (no enzymes, need continuous flow of water at customers away from making the purchase. It • Misconception that liquids are When hard water washes over the softeners).. So their desire to upgrade higher pressure (which is not there in seems that HUL is deliberately keeping liquids removers: Detergent companies need to resin, the sodium and potassium to premium detergents could reduce most parts of India), need space for and matics at the same price point despite fine-tune marketing/ communication strategy significantly. Water softeners also as far as liquid detergent is concerned. Most ions are released into the water installation, and they need frequent enhance the whiteness and lustre of consumers believe that liquid detergents and exchanged for the calcium maintenance. clothes. are only for stain removal, not for washing and magnesium ion, which are “The cost of manufacturing clothes. then held fast by the resin beads. Our ground checks revealed that the Additional positives of water Thus, the water flowing out liquids is higher than matics softener machines are that they are resin beads and membrane, which • Lack of availability: Distribution of liquid of the system is soft. non-electric and lead to a better- help make water soft, have to be since they are in highly detergents has been restricted to metros maintained washing machine. Water replaced regularly – just like drinking concentrated form and the and tier-1 cities, that too through modern softeners also comes with a standby water filters where cylinders have to trade and e-commerce. Its reach is almost Will individual household mode for longer life and help prevent be changed every 6-9 months. These manufacturer needs to ‘settle’ negligible in general trade. This lack of water softeners harm or aid scaling (accumulation of germs, dirt, resin beads replacements set buyers all the ingredients within the product availability on a pan-India basis has premiumisation? clothes threads) along the walls of the back by Rs 1,000-1,500 annually. restricted off-take of liquid detergents. Lack of machine, thereby increasing the life liquid. Because of this, batch availability in an LUP format (customers have Kent, one of the largest water purifier These water softeners convert hard and output of washing machines. to spend a minimum Rs 99 to purchase liquid companies in India, has recently and production time are much water into soft, which generates detergents) has led to lower trials amongst started aggressive advertisements extra foam and allows the washing However, things are obviously not longer than those for matics. customers. process to happen while consuming so simple. Why do these miraculous for their washing machine water- This makes manufacturing less detergent. This leads to savings devices not have a presence in all softeners, but it has not been able liquids costlier.” • ‘Maid’ phobia: People who hire domestic in terms of both detergent and water. Indian households? The answer lies to make much headway due to these workers are paranoid that even after To be frank, if soft water is available is high costs – they cost anywhere challenges. – Prabhat Jha of Universal Healthcare – a Silvassa-based contract explaining how liquids work, they will end manufacturer for many liquid detergents brands up using more than the necessary quantity. This is also delaying the adoption of liquid

20 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 21 PRICE WARS - BOON OR BANE? detergents. Shreena Jani, a freelancer, Liquid detergents refill recounted her experience. Her domestic packs: A brilliant strategy help takes care of all her household chores. Can competition spoil premiumisation? “I purchased liquid detergent once and HUL has recently introduced despite giving clear instructions about what refill packs for liquid quantity of liquid to use, my maid finished detergents, which, apart from the entire 1 litre bottle of Surf Excel Liquid reducing plastic pollution Will the intense margin-killing competition of yore return? detergent in 10 days when it should have (eliminates the need for using lasted at least 25-30 days. Her maid’s plastic bottles), also helps to Rs/lt contention was that the liquid was not reduce costs for the customer foaming so clothes would not be washed (refill packs are priced at least properly. “She kept on pouring additional 10% lower than bottles). liquid detergent looking for more foam,” laughs Jani. Not surprisingly, she decided HUL has very recently to switch back to matic powder. Clearly, launched liquids even for Rs/kg FMCG companies need to spend money to bucket wash. Realising that ` 199 train decision influencers (like what Henko many households still do did for Pril dishwashing liquid many years not own washing machines, HUL did not want ` 225 ago) in order to encourage consumption. liquids to remain restricted merely to metros and tier-1 cities. It launched Surf Excel Easy ` 170 HUL has taken up the mantle to increase Wash liquid for bucket wash. consumption of liquids in a meaningful ` 114 manner Leaving no stone unturned for meaningful ` growth in its liquid portfolio, HUL has decided 75 Hindustan Foods, with a Rs 2.5bn topline, to deploy an age-old strategy of giving ` 53 is one of the largest organised FMCG samples (Rs 15 SKU) to MT customers and contract manufacturers, has been contract educating them about why liquids is the best Ariel Complete Top Load Top Load Liquid manufacturing detergent powders and solution. Access / low units packs, which are Ghadi ` 52 Tide Plus ` 102 ` 215 Ariel Matic ` 219 Ariel ` 225 liquid soaps for HUL. Now, it plans to invest not widely available in the liquid portfolio, may Nirma ` 55 Henko Matic ` 225 up to Rs 1bn in building a liquid-detergent become a norm if HUL so decides. Tide Naturals ` 66 Ghadi Machine Wash ` 75

manufacturing facility in Hyderabad – in COMPETITION addition to its existing detergent powder facility. This would be one of the largest contract manufacturing detergents facilities in Superior formulated products, higher capital investments, and to some Despite a late entry into matics, India for HUL. With an asset turnover of 7-8x, extent, technological advantages of national branded players in matic the Ghadi brand has garnered the sales of liquid detergents are expected to detergents and liquids will keep away small and local unorganised pick-up in a big way ahead. players, since their technical and product knowledge is limited to significant market share due to popular and mid-end detergents. However, mid-sized organised players are already trying to make a dent in the biggies’ market share. Rohit superior quality offering at a Surfactants (Ghadi brand), a dominant player in popular detergents, has made inroads into matics with aggressive pricing and strong marketing reasonable price, expansion in HUL is poised to drive the support (Amitabh Bachhan as the brand ambassador). It has priced distribution network, and lean premiumisation story in India – Ghadi Matics at 1/3rd HUL and P&G matic products. Ajit Kumar, a distributor in Satna in Madhya Pradesh puts it succinctly – “The strong operating structure that much is certain consumer acceptance for the Ghadi brand has been because it gives Surf Excel (superior product ) quality at Wheel (reasonable) prices”.

22 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 23 However, for the most part, even smaller customers to the premium segment because organised players stay out of high-end of improved affordability. Sanjiv Mehta, MD detergents – whether matics or liquids and CEO of HUL said, “Surf at the Rs 10 – as the process is highly technical, time price point has led to exponential growth consuming, and costly. As an HUL detergent because we are now offering an aspirational contract manufacturer based out of north- brand at an affordable price point.” east India puts it – “We contract manufacture HUL’s key popular and mid-end brands P&G – The sleeping giant and if we stretch ourselves we might able to manufacture matics, but manufacturing P&G was very aggressive during 2005-2014 as liquid detergents is not our cup of tea.” its mandate was to drive volume-led top-line growth. This led to price wars in the laundry HUL, with c.40% market share, continues to segment. However, from 2014 to 2018, P&G’s dominate India’s Rs 200bn laundry-detergent profitability has been under pressure at a market because of its ability to straddle global level – which has led its subsidiaries price points with different products, its solid across the world (including P&G India) to focus distribution network, and its strong focus on profitability. This led to relatively lower on premiumisation. HUL’s market share in pricing action and new product launches. The premium segment is high (+80%) while in limited-period price-offs and extra grammage the popular segment it is low (25-30%) due promotions that P&G has been running for Screen shot of HUL’s 2010 Rin advertisement showcasing Tide Naturals which was launched in 2009 to strong local competition. As tailwinds for the past few months may not be enough to detergent premiumisation play out, HUL will challenge HUL on the premiumisation front. be key beneficiary. It launched the Rs 10 LUP Private labels of e-commerce and for Surf Excel brand some years ago and has P&G India’s CEO Madhusudan Gopalan (who MT companies can become a threat P&G vs. HUL – The detergent wars been able to upgrade mass and mid-detergent recently completed one year as CEO) said in 1991 a recent media interview that the company Since MT stores and e-commerce will focus on driving respective category chains have a complete hold over their P&G launched Ariel HUL responded with heavy promotion HUL market share (%) growth through improved affordability (via customers, they are in a position to for Surf low-price packs), increasing distribution customise and price products as per reach, and eventually upgrading customers 2005 Segment Contribution HUL share HUL market their customers’ tastes and preferences. (Dec 2018) to category (%) share (%) to larger SKUs. However, it will try to maintain Private labels allow MT and e-commerce P&G dropped detergent HUL reacted with equivalent price cut a balanced approach between topline and companies to create price points that prices by 30-50% December 2018 bottomline in ensuring this objective. are not available in the market, and 2009 Mass 58 x 22.9 still manage to widen or maintain What happens to HUL if P&G decides their margins. Recently, Grofers, one Tide, which P&G launched HUL responded with 10-30% price cuts Mid 20 2x 45.7 to start competing aggressively? of the leading e-commerce players, in 2000, wasn’t seeing in Rin and Surf Premium 22 3.5x 80.0 conducted its own research, which desired traction so P&G HUL could see some impact on margins in the showed that many of its customers launched Tide Naturals, HUL filed a petition in Madras High Overall 100 40.0 short term if P&G decides to play detergent used bucket-wash powders for priced 30% cheaper than court that Tide Naturals does not July 2016 premiumisation story in a meaningful manner washing machines since machine-wash Tide. contain natural substances via using price-discounting strategy in order detergents were expensive. Seeing Mass 61.5 x 26.7 to grab customers. In the longer term, an opportunity, Grofers launched a It actually launched an advertisement Mid 23.1 1.5x 40.0 when customer start consuming premium far cheaper machine-wash detergent campaign that said Rin washed whiter products, the preference will be for branded (c.40% lower than market leader HUL’s than Tide – showing and naming rival Premium 15.4 3x 80.1 products since this will keep washers in Surf Excel) under its brand Happy brand Tide – quite unheard of in the Overall 100 38.0 good condition and in turn the size of the Home. It claims that many customers industry before this.

Source: PhillipCapital estimates PhillipCapital Source: premium detergent market will rise. have shifted to its new detergent.

