Institutional Equities

Consumer Sector 19 June 2021

Staples growth sustained; Full recovery in discretionary still awaited Vishal Punmiya With decline in COVID cases and subsequent rise in mobility, 4QFY21 witnessed sequential improvement in overall demand. Sales of our consumer coverage universe (ex-BKIL) grew by 25.8% YoY in 4QFY21 on a base which was Research Analyst affected by some impact from the outbreak of the pandemic (two-year average growth was in high-single digit). [email protected] This was against our estimate of 20.4% YoY, largely on account of better-than-expected performance of Paint +91-22-6273 8064 companies and a slightly better performance by FMCG companies. Non-essential FMCG categories and other consumer discretionary sectors (Alco-bev and QSR) moved from recovery to growth during 4QFY21. Overall growth was driven by continued strong momentum in rural areas and small towns, accompanied by improving VideeshaSheth demand in metros and urban areas. While certain raw material prices continued to see sharp inflation YoY, price Research Associate hikes and sustained cost savings led to modest EBITDA margin expansion of ~20bps YoY for the overall coverage [email protected] universe. EBITDA and Adjusted PAT improved by ~27% YoY and ~22% YoY, respectively. The current quarter i.e., +91-22-6273 8188 1QFY22 will directionally mirror 1QFY21, wherein essentials will stay relevant and discretionary/non-essential

consumption will be affected. But sales growth would be optically sharp on account of the impacted base. In a scenario where valuations are stretched, we find comfort in consumer stocks where the story remains fundamentally strong and likelihood of near-term earnings disappointment is low. We continue to have positive outlook on HUL and in the FMCG space. WDL (QSR) and UNSP & UBL (Alco-Bev) will benefit in the near term from opening-up of markets. But, one-year valuations on some of these names look fair. Valuations for the domestic decorative paint companies in our coverage look expensive. FMCG sector: 4QFY21 performance was a mixed bag vs our estimates. Consumer Staple companies (ex-Gillette and ITC) recorded revenue growth of 25.1% YoY, only slightly ahead of the overall FMCG sector’s growth of 24.3% YoY, thereby reflecting the revival in discretionary portfolio. Barring BRIT and ITC, our coverage companies recorded double-digit volume growth YoY on the back of a negative base. With two-year average volume growth of ~11% and ~9.5% for Marico (high

demand for Saffola) and (high demand for healthcare & pain management portfolio), respectively, volume growth for both these companies surpassed pre-covid levels (see exhibit 7). While urban demand saw sequential recovery (growth in some cases), rural continued to outperform urban growth. As per market research body Nielsen, (see exhibits 10 & 11), industry’s value growth improved for the third consecutive quarter and stood at 9.4% YoY in 1QCY21 (4QFY21), driven by improvement in demand and increase in prices. Rural markets continued to grow in double digits at 14.6% YoY (vs.14.2% in 3QFY21), but the spread of the pandemic in rural areas may result in demand slowdown in 1QFY22. Contribution of new product developments (NPDs) to topline was in the range of low to mid-single digits. General trade continued to demonstrate growth momentum. Modern trade, although recovering sequentially, was still under pressure. E-commerce growth has meant that the channel saliency continues to increase (now ranging from 3-8% compared to 1-5% earlier). Inflationary pressure in key raw materials (Palm oil, tea, copra, edible oil, packaging material) prompted companies to take price hikes in their respective portfolios. However, improved product mix and sustained cost management efforts led to 4QFY21 Result Result Review 4QFY21 EBITDA margin expansion of ~130bps YoY for Consumer Staple companies (highest for CLGT and Emami). Paints sector: APNT and BRGR clocked robust double-digit domestic decorative volume growth on the back of good demand across rural and urban areas, pick-up in the project business, expansion of distribution, partial element of pent-up demand and a relatively low base. As evident from the 2-year average growth in domestic decorative volume (see exhibit 7), ~25.5% for APNT and ~23% for BRGR, demand for decorative paints has significantly surpassed pre-covid level. Consequent to the stellar volume growth, aided by higher demand for luxury & premium products and strong growth in other businesses, sales growth for our coverage companies came in at 44.7% YoY. The entire sector has seen inflationary pressure starting from 4QFY21 and the same continued in 1QFY22. While companies were able to minimize the impact in 4QFY21 through sourcing efficiencies, renegotiation, reformulation, substitutions and usage of materials acquired at lower costs, elevated level of RM inflation has necessitated implementation of price hikes. Consequent to the pressure on gross margins and normalization of other operating spends, operating leverage could only lead to 120bps YoY improvement in EBITDA margin for our coverage universe. While most paint companies saw sustained demand in majority of Apr’21, which was interrupted by the second covid wave, it is likely that demand will bounce back as markets start to open-up. Alcoholic Beverages (Alco-Bev) sector: As expected, the topline of Alco-bev companies improved QoQ and recorded growth over a covid-impacted base with continued momentum of off-trade and QoQ recovery in on-premise. Volume is still lagging pre-covid level taking into account the 2-year average volume growth of -2.7%/-6.0% for UNSP/UBL (see exhibit 7). With stable input costs, sustained cost management efforts and favourable operating leverage, both of our coverage companies recorded healthy operating margin expansion. While companies are witnessing inflationary trends in key raw materials (ENA, barley, packaging), company believes, impact of the same can be managed by internal measures. Over the last year, the pandemic has led to change in consumption patterns, with consumers getting incrementally comfortable with at-home consumption of alco-bev. As the market recovers from the second covid wave, alcohol category is expected to recover much faster than the other consumer discretionary segments due to its semi-essential nature. QSR sector: With QoQ improvement in the dine-in channel and sustained momentum in delivery & takeaway, our QSR coverage companies recorded topline growth of 10.8% YoY in 4QFY21. While JUBI and WDL clocked in Same-store-sales growth (SSSG) of 11.8% YoY and 10.5% YoY, respectively, the relatively new player Burger King recorded SSS decline of 4.9% YoY and unlisted peer Yum! Brands India reported system sales growth of 9% (see exhibits 13 & 14). While the dine-in channel has again been affected in the ongoing quarter due to lockdowns implemented by many states, we believe that the convenience channel (comprising delivery, takeaways, on-the-go and drive-thru) will hold its muscle in driving consumption for this sector. With expectation of markets opening-up post 1QFY22, we expect dine-in players to benefit, with continued support from the convenience channel in the near term. We expect all three QSR coverage companies to sail through the near term headwinds and continue with their respective store expansion plans in FY22.

