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 washing machine 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 laundry 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 laundry detergent 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 Vineet Bhatnagar 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400 013 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? premium products. Two recent events are even launching their own premium _____________________________________ – 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 stains 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,”