24 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 25 CRYSTAL GAZING Key difference between pods and other detergents

Factors Pods Liquid Powder

Convenience High, Very convenient to use Moderate Convenience, User needs to Moderate Convenience, The future of premiumisation No application of mind needed calculate how much liquid is needed Some application of mind needed Dissolvability Good. Even with cold water Good. Even with cold water Not so good. Difficult to dissolve Towards efficiency and environment preservation in hard water. Ingredients Contains small amount of water only (c.10%) and higher Contains c.50% of water Powder in granular format quantity of detergent and other laundry ingredients Detergents that consume less water products inside a single pouch. The Effectiveness Concentrated liquid detergent and active agents in Concentration of liquid and active Dissolvability issues and provide convenience and pods are easy to use – they just need individual pouches. Less amount of water makes wash ingredients is spread out makes the wash less effective superior wash with minimal damage to be chucked directly inside the more effective than liquid detergent to the environment will see maximum machine drum and are premeasured, Residue Does not leave behind residue Does not leave behind residue Leaves behind residue off-take. Liquid detergents that which helps customers to avoid do not leave any residue behind unnecessary wastage. Cost Most expensive per load Similar to or slightly more expensive Least expensive in the machine are best suited for Consumer durables company IFB than powder on a per load basis the environment, but its packaging derives 10% of its revenue from formats (plastic bottles) damage the consumables, mainly detergents. environment. Consumer durable Tushar Singh is a sales person at IFB companies (washing machines) that Point (the company’s owned retail are working on technology that helps outlets, which provide products and to reduce water usage will be at the They just have to put one or two services across a range of categories), forefront. pods depending on the quantum of which also keeps its own laundry clothes,” he said. products, including detergent pods. He explained why pods are such Detergent pods were an instant Pods and tablets could be the next a simple solution. “With laundry success when they were first launched leg of premiumisation pods, customers need not apply in 2012 by Tide. Currently, detergent Detergent pods or tablets are single- their mind as to what quantum of pods constitute c.15% of the laundry sized dissolvable pouches that detergent or softener or conditioner market (value) in the US. contains highly concentrated liquid needs to be put in to the wash cycle. Water is the new gold: Are detergent, softener, and other laundry waterless machines almost here?

According to the World Health Organisation (WHO), by 2025, over half of the world’s population is expected to be living in water-stressed areas. Availability of fresh water is expected to be challenging in the future, driven by continued rise in

world population. This, coupled with Low (<10%) a drastic change in global climate Low Medium (10-20%) has brought on droughts and floods. Medium to High (20-40%) Statistics show that water usage has High (40-80%) been increasing 1% a year on an Extremely High (>80%) average while availability has been Arid and low water use falling every year. Source: World Resources Institute

26 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 27 Washing machine OEM players will have to evolve as clothes consumes 70% of the water, as people tend to total solutions providers keep on rinsing until there is no visible foam on clothes. HUL’s technology does not allow foam to stick to clothes, Consumer durable companies will have to evolve as which results in less water while rinsing. total solutions providers rather than selling plain-vanilla washing machines, collaborating with FMCG companies Millennial are looking for environment friendly by giving free detergent when customers purchase products washing machines. OEM companies will have to extend their roles beyond just selling washing machine – they Water pollution caused by laundry detergent is a will have to help customers with better-formulated big concern in the global context. Many laundry products that provide a better quality wash. detergents contain 35-70% phosphate salts, which make detergent more efficient by helping to soften water and Although most washing-machine OEMs offer two-year remove stains, but these phosphate particles remain warranties on their machines, their technicians rarely in wastewater (cannot be eliminated) and make their visit customers’ homes (only if there is breakdown). IFB way to natural water bodies, producing algae that are Industries has taken a different approach. Its technicians harmful for the environment and aquatic animals. visit customers (without being distress-called) just to service the machines every six months. This, it believes, With stricter rules by various governments and (1) enables the company to up-sell its detergents organisations globally to save water bodies, most portfolio (technicians earn 5% commission on every modern and premium laundry detergents will have to be pack of IFB detergent sold), (2) significantly enhances compliant with environment and social norms and they customer relationships, as customers feels special, and will have to launch products that minimise damage to (3) motivates technicians to stay with the company the environment. longer since they have an opportunity to earn higher income. Natural products could be a possible solution

Mehul Bhatia, a resident of Borivali said that he prefers Over centuries, reetha (soap nuts) has been used using IFB’s own liquids detergent despite the product as a natural laundry detergent. Soap nuts are great being priced at a 40-50% premium to Surf Excel liquid surfactants – when in contact with water they release detergent. He says that while he had to use 2 litres of suds that can do wash clothes naturally and in an Surf Excel Matic liquid for desired results, he has to use environment friendly manner. With this in mind, only a litre of IFB’s liquid – given the latter’s superior Manas Nanda founded BubblenutWash in 2016. It is a Xeros Ltd. has invented a washing machine called Hydrofinity absorb and trap stains, carrying them away from fabrics, product quality, which reduces his effective cost. Bengaluru-based startup that uses reetha to produce Xeros XOrbs washing system in 2014, which uses 80-90% in a small amount of cold water. When the wash cycle is laundry detergents, dish-wash, floor cleaners, hand-wash less water and 50% less electricity compared to washing complete, the XOrbs automatically return to a holding area The CEO of a leading front-load washing machine and other washing products – primarily targeted at urban machines available in the market currently. It uses a inside the machine and are ready to be used again for the company said that his company wanted to become total customers. It is different from modern detergents, as it is technology that cleans laundry using re-usable nylon polymer next wash. Xeros claims XOrbs can be used up to thousand solution provider in the longer run. “We are not merely 100% chemical free detergent. Bubblenut products are beads called “XOrbs” – which are super absorbent. It claims washes and are collected by the company’s technicians for interested in selling only washing machines. c.10% of our available in Pune, Hyderabad, Chennai, Mumbai, and that XOrbs absorbs dirt and stains without damaging the recycling in exchange for new ones. business already comes from selling detergents, which Delhi and currently have 10,000 plus customers. clothes and prevents fading and linting. we are currently importing – and we plan to manufacture So far, this technology has been restricted to B2B units these in-house once we reach the desired scale.” Laundromats: Are these a long-term threat to How does Xeros’ XOrb washing system work? (hotels and ) and Xeros expects that its new premium detergents? technology will be made available for consumer washing Innovation will be a key element When a wash cycle starts, XOrbs are added in the laundry machines as early as 2020. It plans to partner with major Many entrepreneurs, especially those involved in start- compartment to mix with the fabrics and a small amount of appliance companies, which will help bring down the cost Rin’s ‘Save Water’ campaign proved to be effective. In ups, are launching laundromats – self-service coin-wash water. The water itself is sprayed in, rather than poured, to per unit and drive faster adoption. Though this technology is 2017, HUL re-launched its Rin detergent bar with the or professionally operated laundry services. These are improve efficiency. XOrbs (re-usable nylon polymer beads) at the developing stage and initial cost of the machine could proposition of Smart Foam Technology, which, according fairly common in western countries such as the UK, the gently massage garments, loosening dirt and stains. XOrbs be expensive, over a longer period, this could be threat to to company, saves up to two buckets of water in every US, and Canada. Indian start-ups such as Uclean and then expand slightly, creating microscopic cavities that detergent companies and premiumisation. wash cycle. Normally, while doing laundry, rinsing-out Washiteria are providing full services – from washing

28 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 29 to – but the charges are on the expensive side (Rs 25-30 per cloth for washing and ironing). However, these costs could fall as technology improves and scale increases. Increasing proportion of DINK (double income no kids) and nuclear families in urban areas could contribute to this trend.

Though laundromats are at a nascent stage and a largely urban phenomena, these could pose substantial risk to premiumisation in the future. If they become popular, adoption of washing machines could fall, impacting sales of premium detergents. This is because laundromats use their own captive detergents instead of buying products from branded national players.

However, it is not going to be an easy journey for laundromats. Indians customers are not willing to give clothes that are meant for daily use (worn inside their homes) to laundromats – they are choosy about which ones to give. This means that they need to have washing machines at home and run a cycle in any case. As a result, most customers end up cleaning clothes themselves.

The world’s largest DHOBI GHAT FUN FACTS Like Nirmal, most cubicle owners at the ghat said that faster adoption of washing Dhobi Ghat, Mahalaxmi: Area – 2.47 acres | 735 cubicles open air laundromat machines in metro cities have led to a fall BMC rent for each cubicle: ` 300 per month in the retail business. They mostly receive Even the have shifted to used to hand wash clothes. However, Most of my business comes from heavily stained clothes and those for dry premium detergents and washing modernisation has crept in among institutional clients – garments dealers, Despite the ease of using machines, many dhobis prefer to cleaning – for which they use special local machines these ancient stones as well. Some of neighbourhood laundries, wedding hand wash clothes (they believe it removes stains better and and some liquid chemical to remove the wealthier washers at the ghat have decorators and caterers, mid-sized there is zero chance of lint). stains. Dhobi Ghat was built in 1890 under now purchased machines due to lower hotels, and pubs. He said that his retail In the rainy season, they use dryers for clothes – which in turn the British Raj to wash their clothes availability of manpower and higher (individual) business has slowed in However, premiumisation has overtaken costs about Rs 20,000. Dryers were installed with most dho- and make their life easier. The uneven scale of operations. the past five years as most people in bis, even with the ones that did not own washing machines. Dhobi Ghat too. Most of the washers were narrow lanes of the ghat are filled Mumbai use washing machines. “I am using branded detergents (Wheel or Tide), with rows and rows of wash-pens each Raj Nirmal, an owner of a cubicle also seeing business from hotels and Wheel was the most popular consumer detergent brand. not local detergents. They said that both fitted with flogging stones that have in Dhobi Ghat said, “Ever since hospitals falling for the past few years, branded and local detergents cost the been there since their inception and I have bought the machine, my as some of them have set up their own More than 60% of their business was from institutional clients. same. However, most did not use matics or business has grown considerably. captive laundries,” he added. liquid detergents for washing clothes.