Institutional Equities

Exhibit 1: 4QFY21 performance summary for our coverage universe Net Revenue EBITDA EBITDA margin (%) PAT Company 4QFY21 YoY(%) QoQ(%) 4QFY21 YoY(%) QoQ(%) 4QFY21 4QFY20 3QFY21 4QFY21 YoY(%) QoQ(%) Britannia 31,308 9.2 -1.1 5,054 11.3 -17.4 16.1 15.8 19.3 3,595 -3.5 -20.6 Colgate-Palmolive (India) 12,832 19.8 4.2 4,218 60.4 13.8 32.9 24.5 30.1 3,147 54.1 26.7 India 23,368 25.3 -14.4 4,425 25.6 -22.9 18.9 18.9 21.0 3,778 27.1 -23.2 Emami 7,308 37.2 -21.7 1,628 65.2 -52.1 22.3 18.5 36.4 1,467 55.9 -45.5 Gillette India** 5,366 32.0 3.1 1,406 74.8 4.0 26.2 19.8 26.0 894 70.6 9.1 * 1,21,320 34.6 2.3 29,570 43.2 3.6 24.4 22.9 24.1 21,030 43.2 7.8 ITC 1,32,947 22.6 12.8 44,730 7.4 4.5 33.6 38.4 36.3 37,484 -1.3 2.3 Marico 20,120 34.5 -5.2 3,190 13.1 -22.8 15.9 18.9 19.5 2,340 16.1 -23.8 Nestle India** 36,108 8.6 5.2 9,301 16.2 22.8 25.8 24.1 22.1 6,024 13.1 29.9 66,514 43.5 -2.0 13,183 53.4 -26.3 19.8 18.5 26.3 8,521 84.5 -31.2 20,261 49.5 -4.3 3,356 61.0 -19.1 16.6 15.4 19.6 2,086 101.1 -24.1 United Breweries 15,435 8.4 19.7 2,613 97.6 33.0 16.9 9.3 15.2 1,478 258.8 48.4 22,244 11.6 -10.6 4,118 51.7 7.3 18.5 13.6 15.4 2,249 78.5 -2.2 Jubilant Foodworks 10,259 14.3 -3.0 2,492 47.1 -10.6 24.3 18.9 26.4 1,043 130.7 -16.6 Westlife Development 3,576 6.3 10.0 493 35.7 -1.4 13.8 10.8 15.4 -65 NA NA Burger King India 1,961 2.6 20.1 246 17.7 2.1 12.5 10.9 14.8 -204 NA NA Our coverage universe 5,30,925 25.7 2.1 1,30,021 26.8 -3.5 24.5 24.3 25.9 94,868 18.6 -6.7 Source: Company; Nirmal Bang Institutional Equities Research *Inclusive of GSK Consumer Healthcare (GSK CH) numbers as merger effective from 1st April 2020; **3QFY21 for Gillette India and 1QCY21 for Nestle India