30 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 31 CASE STUDY: HUL’s Ghatkopar community centre INTERVIEW

2016, HUL launched India’s first -ur Mr. Rajnikant explained that premiumisation begins semi-automatic machines (65% of the overall market). The ban-area-based water, hygiene, and san- with consumers willing to spend more on what they rest mainly own automatic top-load machines. Majority itation community centre called Suvidha perceive gives them superior value. In detergents, this of the customers who own semi-automatic machines in Azad Nagar (Ghatkopar) – one of the is being driven by the market leader’s initiatives to use popular or mid-segment detergents. Only a small INlargest slums in Mumbai. The purpose of this centre was to focus on innovation and solid communication of the fraction of them use matics and liquids. The logic is quite address the hygiene needs of people that reside in slums product proposition (that matics and liquids are better straightforward – a semi-automatic machine costsing Rs who might be facing challenges in doing daily household than conventional detergents). Launch of access / low- 6-8,000 comes with an EMI of Rs 800-1,000 per month. For chores due to lack of infrastructure and facilities. unit packs in premium brands is also another tool to this consumer, a specialist premium matic powder (Rs 250 A visit to the Suvidha community centre revealed a laundry encourage customers to try out premium products. per kg) is a significant cost and therefore a disincentive. facility, drinking water machines, and bathing and toilet facilities – all at a low costs. Mr Rajnikant has close to 30 years of experience However, increased awareness about using premium The centre comprised G+2 floors. On the ground floor in the FMCG sector across various key functions. detergents for automatic machines for superior results was the laundry facility, water filter, and two toilets for While he joined Jyothy Laboratories in October (also keeping machine in good condition) is driving specially-abled people. On the first and second floor there premiumisation in this segment. We could see a were 15 toilets and three bathing rooms (on each floor) – 2013, he was associated with the behemoth HUL one floor each for men and women. Six employees were for almost 25 years in sales and marketing roles. meaningful pick up in matics and liquids as customers maintaining the facility and helping people to wash their shift towards using automatic front-load machines due to clothes. Q. How has been the journey so far in technological innovation, and scale driving down the detergent segment (specifically We met their cost. Right now, they sell at significant The laundry facility for the Henko brand) after Mr. Rajnikant premiums to top load machines. • There were eight 7-kg fully-automatic front-load Henkel’s acquisition in 2012? Sabnavis, COO of washing machines (Siemens) which used Surf Excel Jyothy Laboratories, Q. What are companies doing Matic powder and liquid to wash clothes. Henko has done very well for us and to understand the to drive premiumisation? • Customers had to put clothes in a bucket and leave has been growing in double digits premiumisation theme the bucket for the helper (who generally took an hour since the acquisition. Moreover, playing out in the laundry Launch of access and Rs 10 LUP (low unit to wash clothes). profits from the Henko brand have detergent segment. packs) for premium detergents turned • The centre charged Rs 55 per bucket and one bucket more than doubled since 2012. So the tables for the category. Lower and on an average carried five-six pairs of clothes. There far, Henko’s distribution was largely middle-income people started using premium was a monthly subscription available - Rs 650 per restricted to Modern Trade. JLL has detergent access packs for clothes to be worn month, but customers could not do wash more than significantly increased the availability on special occasions or office wear. They continue to 15 buckets worth of clothes. of Henko while re-launching the brand prefer popular or mid-end detergents for everyday • The centre charged Rs 10 extra per bucket if customers on the “care” platform. In order to clothes. For Henko, salience of the Rs 10 SKU has wanted to use liquid detergents. enhance its reach in both GT and MT increased to low-teens if one looks at volumes. • On daily basis, 15-20 buckets (75-100 pairs of clothes) stores, Henko has been backing the were washed, highlighting that the centre’s washing- Rs 10 SKU via higher A&P spends. Apart from smaller SKUs, innovation and better machine capacity remains heavily underutilised. The product proposition is also driving pricing seemed expensive. But one of the employees Q. What key headwinds premiumisation. For example, most said that most customers were blue-collar workers might be restricting customers have gradually started (with both spouses working) full time, leaving limited premiumisation in adopting liquid detergents time for household chores. detergents from today because apart from Overall, the Suvidha facility seemed like a good initiative rising significantly? giving a better quality by HUL (works on a self-sustaining model) where members wash, they are priced at are provided with modern facilities and premium products Most households in similar levels to matic at a reasonable cost. Through this initiative, HUL was a good part of semi- detergent powders. encouraging consumption of premium detergents and urban/rural areas and also fulfilling its CSR objective. some parts of urban India continue to own

32 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 33 Q. What more can be done to For mid and premium detergents, gross strengthen premiumisation? margins are at 35-40%, while for matics, Indian Economy – Trend Indicators margins are higher at 40-45%. Liquid detergents (Rs 1- 2bn market) is a minuscule Monthly Economic Indicators proportion of the overall detergent market (Rs 180- Strong consumer inducement on matic detergent Growth Rates (%) Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 200bn), but like western countries, India is likely to to encourage adoption and consumption results in IIP 7.1 7.4 7.1 4.6 4.8 3.8 7.0 6.5 4.7 4.5 8.4 0.5 2.4 - shift towards liquid detergents and pods in the future. gross margins being a tad lower. Once companies do PMI 54.7 52.4 52.1 51.0 51.6 51.2 53.1 52.3 51.7 52.2 53.1 54.0 53.2 - Apart from being environment friendly, these newer away with offers, margins can move up quite a bit. Core sector 3.8 6.1 5.4 4.5 4.6 4.1 7.8 7.3 4.7 4.3 4.8 3.5 2.6 - options also provide better quality of wash. It is also WPI 3.6 3.0 2.7 2.7 3.6 4.8 5.7 5.3 4.6 5.2 5.5 4.6 3.8 2.8 possible for branded consumer companies to create *Note: The margins talked about in the para CPI 5.2 5.1 4.4 4.3 4.6 4.9 5.0 4.2 3.7 3.8 3.3 2.3 2.1 2.0 some moat around their offerings, as lot of value above refer to Jll’s experience in the market Money Supply 10.2 10.8 10.5 9.9 10.6 10.4 10.1 10.2 10.0 10.0 10.0 10.3 10.4 10.5 addition can be done in the form of adding let’s say Deposit 3.2 4.3 5.3 6.1 8.1 7.5 7.4 7.7 8.0 7.8 8.4 8.8 8.8 9.3 softening agents or fragrance, which is not possible in Q. Recently, Jyothy launched Ujala IDD in Kerala; Credit 9.8 10.4 10.4 10.5 12.1 12.4 12.4 12.2 12.7 12.6 14.0 14.6 14.7 14.0 powder detergents. This value-add will be difficult for how has its performance been since its launch? Exports 12.4 9.1 4.5 -0.4 5.2 20.2 17.6 14.3 16.9 -2.2 17.9 0.8 0.4 3.7 unorganized local and regional players to replicate. Do you have any plans to take it outside Kerala? Imports 21.1 26.1 10.4 7.9 4.6 14.9 21.3 28.8 25.4 10.5 17.6 4.3 -2.4 -2.4 Trade deficit(USD Bn) 41.1 64.6 25.8 31.2 3.6 5.6 28.1 57.4 49.4 48.9 22.2 10.4 -12.1 -12.1 I think liquid detergents can contribute 10-15% of Ujala IDD directly competes with HUL Sunlight Net FDI (USD Bn) 4.3 1.9 4.0 1.8 4.8 3.8 1.8 1.9 2.0 3.9 3.7 0.9 2.7 - the overall industry’s sales in the next five years. and ever since it has launched, the product has FII (USD Bn) -0.4 3.5 -2.4 1.2 -3.0 -1.7 -4.2 4.6 -4.9 -2.1 -5.1 1.8 1.2 - received tremendous response from customers ECB (USD Bn) 1.3 0.5 3.1 5.1 3.9 1.3 2.7 2.2 4.8 1.7 1.4 2.1 3.8 - Q. We have seen lot of competition in due to the better proposition. Ujala IDD has Dollar-Rupee 63.9 63.6 64.4 65.0 65.7 67.6 67.8 68.7 69.6 72.3 73.6 71.8 70.7 70.7 the detergent segment historically. What overtaken Sunlight in value terms in the mid-end of FOREX Reserves (USD Bn) 409.4 417.8 420.6 424.4 420.4 412.8 406.1 404.2 400.1 400.5 392.1 393.7 393.4 398.2 are the challenges for smaller players for the market, and now holds the pole position. We NRI Deposits (USD Bn) 123.3 124.4 124.3 126.2 124.6 123.5 124.3 124.9 123.0 121.9 121.5 125.7 125.8 125.2 entering the liquid detergent segment? intend to focus only in Kerala for the time being.

The powder-detergent segment is a low capex Q. How do you plan to participate in Quarterly Economic Indicators business – that is why many small players are present the post-wash market, which might in the popular segment of this category. As we move become significant in medium term? Balance of Payment (USD Bn) Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 up the value chain, it will be difficult for these players Exports 77.4 73.1 76.1 77.5 82.2 83.4 83.4 83.4 83.1 Imports 107.1 115.1 108.5 121.6 123.8 129.1 133.4 133.4 132.6 to compete due to technological constraints (for I believe that the fabric conditioner market stands Trade deficit -29.7 -41.9 -32.5 -44.0 -41.6 -45.8 -50.0 -50.0 -49.5 liquid detergent) and higher capex requirements. at Rs 3.5bn. We have taken a different approach Net Invisibles 26.3 27.0 25.5 30.3 28.6 29.8 30.9 30.9 32.6 and do not intend to compete directly with the CAD -3.5 -15.0 -7.0 -13.7 -13.1 -15.9 -19.1 -19.1 -16.9 Capex for setting up a liquid-detergent plant is far market leader, whose product mainly helps in CAD (% of GDP) 0.6 2.5 1.1 2.0 1.9 2.4 2.9 2.9 2.5 higher than what is needed for a powder-detergent softening clothes. Our product (Ujala Crisp and Capital Account 10.4 26.9 16.9 22.5 25.0 5.4 16.3 16.7 13.6 plant which is the biggest barrier for smaller Shine) actually helps in making clothes crisper. BoP 7.3 11.4 9.5 9.4 13.2 -11.3 -1.9 -1.9 -4.3 players. This process increases the cost and time. GDP and its Components (YoY, %) Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q. We are seeing the entire consumer basket Agriculture & allied activities 6.9 5.2 2.3 2.7 4.1 4.5 5.3 4.2 2.7 Q. Can you give us some brief margin profile shifting towards natural products and new- Industry 7.2 5.5 1.5 7.0 6.8 8.0 10.8 6.1 6.1 for mass, mid, and premium detergents? age customers prefer products that are ESG Mining & Quarrying 1.9 6.4 -0.7 7.1 -0.1 2.7 0.1 -2.1 1.3 (Environmental, Social, and Governance) Manufacturing 8.2 5.3 1.2 6.9 8.1 9.1 13.5 6.9 6.7 Popular detergents – which comprise a major chunk compliant. What is your view on this? Will Electricity, Gas & Water Supply 7.4 6.1 7.0 7.7 6.1 7.7 7.3 8.7 8.2 (I would say about 60% of the overall detergent the detergent industry ‘go natural’? Services 6.4 5.7 7.8 6.6 7.6 8.2 7.5 7.6 7.6 Construction 3.4 -3.7 2.0 2.8 6.8 11.5 8.7 8.5 9.6 category) have historically earned gross margins Trade, Hotel, Transport and Communications 8.3 6.5 11.1 9.3 9.0 6.8 6.7 6.9 6.9 of 10-15%. However, demonetization and GST We are also working towards launching products Finance, Insurance, Real-Estate & Business Services 3.3 2.2 6.4 6.4 6.7 5.0 6.5 7.2 7.3 have ensured compliance among even small and that use less water, since this problem is likely to Community, Social & Personal Services 10.3 17.0 9.5 5.6 7.2 13.3 9.9 8.7 7.6 regional players resulting in a simultaneous reduction aggravate ahead. Simultaneously, we are ensuring GDP at FC 6.7 5.6 5.6 6.2 6.7 7.6 8.0 6.8 6.3 in below the line promotions etc. Overall, gross our products are fully ESG compliant. We have margins have improved in popular detergents to already removed phosphate salts (the prime cause of 25% from 10-15% earlier after these two events. marine pollution) from all our detergent products.

34 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 35 9.4 9.1 6.0 7.7 9.1 4.9 6.7 13.5 15.9 20.9 15.5 21.0 16.4 20.1 20.8 26.6 12.4 18.0 11.9 17.3 19.2 21.5 FY20E 6.9 6.3 3.1 6.3 8.3 3.8 6.9 ROCE (%) 12.5 15.8 21.6 14.5 19.7 16.0 20.3 18.2 26.9 14.4 17.3 13.1 17.2 17.2 22.0 FY19E 9.5 5.8 13.3 14.5 11.0 15.5 17.1 15.6 14.6 25.2 18.0 19.7 17.5 26.2 20.1 10.5 18.7 16.1 18.2 19.4 20.7 Annual Economic Indicators and Forecasts 15.6 FY20E Indicators Units FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E 9.9 6.4 8.8 8.7 9.0 4.4 ROE (%) 13.6 15.7 17.3 13.8 24.8 17.7 20.1 15.6 26.9 21.7 18.4 15.5 17.1 17.9 21.4 16.4

Real GDP/GVA growth % 6.7 6 5.6 7.1 7.9 6.6 6.5 6.8 7 7.4 FY19E Agriculture % 5 1.5 4.2 -0.2 0.7 4.9 3.4 2.7 3.5 3.5 0.2 0.0 1.6 1.8 0.6 2.3 1.4 1.3 2.3 1.3 6.1 -0.9 -2.1 -0.5 -0.7 -0.1 -6.2 -0.0 -0.7 -0.2 -0.2 Industry % 6.7 5 4.5 6.5 10.2 7 5.5 7.2 7.4 7.8 -1.2 FY20E Services % 7.1 6.1 8.2 9.4 9.1 6.9 7.6 7.6 7.7 8.1 0.0 2.2 2.2 0.9 0.1 2.4 1.7 1.3 1.9 1.5 0.0 0.3 6.3 1.2 -0.3 -1.5 -0.2 -0.9 -0.1 -7.8 -0.6 Real GDP ` Bn 52475 85992 90844 97190 104905 111854 119762 129258 138306 148541 -2.2 EV/EBITDA (x) EV/EBITDA FY19E Real GDP US$ Bn 1096 1694 1581 1589 1603 1667 1858 1847 2004 2184 2.1 0.9 2.5 4.2 0.9 4.1 3.9 2.2 3.5 2.8 3.2 2.5 1.0 4.4 2.2 1.3 1.5 3.7 2.3 0.7 3.1 Nominal GDP ` Bn 87360 99466 112366 124451 136820 151837 167731 190540 211118 235333 1.1 Nominal GDP US$ Bn 1824 1828 1859 2035 2090 2264 2603 2722 3060 3461 FY20E P/B (x) 2.3 0.9 2.9 4.8 1.0 4.6 4.6 2.4 4.0 3.0 3.7 3.0 1.1 4.7 2.2 1.5 1.8 4.3 2.9 0.8 3.4 WPI (Average) % 8.7 7.4 6 2 -2.5 3.7 2.9 3.7 3.0-3.5 3.7-4.2 1.3 CPI (Average) 8.3 10.2 9.5 6.4 4.9 4.5 3.6 3.5 3.2-3.7 3.4-3.9 FY19E 7.8 5.8 9.6 7.8 8.2 Money Supply % 15.8 13.6 13.5 12 10.3 7.3 9.6 10 10.5 10 8.6 14.1 16.1 24.3 28.0 15.3 12.1 17.6 16.0 12.2 12.3 23.5 22.8 18.9 11.1 12.8 19.6 CRR % 4.75 4 4 4 4 4 4 4 4 4 FY20E

Repo rate % 8.5 7.5 8 7.5 6.75 6.25 6 6.25 5.75-6 5.5-5.75 P/E (x) 9.3 16.8 14.4 18.7 27.7 11.7 33.3 18.7 13.7 19.8 19.4 13.8 13.7 12.8 25.6 24.8 10.7 23.9 13.3 17.2 20.9 12.9

Reverse repo rate % 7.5 6.5 7 6.5 5.75 5.75 5.75 6 5.5-5.75 5.25-5.5 FY19E Bank Deposit growth % 13.5 14.2 14.6 12.1 9.7 11.2 6.2 9 9.5 9 9.1 8.8 6.5 19.0 85.3 16.3 14.1 19.1 21.9 13.7 12.6 20.9 13.5 11.7 33.6 19.8 29.2 26.2 19.7 34.2 50.7 103.4 Bank Credit growth % 17 14.1 13.5 12.5 10.7 4.7 9.8 14 15 13 FY20E Centre Fiscal Deficit ` Bn 5160 5209 5245 5107 5328 5343 5911 6344 7389 7766 8.6 8.1 5.1 6.3 6.7 9.1 -3.3 -1.0 -5.0 33.8 38.4 13.3 26.7 11.0 71.7 63.7 21.1 24.8 -19.1 -11.9 231.0 222.1

Centre Fiscal Deficit % of GDP 5.7 5.2 4.6 4.1 3.9 3.5 3.5 3.4 3.5 3.3 FY19E EPS Growth (%) EPS Growth State Fiscal Deficit % of GDP 1.9 2 2.2 2.6 3.6 3 3.5 3.2 3.3 3.2 5 7 7 8 6 46 46 10 37 22 31 23 21 31 10 61 69 33 170 207 135 Consolidated Fiscal Deficit % of GDP 7.6 6.9 7.1 6.6 7.5 6.5 7 6.6 6.8 6.5 352 FY20E Exports US$ Bn 309.8 306.6 318.6 316.7 266.4 280.1 309 335.2 350.3 339.8 3 9 6 6 9 7 4 38 39 18 18 25 21 16 28 48 65 22 EPS ( ` ) 151 182 113 YoY Growth % 23.4 -1 3.9 -0.6 -15.9 5.2 10.3 8.5 4.5 -3 279 FY19E Imports US$ Bn 499.5 502.2 466.2 460.9 396.4 392.6 469 518.3 523.4 502.5 YoY Growth % 31.1 0.5 -7.2 -1.1 -14 -1 19.5 10.5 1 -4 3,031 5,469 2,685 7,132 4,396 5,980 8,580 3,774 5,500 2,001 1,826 FY20E 54,149 14,337 17,584 49,090 41,266 12,256 22,839 19,215 Trade Balance US$ Bn -189.8 -195.6 -147.6 -144.2 -130.1 -112.4 -160 -183 -173.1 -162.7 92,608 119,527 106,272

Net Invisibles US$ Bn 111.6 107.5 115.2 116.2 107.9 97.1 111.3 124.2 128 129.5 ` mn)

Current Account Deficit US$ Bn -78.2 -88.2 -32.4 -27.9 -22.2 -15.3 -48.7 -58.8 -45.1 -33.1 PAT ( 1,636 4,704 2,354 5,988 3,637 5,355 9,175 7,867 3,470 4,590 1,548 1,212 FY19E 45,489 58,758 11,758 15,461 43,597 36,353 84,225 19,075 14,321 CAD (% of GDP) % -4.2 -4.7 -1.7 -1.4 -1.1 -0.7 -1.9 -2.2 -2.5 -1.5 86,775 Capital Account Balance US$ Bn 67.8 89.3 48.8 90 41.1 36.5 91.4 60.5 83.5 53.5 8,196 8,161 4,340 9,490 4,973 8,084