Exhibit 2: Variation versus our estimates (Company-wise) NBIE Estimates (Rsmn) 4QFY21 (Rsmn) Variation (%) Company EBITDA EBITDA EBITDA Revenue EBITDA PAT Revenue EBITDA PAT Revenue EBITDA PAT margin (%) margin (%) margin Britannia 31,704 5,954 18.8 4,647 31,308 5,054 16.1 3,595 -1.3 -15.1 -2.6 -22.6 Colgate-Palmolive (India) 12,800 3,777 29.5 2,565 12,832 4,218 32.9 3,147 0.2 11.7 3.4 22.7 Dabur India 25,265 5,529 21.9 4,498 23,368 4,425 18.9 3,778 -7.5 -20.0 -2.9 -16.0 Emami 7,021 1,766 25.2 1,368 7,308 1,628 22.3 1,467 4.1 -7.8 -2.9 7.2 Gillette India** 5,191 1,350 26.0 920 5,366 1,406 26.2 894 3.4 4.2 0.2 -2.8 Hindustan Unilever* 1,20,161 29,449 24.5 17,717 1,21,320 29,570 24.4 21,030 1.0 0.4 -0.1 18.7 ITC 1,19,305 46,415 38.9 37,819 1,32,947 44,730 33.6 37,484 11.4 -3.6 -5.3 -0.9 Marico 18,327 3,210 17.5 2,265 20,120 3,190 15.9 2,340 9.8 -0.6 -1.7 3.3 Nestle India** 36,245 8,808 24.3 5,807 36,108 9,301 25.8 6,024 -0.4 5.6 1.5 3.7 Asian Paints 60,949 13,125 21.5 8,864 66,514 13,183 19.8 8,521 9.1 0.4 -1.7 -3.9 Berger Paints 18,529 3,156 17.0 2,056 20,261 3,356 16.6 2,086 9.3 6.3 -0.5 1.5 United Breweries 14,878 2,267 15.2 1,263 15,435 2,613 16.9 1,478 3.7 15.3 1.7 17.0 United Spirits 22,271 3,340 15.0 1,981 22,244 4,118 18.5 2,249 -0.1 23.3 3.5 13.5 Jubilant Foodworks 10,505 2,731 26.0 1,106 10,259 2,492 24.3 1,043 -2.3 -8.8 -1.7 -5.7 Westlife Development 3,364 461 13.7 -84 3,576 493 13.8 -65 6.3 7.0 0.1 NA Burger King India *** NA NA NA NA 1961 264 12.5 -204 NA NA NA NA Coverage universe (ex-BKIL) 5,06,516 1,31,336 25.9 92,791 5,28,965 1,29,775 24.5 95,071 4.8 -1.0 -1.4 2.2 Source: Company; Nirmal Bang Institutional Equities Research * Inclusive of GSK Consumer Healthcare (GSK CH) numbers as merger effective from 1st April 2020; **3QFY21 for Gillette India and 1QCY21 for Nestle India *** BKIL coverage was initiated after 4QFY21 preview

Exhibit 3: Paint companies recorded the highest growth across operating parameters Net Revenue EBITDA EBITDA margin (%) PAT Sector 4QFY21 YoY(%) QoQ(%) 4QFY21 YoY(%) QoQ(%) 4QFY21 YoY(%) QoQ(%) 4QFY21 YoY(%) QoQ(%) FMCG 3,90,676 24.3 3.4 1,03,521 20.9 0.1 26.5 -0.7 -0.9 79,759 13.6 0.6 Consumer staples (FMCG ex-GILL & ITC) 2,52,363 25.1 -0.9 57,385 33.0 -3.1 22.7 1.3 -0.5 41,381 30.5 -1.1 Consumer discretionary 1,38,289 29.9 -1.7 26,254 56.5 -15.6 19.0 3.2 -3.1 15,313 99.0 -22.0 Paints 86,775 44.9 -2.6 16,538 54.8 -24.9 19.1 1.2 -5.7 10,607 87.5 -29.9 AlcoBev 37,679 10.2 -0.3 6,731 66.7 16.0 17.9 6.1 2.5 3,727 122.9 13.1 QSR 15,795 10.8 2.2 3,231 42.5 -8.4 20.5 4.6 -2.4 775 2,117.1 -15.8 Source: Company, Nirmal Bang Institutional Equities Research