Dollar-Rupee (Average) 47.9 54.4 60.5 61.2 65.5 67 64.5 70 68 67-68 4,419 3,604 FY20E 94,024 25,195 27,354 57,707 61,903 13,767 26,097 10,112 10,568 36,619 35,333 472,026 155,251 197,182 Source: RBI, CSO, CGA, Ministry of Agriculture, Ministry of commerce, Bloomberg, PhillipCapital India Research ` mn) 6,131 7,018 4,091 7,840 3,917 9,180 7,709 8,795 3,691 2,648 FY19E EBIDTA ( 80,413 21,503 23,790 51,068 53,107 12,090 21,335 31,449 24,961 351,017 129,782 179,137 FY20E 82,063 62,899 44,435 87,202 32,944 64,109 71,194 81,223 20,243 37,316 610,549 111,613 133,929 347,319 392,192 136,874 196,239 988,167 308,982 374,180 3,335,842 1,583,230 FY19E 69,266 57,294 45,500 75,214 99,672 24,509 56,963 66,676 71,118 17,085 30,885 Net Sales ( ` mn) 539,684 118,111 299,639 342,014 117,933 174,529 871,682 277,692 316,597 3,125,033 1,381,876 39 72 86 84 96 57 22 20 110 821 190 300 289 779 651 164 194 348 272 ` bn 1,144 2,775 1,805 Mkt Cap ` 38 87 87 71 645 739 255 214 603 472 112 286 206 727 228 506 286 CMP 2,984 2,512 1,054 6,666 1,349 Capital Goods Capital Automobiles Sector Automobiles Capital Goods Capital Automobiles Capital Goods Capital Automobiles Capital Goods Capital Automobiles Capital Goods Capital Automobiles Capital Goods Capital Automobiles Capital Goods Capital Automobiles Automobiles Automobiles Automobiles Automobiles Capital Goods Capital Capital Goods Capital Capital Goods Capital CG Power & Industrial Power CG Solutions Mahindra & Mahindra Mahindra Name of company Escorts GE T&D Tata Motors Tata Voltas Bharat Forge Bharat Bharat Electronics Bharat Bajaj Auto Engineers India Hero MotoCorp Hero KEC International Apollo Tyres Cummins India Mahindra CIE Mahindra Ceat Ramkrishna Forgings Ramkrishna Maruti Suzuki Ashok Leyland BHEL Larsen & Toubro VA Tech Wabag Tech VA

Valuation Summary PhillipCapital India Coverage Universe: Valuation

36 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 37 9.5 1.4 0.9 9.2 1.0 0.3 4.0 7.2 4.7 7.8 6.5 9.7 2.2 1.2 0.9 1.9 1.9 1.0 0.2 0.2 1.9 -0.0 11.9 33.0 12.9 13.7 12.6 12.5 10.2 15.4 11.7 13.5 55.6 23.0 27.8 24.7 18.2 19.4 10.5 36.9 28.7 28.1 22.8 68.0 FY20E FY20E 7.9 9.8 1.0 0.2 7.8 0.3 2.7 7.6 8.3 4.8 5.5 7.6 8.4 2.2 0.5 0.5 1.9 1.9 0.9 9.8 1.7 ROCE (%) ROCE (%) -0.2 -0.2 -0.1 -0.1 11.4 10.6 12.8 11.6 10.6 12.8 19.6 14.9 46.8 20.0 26.4 22.6 17.1 16.8 34.7 30.3 26.8 21.9 65.5 FY19E FY19E 8.8 6.5 3.5 3.5 8.1 9.3 9.4 4.5 3.9 -0.8 11.4 15.2 14.1 14.0 13.7 13.2 11.7 10.9 14.0 13.9 16.1 18.0 16.5 10.5 15.2 59.0 22.7 24.4 13.6 13.0 25.5 15.8 16.2 23.9 18.7 19.5 11.5 10.0 35.2 14.6 25.6 25.4 22.8 76.4 FY20E FY20E 8.1 3.5 5.6 1.0 7.0 3.0 4.0 8.9 8.3 5.4 7.8 9.4 -2.9 -3.0 -2.3 -2.1 ROE (%) ROE (%) 10.1 15.1 10.1 12.4 13.5 13.1 11.2 14.1 12.0 23.6 12.7 17.1 51.0 20.1 23.3 13.4 23.5 16.6 22.3 17.6 16.1 10.2 33.5 12.7 27.5 24.4 22.0 74.9 FY19E FY19E 1.6 7.5 0.0 0.0 0.0 3.9 2.1 4.4 4.6 1.2 1.7 2.2 0.0 0.0 0.0 0.0 0.0 0.4 0.0 0.0 0.0 0.0 0.0 -0.8 -4.5 -1.1 -1.4 -1.0 -0.1 -4.3 -5.7 -3.4 -1.1 -0.3 -3.6 -0.9 -0.0 -0.4 -1.0 -0.1 -0.5 -1.0 -0.3 -0.5 FY20E FY20E 0.2 8.8 0.0 0.0 0.0 4.7 3.7 3.2 5.5 1.1 3.0 1.9 1.6 0.0 0.0 0.0 0.1 0.0 0.0 0.6 0.0 0.0 0.1 0.0 0.0 0.0 -0.1 -2.9 -1.5 -1.1 -0.8 -4.9 -5.8 -1.9 -1.3 -0.4 -4.0 -0.6 -0.1 -0.7 -0.2 -0.6 -0.2 -0.4 EV/EBITDA (x) EV/EBITDA EV/EBITDA (x) EV/EBITDA FY19E FY19E 2.8 4.1 3.0 6.9 6.1 3.5 2.2 1.4 1.2 1.6 0.6 2.0 0.6 0.6 2.5 2.9 0.9 2.1 1.3 3.0 2.0 3.5 7.7 0.6 4.3 2.7 0.6 3.8 9.1 3.0 8.0 1.7 3.5 0.5 0.6 5.4 6.9 6.3 13.7 13.4 14.6 10.6 47.3 22.7 FY20E FY20E P/B (x) P/B (x) 3.4 5.0 3.1 7.8 6.9 3.9 2.4 1.5 1.4 1.8 0.7 2.2 0.6 0.6 2.9 3.0 0.9 2.4 1.3 3.3 2.1 4.4 8.8 0.6 4.7 3.0 0.7 4.3 9.8 3.5 8.2 2.1 3.8 0.5 0.6 6.2 8.3 6.8 16.5 15.0 16.5 13.4 53.7 21.8 FY19E FY19E 9.4 4.2 4.3 18.7 46.2 21.1 49.2 44.2 26.6 19.5 12.8 11.7 10.9 10.4 18.3 15.2 27.1 25.8 13.6 15.6 32.4 21.1 30.6 34.1 56.0 32.9 21.9 52.6 24.8 38.1 17.1 41.3 17.1 34.9 41.5 12.1 15.4 39.7 26.8 41.6 27.7 61.9 38.5 -79.7 FY20E FY20E P/E (x) P/E (x) 9.4 9.6 22.3 49.8 25.3 57.4 52.6 35.0 30.2 10.5 39.9 14.7 14.0 66.4 41.2 23.5 31.8 14.3 34.0 37.2 25.2 43.6 43.7 70.8 32.1 57.1 64.0 29.9 43.9 21.2 50.9 21.6 40.7 49.3 52.3 30.2 54.8 30.7 71.6 42.7 -24.8 -22.1 -25.7 -33.7 FY19E FY19E 7.7 5.0 -2.6 18.8 20.0 16.7 18.8 31.6 54.7 25.3 23.4 14.7 19.3 42.5 28.1 26.4 21.6 20.5 15.2 24.3 23.3 25.9 16.6 18.8 31.7 12.6 31.9 10.9 15.8 10.8 -17.9 -13.9 -13.2 -72.3 323.5 234.2 263.1 170.3 117.3 160.8 123.3 FY20E FY20E -338.8 -313.2 -319.6 9.2 6.6 0.7 4.2 9.6 -5.2 -7.0 39.4 21.7 30.8 31.7 42.8 28.1 20.3 16.3 95.0 41.4 13.2 15.7 11.4 15.1 25.9 12.3 23.7 15.5 23.2 14.8 54.9 11.0 44.9 12.5 -26.5 -92.3 -25.2 -11.1 -25.0 -38.4 -14.3 -12.6 -92.8 -96.9 102.3 FY19E -206.0 -191.2 FY19E EPS Growth (%) EPS Growth EPS Growth (%) EPS Growth 8 6 2 8 9 9 7 6 -3 10 25 77 30 37 21 29 33 57 28 26 24 33 18 75 10 21 61 35 28 59 93 17 94 12 17 35 32 11 28 31 447 151 213 108 FY20E FY20E 8 8 8 2 9 2 7 8 9 8 7 -3 -3 -3 24 64 26 28 14 36 46 30 38 66 16 62 13 23 26 78 15 76 10 EPS ( ` ) 14 27 96 24 10 25 28 EPS ( ` ) -12 377 106 166 FY19E FY19E 135 597 482 404 2,206 9,035 6,372 4,365 3,864 4,686 1,805 2,870 2,335 3,220 6,711 8,968 4,255 4,165 5,452 4,216 8,540 FY20E FY20E -3,069 14,545 15,581 19,079 82,427 27,533 20,725 43,593 18,358 92,340 26,680 28,311 17,466 56,456 11,181 12,423 66,508 12,983 61,361 303,369 103,709 252,696 133,156 ` mn) ` mn) 87 497 483 222 347 PAT ( PAT ( 1,857 8,391 5,460 3,316 4,709 5,443 1,062 2,691 3,068 5,849 7,001 3,450 3,034 9,411 3,197 7,705 FY19E FY19E -5,826 -2,482 12,118 13,117 69,410 15,225 24,663 17,375 29,101 14,521 90,437 35,226 21,940 12,679 15,159 45,412 50,518 11,532 52,990 -11,529 -11,060 209,779 120,045 262 800 4,302 6,651 4,880 5,824 8,661 7,558 8,492 3,227 5,459 1,423 8,789 8,648 7,672 FY20E FY20E 12,719 24,035 10,884 33,991 27,685 25,127 49,261 95,461 11,248 26,807 42,888 67,486 24,799 15,342 88,209 47,279 21,014 85,178 14,239 692,955 169,687 118,933 117,022 163,131 213,628 463,872 102,087 113,721 193,139 ` mn) ` mn) 223 703 3,943 9,397 5,000 5,776 7,470 6,789 5,387 8,089 2,507 5,098 1,027 8,834 7,791 6,338 6,030 FY19E FY19E EBIDTA ( EBIDTA ( 12,309 19,659 28,024 25,081 96,986 23,856 42,805 73,031 96,973 21,305 35,692 55,390 22,017 82,604 12,946 76,712 40,944 88,783 17,925 72,760 12,867 594,257 133,603 162,341 179,754 381,497 173,818 306 9,562 FY20E FY20E 22,447 69,746 27,875 36,630 62,467 41,810 51,024 13,050 20,748 11,339 45,852 89,708 31,378 14,972 84,100 57,178 41,123 50,504 126,099 158,128 116,357 147,398 202,808 222,890 211,645 101,813 283,283 497,438 169,710 222,178 153,879 222,789 258,215 121,084 567,826 117,349 124,228 142,486 124,596 485,353 390,450 1,008,337 256 8,709 FY19E FY19E 21,394 54,849 29,431 45,178 56,402 37,739 48,918 11,210 18,402 10,765 92,979 40,970 74,915 93,670 28,004 11,776 75,189 48,359 35,708 45,971 Net Sales ( ` mn) Net Sales ( ` mn) 126,399 147,483 108,383 119,963 865,140 182,158 182,743 167,584 267,822 390,413 138,482 187,944 133,590 194,454 215,460 109,334 467,627 108,547 113,145 110,585 441,878 339,260 7 36 69 36 38 53 24 48 50 16 52 361 287 256 606 137 322 171 395 243 239 449 286 213 812 175 905 258 103 453 767 191 305 ` bn ` bn 1,960 2,667 1,148 3,339 1,354 1,475 5,526 1,210 2,496 3,716 3,810 Mkt Cap Mkt Cap ` ` 85 61 84 97 182 975 408 377 310 668 117 278 107 372 903 105 283 221 260 767 252 652 387 212 580 359 301 CMP CMP 1,173 1,632 1,479 2,438 4,617 7,278 1,159 1,995 1,463 2,317 1,607 1,387 2,896 1,329 1,758 1,208 19,790 Cement Capital Goods Capital Sector Cement Capital Goods Capital Cement Capital Goods Capital Banks Capital Goods Capital Banks Capital Goods Capital Banks Capital Goods Capital Banks Cement Cement Cement Cement Cement Cement Cement Cement Cement FMCG Banks Sector FMCG Banks FMCG Banks Banks FMCG Banks Banks FMCG Banks FMCG Banks FMCG Banks Banks FMCG FMCG FMCG FMCG FMCG HeidelbergCement HeidelbergCement India Siemens Name of company ACC ABB India Shree Cement Shree Thermax ICICI Bank Cochin Shipyard Cochin State Bank ofState India Hindustan Aeronautics Bank of Baroda Bharat Dynamics Bharat Punjab National Bank Punjab India Cement JK Lakshmi Cement Lakshmi JK JK Cement JK Sanghi Cement Star Cement Star Mangalam Cement Dalmia Bharat Dalmia Bharat Ambuja Cement Ultratech Cement Ultratech Glaxo Smithkline Glaxo Consumer Canara Bank Canara Name of company Titan Company Titan HDFC Limited Asian Paints AXIS Bank Indian Bank Godrej Consumer Consumer Godrej Products HDFC Bank Indusind Bank Emami DCB Bank Agro Tech Foods Tech Agro Union Bank Marico Industries Oriental Bank of Commerce Kotak Mahindra Bank Mahindra Kotak Britannia Jubilant Foodworks ITC Hindustan Unilever Colgate

Valuation Summary PhillipCapital India Coverage Universe: Valuation

Valuation Summary PhillipCapital India Coverage Universe: Valuation

38 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 39 - 8.8 3.8 35.2 27.1 26.4 39.8 15.4 20.0 21.6 29.6 14.3 27.5 30.2 29.5 11.9 23.5 21.8 11.0 11.9 13.6 10.9 2.5 3.1 9.5 5.5 8.4 2.8 5.0 22.1 19.1 16.7 15.6 20.8 29.3 14.3 14.6 12.1 10.0 11.3 14.5 11.9 14.0 FY20E FY20E -113.4 9.9 4.8 9.7 ROCE (%) 34.6 24.9 25.2 42.4 15.7 18.1 23.4 28.5 14.7 23.5 30.9 31.8 15.1 24.3 22.1 12.1 13.2 11.8 12.4 2.5 3.0 7.9 5.4 8.0 2.9 8.0 8.3 9.9 3.7 9.8 ROCE (%) FY19E 20.7 18.3 15.2 15.2 20.9 27.9 12.7 10.7 12.1 12.0 FY19E -114.3

- 8.2 9.9 32.9 26.4 25.0 40.4 15.8 16.2 22.0 45.2 18.5 19.3 29.6 10.8 29.0 12.9 21.8 21.5 11.8 17.2 12.5 5.1 FY20E 21.2 17.7 19.4 25.2 15.7 20.3 30.2 32.4 21.0 10.0 14.5 14.0 11.9 12.5 14.6 11.4 14.4 12.5 17.4 FY20E -109.5 - ROE (%) 36.3 26.9 25.5 43.3 16.2 14.1 24.0 43.6 20.0 16.1 31.8 12.9 32.7 16.6 13.7 22.4 21.8 12.7 18.7 11.9 11.6 11.2 8.5 8.0 9.7 9.9 3.2 ROE (%) FY19E 20.0 19.7 18.5 22.8 15.6 20.9 29.3 30.3 22.1 15.3 11.2 11.7 12.1 10.3 14.7 FY19E -110.8 - 0.0 0.0 0.2 0.3 0.1 1.7 2.4 0.6 5.3 1.5 1.8 1.4 1.4 -0.1 -1.6 -1.0 -0.4 -0.5 -0.0 -0.7 -0.4 0.0 2.1 0.1 0.0 1.5 0.0 0.0 1.3 1.5 2.7 0.9 1.7 0.2 0.7 -0.2 -1.5 -0.4 -1.6 -0.2 -1.1 -1.2 -1.4 FY20E FY20E 0.0 0.5 0.0 0.4 0.7 0.2 2.0 2.9 0.1 0.6 4.2 1.3 2.3 1.5 1.5 1.1 -1.5 -0.8 -0.2 -0.3 -0.4 -0.4 0.0 2.6 0.0 0.0 1.1 0.0 0.0 1.5 1.5 3.0 1.2 2.7 0.5 0.8 -1.3 -0.2 -1.2 -0.2 -1.0 -1.3 -1.5 -0.1 EV/EBITDA (x) EV/EBITDA FY19E EV/EBITDA (x) EV/EBITDA FY19E - 4.5 2.1 2.1 3.3 3.3 1.9 5.4 1.7 6.4 2.2 0.6 4.2 2.3 1.7 2.9 1.1 1.4 8.0 2.6 2.1 4.5 1.9 2.4 3.4 1.7 3.0 2.2 2.2 1.6 2.9 0.6 0.7 3.2 1.4 2.2 0.3 1.2 3.4 9.1 10.9 11.4 24.5 10.1 FY20E FY20E P/B (x) P/B (x) 5.0 2.4 2.5 3.9 3.7 2.3 6.7 1.9 8.1 2.5 0.7 5.0 2.8 1.9 3.4 1.3 1.7 1.5 3.6 2.4 5.7 2.2 2.7 4.0 2.0 3.3 2.6 2.4 1.8 3.3 0.7 0.8 3.6 1.4 2.4 0.3 1.3 3.8 12.8 11.6 27.6 10.0 11.5 10.9 FY19E FY19E - 9.8 7.6 8.9 5.7 5.1 5.6 5.1 9.3 41.3 17.9 28.2 13.5 12.9 15.0 54.2 17.9 18.1 15.9 22.1 17.9 19.3 11.8 15.3 16.5 13.8 24.5 -2.2 17.4 10.7 17.9 12.2 16.7 33.5 29.2 11.5 21.8 11.4 21.0 22.1 12.3 15.5 19.5 43.1 FY20E FY20E P/E (x) P/E (x) 4.9 7.0 6.9 7.0 8.6 47.6 19.8 26.8 15.0 17.4 16.3 63.4 18.7 14.0 21.2 14.8 24.9 16.1 22.1 14.4 15.9 18.0 10.6 14.9 13.5 27.4 -2.4 19.7 13.1 25.2 13.9 19.1 39.3 26.1 12.8 28.6 12.1 40.7 30.5 14.3 19.7 12.3 26.1 54.4 FY19E FY19E - 8.5 4.1 4.0 9.0 -5.1 -7.0 -2.0 6.5 15.4 11.1 11.0 35.3 16.8 42.4 16.8 12.6 14.6 22.2 18.3 12.0 -10.1 -36.1 13.2 22.9 40.7 13.3 12.0 14.9 17.5 22.7 11.7 31.2 93.9 34.9 25.1 38.0 16.2 27.1 68.2 32.6 33.6 26.3 -10.4 FY20E FY20E

7.5 1.5 6.3 3.5 9.0 8.9 -2.8 -2.4 12.3 48.7 15.0 35.4 36.3 19.2 24.5 40.0 11.2 27.5 31.3 55.8 21.9 8.5 8.5 1.5 -23.1 -7.1 -3.7 13.4 17.8 33.0 13.6 47.6 22.1 18.9 35.4 22.1 16.3 20.9 28.0 FY19E -42.0 133.8 100.1 EPS Growth (%) EPS Growth FY19E -867.8 EPS Growth (%) EPS Growth