2 Consumer Sector

Institutional Equities

Exhibit 4: 4QFY21 variation versus our estimates – While revenue beat our estimates, margin trailed behind NBIE Estimates (Rsmn) 4QFY21 (Rsmn) Variation (%) Sector EBITDA EBITDA EBITDA Revenue EBITDA PAT Revenue EBITDA PAT Revenue EBITDA PAT margin (%) margin (%) margin FMCG 3,76,020 1,06,256 28.3 77,606 3,90,676 1,03,521 26.5 79,759 3.9 -2.6 -1.8 2.8 Consumer staples (FMCG ex-GILL & ITC) 2,51,524 58,492 23.3 38,866 2,52,363 57,385 22.7 41,381 0.3 -1.9 -0.5 6.5 Consumer discretionary 1,30,496 25,080 19.2 15,186 1,38,289 26,254 19.0 15,313 6.0 4.7 -0.2 0.8 Paints 79,478 16,281 20.5 10,919 86,775 16,538 19.1 10,607 9.2 1.6 -1.4 -2.9 AlcoBev 37,149 5,607 15.1 3,244 37,679 6,731 17.9 3,727 1.4 20.0 2.8 14.9 QSR* 13,868 3,192 23.0 1,022 13,835 2,985 21.6 978 -0.2 -6.5 -1.4 -4.3 Source: Company, Nirmal Bang Institutional Equities Research *We have not included BKIL above, since coverage was initiated after 4QFY21 preview

Exhibit 5: Topline performance over the quarters –4QFY21 has benefited from a Covid-impacted base 2-yr avg. Company 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21 growth in 4Q Britannia 10.3 6.2 6.2 4.9 2.5 26.7 12.1 6.1 9.2 5.8

Colgate-Palmolive (India) 5.7 4.2 4.6 4.3 -7.1 -4.1 5.2 7.4 19.8 6.3

Dabur India 4.7 9.3 4.1 7.0 -12.3 -12.9 13.7 16.0 25.3 6.5

Emami 3.8 5.6 5.1 0.2 -16.8 -25.8 11.3 14.9 37.2 10.2

Gillette India 3.1 13.2 1.2 -3.4 -12.7 -24.4 11.7 13.3 32.0 9.7

Hindustan Unilever* 9.3 6.6 6.7 2.6 -9.4 4.4 16.1 20.9 34.6 12.6

ITC 13.3 4.0 3.4 3.3 -9.6 -21.2 -4.1 -0.2 22.6 6.5

Marico 8.7 6.9 -0.4 -2.0 -7.0 -11.1 8.7 16.3 34.5 13.7

Nestle India 8.9 11.2 9.4 8.7 10.7 1.7 10.1 9.0 8.6 9.7

Asian Paints 11.3 16.3 9.4 3.0 -7.1 -42.7 5.9 25.2 43.5 18.2

Berger Paints 13.4 15.7 7.3 4.9 -8.0 -45.8 9.0 24.9 49.5 20.8

United Breweries 10.7 9.8 3.4 0.1 -12.6 -75.3 -42.9 -11.3 8.4 -2.1

United Spirits 3.5 10.4 3.2 3.4 -11.4 -53.6 -6.5 -3.6 11.6 0.1

Jubilant Foodworks 10.9 9.9 12.1 14.1 3.8 -59.5 -18.5 -0.2 14.3 9.0

Westlife Development 12.1 11.8 13.2 16.8 -0.9 -75.4 -47.2 -24.9 6.3 2.7

Burger King India -28.4 2.6 1.3

Source: Company, Nirmal Bang Institutional Equities Research Note: Through this heat map, we try to see the growth trend for a company over the last 9 quarters * Inclusive of GSK Consumer Healthcare (GSK CH) numbers as merger effective from 1st April 2020;