9 8 7 7 7 7 5 10 42 14 22 19 79 47 32 95 15 79 13 16 51 28 10 24 11 92 80 55 32 52 78 23 52 24 21 11 32 12 14 201 123 145 -201 FY20E FY20E 8 9 8 9 9 3 5 6 9 4 9 4 38 15 20 14 73 45 23 81 16 70 15 44 25 23 10 22 82 EPS ( ` ) 71 45 23 46 68 20 47 18 15 25 10 EPS ( ` ) 172 100 136 -180 FY19E FY19E n.a. n.a. 444 679 840 228 984 2,033 1,581 2,555 7,984 1,881 8,330 5,631 1,852 2,538 6,661 2,529 6,209 3,235 4,159 4,754 1,023 9,585 1,168 1,456 1,179 2,856 1,256 2,152 FY20E FY20E 17,023 99,368 19,383 41,204 16,169 49,167 13,104 14,469 52,362 20,858 15,512 -30,799 183,030 106,961 346,343 ` mn) ` mn) 312 PAT ( 518 602 623 166 585 940 PAT ( 2,142 1,168 2,748 7,091 2,092 7,269 8,818 1,515 2,440 5,630 1,423 2,581 5,054 2,299 3,670 4,136 1,141 8,999 1,163 1,015 2,154 1,704 FY19E FY19E 14,757 89,507 98,613 16,594 39,556 13,838 45,107 11,047 12,313 42,676 18,668 12,200 -27,503 164,759 309,293 n.a. n.a. 969 999 675 938 2,834 2,999 5,514 4,293 3,142 5,376 5,212 8,146 6,092 6,351 7,390 1,683 1,658 2,203 3,005 1,990 5,346 3,057 2,975 FY20E FY20E 20,703 31,700 63,272 19,403 10,358 12,181 29,094 84,840 15,267 25,845 19,881 74,924 33,911 25,483 18,617 -29,690 241,069 129,910 156,417 451,312 ` mn) ` mn) 725 673 886 527 830 2,608 2,395 4,595 8,644 3,702 2,618 4,038 3,633 4,169 6,871 4,392 5,806 6,353 1,292 1,742 2,395 1,485 4,462 2,366 2,362 FY19E FY19E EBIDTA ( EBIDTA ( 18,063 27,730 59,868 16,970 10,438 33,393 73,751 13,011 21,704 16,582 63,889 30,347 23,443 14,790 -26,639 214,604 119,394 139,539 398,821

n.a. n.a. n.a. n.a. 9,452 6,741 4,595 6,125 FY20E FY20E 98,860 26,335 19,151 47,949 57,493 26,016 77,605 71,725 23,711 37,596 41,694 44,543 54,837 77,716 37,351 41,785 16,996 63,661 49,935 11,278 40,510 13,303 23,096 22,768 81,640 74,358 23,774 30,405 911,492 613,718 659,799 126,945 368,645 105,107 126,480 138,789 114,610 1,635,178 n.a. n.a. 8,670 FY19E 87,538 22,366 15,937 91,020 39,958 49,156 20,012 9,629 68,009 69,265 19,759 27,849 33,026 32,072 5,709 4,297 4,731 FY19E Net Sales ( ` mn) 36,815 47,287 67,398 819,541 570,529 34,109 592,332 36,169 112,792 341,217 14,165 53,594 44,850 37,000 10,794 112,389 20,698 115,658 20,304 66,658 67,405 21,203 26,496 Net Sales ( ` mn) 100,219 1,453,554 6 61 26 49 33 69 21 40 6 55 23 41 5 78 62 771 67 94 79 996 649 296 26 146 15 157 15 829 17 19 20 31 31 90 ` bn 224 400 586 165 128 313 2,977 ` bn 1,259 1,343 7,578 Mkt Cap Mkt Cap ` ` 99 398 751 389 299 242 836 317 237 240 981 122 326 151 393 36 124 124 41 34 CMP 590 572 636 440 775 227 695 597 524 137 466 134 493 108 271 218 1,183 1,717 1,737 2,260 CMP 1,389 1,294 10,905 1,652 IT Services IT NBFC Sector Midcap IT Services IT Midcap IT Services IT Midcap IT Services IT NBFC NBFC IT Services IT NBFC Logistics Logistics Logistics Logistics Logistics Logistics Logistics Logistics Midcap Midcap FMCG IT Services IT Sector FMCG IT Services IT FMCG IT Services IT FMCG IT Services IT FMCG IT Services IT Infrastructure IT Services IT Infrastructure IT Services IT Infrastructure Infrastructure Infrastructure Infrastructure Infrastructure Infrastructure Infrastructure IT Services IT - Cyient Limited Cyient vestment and Finance Name of company Bajaj Electricals Persistent Systems Persistent Finolex Cables Cables Finolex NIIT Technologies NIIT Havells India Intellect Design Arena Indiabulls Housing Finance Muthoot Finance Majesco Shriram City Union Shriram Finance Praj Inds. Praj Cholamandalam In Pennar Inds. Pennar Indo Count Industries Indo Count KDDL Gateway Distriparks Container Corp Of Corp Container India Navkar Allcargo Logistics Allcargo VRL Logistics Logistics VRL V-Guard Industries V-Guard Dabur India Infosys Technologies Name of company Bajaj Corp Wipro Parag Milk Foods Parag HCL Technologies HCL Nestle Tech Mahindra Tech Thangamayil Thangamayil L&T Infotech L&T Sadbhav Engineering L&T Technology Technology L&T Services KNR Construction Mindtree Mindtree IRB Infrastructure Ahluwalia Contracts PNC Infratech PNC Infratech Adani Ports & SEZ Adani Ports NCC ITD Cementation ITD Cementation Ashoka Buildcon Ashoka Tata Consultancy Tata Valuation Summary PhillipCapital India Coverage Universe: Valuation

Valuation Summary PhillipCapital India Coverage Universe: Valuation

40 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 41 ------2.5 8.9 1.3 2.2 1.2 2.4 4.9 2.5 Disclosures and Disclaimers employees, directors, associates, and/or employees, directors, associates of PhillipCapital’s group 11.0 16.1 15.5 13.1 18.7 12.0 10.4 11.0

FY20E entities or affiliates is not inducing you for trading/investing in the financial market(s). Trading/ PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional ------Investment decision is your sole responsibility. You must also read the Risk Disclosure Document 2.4 7.2 1.2 2.2 1.1 2.3 4.9 2.4 8.8 9.6 Equities, Institutional Equity Derivatives and Private Client Group. This report has been prepared by ROCE (%) 10.0 11.1 14.8 11.7 17.5 11.3 and Do’s and Don’ts before investing.

FY19E Institutional Equities Group. The views and opinions expressed in this document may or may not match or may be contrary at times with the views, estimates, rating, target price of the other equity Kindly note that past performance is not necessarily a guide to future performance. research groups of PhillipCapital (India) Pvt. Ltd. For Detailed Disclaimer: Please visit our website www.phillipcapital.in 17.1 13.8 15.2 16.9 16.2 15.5 11.8 19.0 14.3 19.4 22.3 23.1 13.2 23.9 16.1 14.8 17.7 17.9 15.5 12.3 19.2 10.2 14.7 FY20E This report is issued by PhillipCapital (India) Pvt. Ltd. which is regulated by SEBI. PhillipCapital IMPORTANT DISCLOSURES FOR U.S. PERSONS (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall This research report is a product of PhillipCapital (India) Pvt. Ltd. which is the employer of the 3.9 7.5 ROE (%) 16.7 11.7 15.6 15.7 11.2 15.8 11.7 18.2 13.6 19.3 23.8 13.3 23.6 16.8 13.9 17.2 17.7 15.9 10.6 17.4 13.3 mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed research analyst(s) who has prepared the research report. PhillipCapital (India) Pvt Ltd. is authorized FY19E by PCIPL for information purposes only and neither the information contained herein nor any opin- to engage in securities activities in India. PHILLIPCAP is not a registered broker-dealer in the United ion expressed should be construed or deemed to be construed as solicitation or as offering advice States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and Source: PhillipCapital India Research Estimates India Research PhillipCapital Source: 0.0 0.8 0.0 1.7 0.3 0.0 0.0 0.7 0.0 0.0 1.8 2.1 0.0 0.6 0.3 0.6 0.1 1.5 1.3 for the purposes of the purchase or sale of any security, investment or derivatives. The information -1.0 -0.2 -0.1 -0.6 the independence of research analysts. This research report is provided for distribution to “major

FY20E and opinions contained in the Report were considered by PCIPL to be valid when published. The U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 report also contains information provided to PCIPL by third parties. The source of such information of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). If the recipient of 0.0 1.3 0.0 2.2 0.9 0.0 0.0 1.3 0.0 0.0 5.5 2.3 0.0 1.1 0.3 0.8 1.1 1.5 0.5 2.1 1.7 will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this -0.5 -0.0 this report is not a Major Institutional Investor as specified above, then it should not act upon this EV/EBITDA (x) EV/EBITDA FY19E information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such report and return the same to the sender. Further, this report may not be copied, duplicated and/or information. Any person placing reliance on the report to undertake trading does so entirely at his transmitted onward to any U.S. person, which is not a Major Institutional Investor. 1.5 3.2 1.4 3.0 5.2 1.5 0.4 1.2 2.1 1.9 1.2 5.1 1.1 7.0 3.3 3.3 2.8 5.9 2.7 2.3 2.6 2.6 2.4 or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or FY20E may be subject to rapid and unexpected price movements and past performance is not necessarily related financial instruments based on the information provided in this research report should do so an indication to future performance.

P/B (x) only through Rosenblatt Securities Inc, 40 Wall Street 59th Floor, New York NY 10005, a registered 1.7 3.6 1.6 3.6 6.2 1.7 0.4 1.4 2.3 2.2 1.5 6.5 1.2 9.1 3.8 3.8 3.4 6.8 3.2 0.0 2.9 2.8 2.8 This report does not have regard to the specific investment objectives, financial situation and broker dealer in the United States. Under no circumstances should any recipient of this research FY19E the particular needs of any specific person who may receive this report. Investors must undertake report effect any transaction to buy or sell securities or related financial instruments through independent analysis with their own legal, tax and financial advisors and reach their own regarding PHILLIPCAP. Rosenblatt Securities Inc. accepts responsibility for the contents of this research report, 9.3 3.5 6.2 5.9 8.8 23.1 10.1 17.9 31.2 10.2 15.3 10.6 22.6 29.1 20.1 22.2 16.1 32.7 16.4 18.6 22.3 24.8 16.6 the appropriateness of investing in any securities or investment strategies discussed or recommend- subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a FY20E ed in this report and should understand that statements regarding future prospects may not be major U.S. institutional investor. realized. In no circumstances it be used or considered as an offer to sell or a solicitation of any offer P/E (x) The analyst whose name appears in this research report is not registered or qualified as a research 3.9 7.9 11.1 30.9 11.4 22.8 53.1 11.6 18.2 12.4 68.0 28.1 10.0 38.7 22.5 27.7 19.8 38.4 19.1 15.8 29.3 36.5 21.3 to buy or sell the Securities mentioned in it. The information contained in the research reports may analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated FY19E have been taken from trade and statistical services and other sources, which we believe are reliable. person of Rosenblatt Securities Inc. and, therefore, may not be subject to applicable restrictions PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that under FINRA Rules on communications with a subject company, public appearances and trading 19.3 33.6 13.6 26.9 70.1 13.2 11.7 27.5 18.8 17.7 24.5 13.7 33.0 12.1 25.2 23.3 17.7 16.4 32.3 31.2 47.1 28.7 such information is accurate or complete and it should not be relied upon as such. Any opinions

FY20E securities held by a research analyst account. 1,044.7 expressed reflect judgments at this date and are subject to change without notice Ownership and Material Conflicts of Interest Important: These disclosures and disclaimers must be read in conjunction with the research Rosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as determined in accordance 8.9 2.9 5.2 8.8 -7.4 -1.1 -1.5 report of which it forms part. Receipt and use of the research report is subject to all aspects of these 53.7 59.9 10.3 55.8 23.0 59.3 14.2 41.0 27.7 76.2 60.7 79.9 42.1

-20.1 with Section 13(d) of the Exchange Act, 1% or more of any of the equity securities mentioned in the 131.7 FY19E -126.9 EPS Growth (%) EPS Growth disclosures and disclaimers. Additional information about the issuers and securities discussed in report. Rosenblatt Securities Inc, its affiliates and/or their respective officers, directors or employees this research report is available on request. may have interests, or long or short positions, and may at any time make purchases or sales as a 8 49 19 41 39 11 26 11 72 14 62 43 51 53 20 25 25 35 39 119 127 143 171 Certifications: The research analyst(s) who prepared this research report hereby certifies that the principal or agent of the securities referred to herein. Rosenblatt Securities Inc. is not aware of any

FY20E views expressed in this research report accurately reflect the research analyst’s personal views about material conflict of interest as of the date of this publication all of the subject issuers and/or securities, that the analyst have no known conflict of interest and Compensation and Investment Banking Activities 8 9 1 95 43 11 36 35 22 58 12 47 34 41 45 17 19 19 24 30 EPS ( ` ) 100 113 152 no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the Rosenblatt Securities Inc. or any affiliate has not managed or co-managed a public offering of

FY19E specific views or recommendations contained in this research report. The Research Analyst certifies securities for the subject company in the past 12 months, nor received compensation for investment that he /she or his / her family members does not own the stock(s) covered in this research report. 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 935 Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship 8,216 2,561 2,705 9,410 5,846 3,801 3,181 5,067 5,381 2,031

FY20E company in the next 3 months. 27,043 21,627 24,931 11,400 12,118 16,084 29,690 14,198 20,278 59,037 15,881 10,865 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 Additional Disclosures ` mn) receiving or intend to seek compensation for investment banking services from the subject issuers This research report is for distribution only under such circumstances as may be permitted by 82 applicable law. This research report has no regard to the specific investment objectives, financial PAT ( in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities 6,473 6,703 2,263 2,121 7,997 4,694 3,343 2,392 4,519 4,299 1,548 8,445 FY19E 22,676 16,187 21,941 10,849 13,535 24,087 12,066 17,422 44,636 10,798 mentioned in this research report, although it or its affiliates may hold either long or short positions situation or particular needs of any specific recipient, even if sent only to a single recipient. This in such securities. PhillipCapital (India) Pvt. Ltd does not hold more than 1% of the shares of the research report is not guaranteed to be a complete statement or summary of any securities, company(ies) covered in this report. 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, 4,461 5,690 2,010 7,952 4,803 8,300 8,187 5,045 FY20E Suitability and Risks: This research report is for informational purposes only and is not tailored 65,026 37,664 38,672 16,351 19,028 20,488 34,922 14,981 10,809 47,673 20,450 30,971 88,400 35,197 21,327 inaccuracy or incompleteness of fact or opinion in this research report or lack of care in this research ` mn) to the specific investment objectives, financial situation or particular requirements of any individual report’s preparation or publication, or any losses or damages which may arise from the use of this recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for research report.

805 certain investors. Each investor must make its own determination as to the appropriateness of any PHILLIPCAP may rely on information barriers, such as “Chinese Walls” to control the flow of 4,036 4,492 9,196 7,229 3,566 7,400 6,786 4,204 FY19E EBIDTA ( 58,499 30,870 33,649 13,491 12,589 18,188 30,778 12,737 39,512 17,321 26,981 71,190 28,092 17,990 securities referred to in this research report based upon the legal, tax and accounting considerations information within the areas, units, divisions, groups, or affiliates of PHILLIPCAP. applicable to such investor and its own investment objectives or strategy, its financial situation and Investing in any non-U.S. securities or related financial instruments (including ADRs) discussed its investing experience. The value of any security may be positively or adversely affected by changes in this research report may present certain risks. The securities of non-U.S. issuers may not be in foreign exchange or interest rates, as well as by other financial, economic or political factors. Past registered with, or be subject to the regulations of, the U.S. Securities and Exchange Commission. 5,178 FY20E 83,540 44,281 82,582 70,124 24,955 23,924 51,332 12,182 26,452 56,591 14,466 14,538 44,621 42,411 55,270 18,687 performance is not necessarily indicative of future performance or results. 174,370 216,697 136,026 352,607 181,374 107,869 Information on such non-U.S. securities or related financial instruments may be limited. Foreign Sources, Completeness and Accuracy: The material herein is based upon information obtained companies may not be subject to audit and reporting standards and regulatory requirements from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the comparable to those in effect within the United States. 4,647 8,561 research analyst represents or guarantees that the information contained herein is accurate or The value of any investment or income from any securities or related financial instruments FY19E 74,407 38,520 72,923 54,227 20,700 21,225 45,153 23,080 48,399 13,261 10,075 40,437 36,299 46,815 16,488 96,271 Net Sales ( ` mn) 154,350 189,052 122,342 304,948 161,691 complete and it should not be relied upon as such. Opinions expressed herein are current opinions discussed in this research report denominated in a currency other than U.S. dollars is subject to as of the date appearing on this material and are subject to change without notice. Furthermore, exchange rate fluctuations that may have a positive or adverse effect on the value of or income from PCIPL is under no obligation to update or keep the information current. such securities or related financial instruments. 38 24 11 95 40 51 87 97 378 325 272 100 351 196 312 103 365 320 386 105 516 401 169 ` bn Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are 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 Mkt Cap reserved. Any unauthorized 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 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 ` internal circulation only and only if it is reprinted in its entirety. 66 46 497 594 417 135 401 118 125 953 819 325 458 565 872 638 recommendation or opinion contained in this research report may become outdated as a CMP 2,934 1,111 2,568 1,623 1,802 3,427 1,747 Caution: Risk of loss in trading/investment can be substantial and even more than the amount / consequence of changes in the environment in which the issuer of the securities under analysis margin given by you. Investment in securities market are subject to market risks, you are requested operates, in addition to changes in the estimates and forecasts, assumptions and valuation to read all the related documents carefully before investing. You should carefully consider whether methodology used herein. trading/investment is appropriate for you in light of your experience, objectives, financial resources No part of the content of this research report may be copied, forwarded or duplicated in any form or and other relevant circumstances. PhillipCapital and any of its employees, directors, associates, by any means without the prior written consent of PHILLIPCAP and PHILLIPCAP accepts no liability Sector Pharma NBFC NBFC Pharma NBFC Spec Chem Spec Chem NBFC NBFC Spec Chem NBFC NBFC Spec Chem Spec Chem Pharma Spec Chem Pharma Pharma Pharma Pharma Pharma Pharma Pharma group entities, or affiliates shall not be liable for losses, if any, incurred by you. You are further whatsoever for the actions of third parties in this respect. cautioned that trading/investments in financial markets are subject to market risks and are advised PhillipCapital (India) Pvt. Ltd. to seek independent third party trading/investment advice outside PhillipCapital/group/associates/ Registered office: 18th floor, Urmi Estate, Ganpatrao Kadam Marg, Lower Parel (West), Mumbai – affiliates/directors/employees before and during your trading/investment. There is no guarantee/ 400013, India. assurance as to returns or profits or capital protection or appreciation. PhillipCapital and any of its LIC Housing Finance Name of company Transport Shriram Finance Dr Reddy's Labs. Dr Reddy's Biocon Repco Home Finance Home Finance Repco Meghmani Organics Meghmani Organics SRF Dewan Housing Finance Mahindra & Mahindra & Mahindra Mahindra Finance Camlin Fine Sciences Fine Camlin Manappuram Finance Manappuram Magma Fincorp Aarti Industries Vinati Organics Ipca Laboratories Atul Aurobindo Pharma Aurobindo Divi's Laboratories Healthcare Cadila Sun Pharma Cipla Lupin Glenmark Pharma

Valuation Summary PhillipCapital India Coverage Universe: Valuation

42 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 43 inhousedesign.co.in

44 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW PB