Exhibit 6: Within our coverage universe, Paint companies saw thehighest volume growth for the second consecutive quarter Qtrly volume/SSG growth (%) 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 Consumer staples Britannia (Base business) 2.0 2.0 5.0 11.0 11.0 11.0 11.0 7.0 7.0 3.0 3.0 3.0 0.0 21.5 9.0 4.0 8.0 Colgate (Toothpaste) -3.0 -5.0 -0.9 12.0 4.0 4.0 7.0 7.0 5.0 4.0 4.0 2.3 -8.0 -6.0 4.0 5.0 16.5 Dabur (Domestic FMCG) 2.4 -4.4 7.2 13.0 7.7 21.0 8.1 12.4 4.3 9.6 4.8 5.6 -14.6 -9.7 16.8 18.1 25.4 Emami (Domestic) -1.5 -18.0 10.0 6.0 8.0 18.0 -4.0 3.5 0.0 0.0 0.0 -2.0 -20.0 -28.0 10.0 13.0 39.0 Hindustan Unilever (Domestic)** 4.0 0.0 4.0 11.0 11.0 12.0 10.0 10.0 7.0 5.0 5.0 5.0 -7.0 -8.0 1.0 4.0 16.0 ITC (Cigarette)* 0.0 1.0 -6.0 -3.0 -2.0 1.0 6.0 7.0 8.0 3.0 3.0 2.0 -12.0 -37.0 -12.0 -6.5 6.5 Marico (Domestic) 10.0 -9.0 8.0 9.4 1.0 12.4 6.0 5.0 8.0 6.0 1.0 -1.0 -3.0 -14.0 11.0 15.0 25.0 Consumer discretionary Paints (Domestic Decorative) * Asian Paints 10.0 4.0 9.0 6.0 10.0 10.0 11.0 21.0 10.0 16.0 14.0 12.0 10.0 -37.0 11.0 33.0 48.0 Berger Paints 13.0 5.0 9.0 12.0 14.0 17.0 15.0 19.0 12.0 12.0 13.0 9.0 -7.0 -46.0 13.0 32.0 53.0 QSR (SSSG) Jubilant Foodworks -7.5 6.5 5.5 17.8 26.5 25.9 20.5 14.6 6.0 4.1 4.9 5.9 -3.4 -61.4 -20.0 -1.7 11.8 Westlife Development*** 1.0 8.7 8.4 20.7 25.1 24.1 25.7 14.5 5.6 6.7 7.0 9.2 -6.9 -54.0 -40.7 -24.0 10.5 Burger King India -0.2 -5.4 -68.9 -48.6 -34.8 -4.9 Alco-Bev United Spirits -8.2 -18.9 -15.9 -14.2 -2.3 1.1 10.3 3.8 1.0 6.0 1.0 -1.8 -13.5 -49.2 -3.9 -0.8 8.1 United Breweries ------5.0 7.0 -7.0 -21.0 -77.0 -48.0 -15.0 9.0 Source: Company, Nirmal Bang Institutional Equities Research *Our estimates ** HUL standalone domestic volume excluding GSK CH; *** In case of WDL, 1Q21 & 2Q21 SSG decline of 54.0% & 40.7% respectively is excluding closed stores

3 Consumer Sector

Institutional Equities

Exhibit 7: As evident from this table, the paint sector has seen significant improvement in demandeven on normalized basis 2-yr average quarterly 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 volume/SSG growth (%) Consumer staples Britannia (Base business) 6.0 5.0 7.5 6.5 6.5 6.5 8.0 9.0 9.0 7.0 7.0 5.0 3.5 12.3 6.0 3.5 4.0 Colgate (Toothpaste) 0.0 0.0 1.6 0.0 0.5 -0.5 3.1 9.5 4.5 4.0 5.5 4.7 -1.5 -1.0 4.0 3.7 4.3 Dabur (Domestic FMCG) 4.7 -0.2 5.9 4.0 5.1 8.3 7.7 12.7 6.0 15.3 6.5 9.0 -5.2 -0.0 10.8 11.9 5.4 Emami (Domestic) 8.3 0.0 10.5 3.1 3.3 0.0 3.0 4.8 4.0 9.0 -2.0 0.8 -10.0 -14.0 5.0 5.5 9.5 Hindustan Unilever (Domestic)** 4.0 2.0 1.5 3.5 7.5 6.0 7.0 10.5 9.0 8.5 7.5 7.5 0.0 -1.5 3.0 4.5 4.5 ITC (Cigarette)* 0.0 2.0 -1.0 -2.0 -1.0 1.0 0.0 2.0 3.0 2.0 4.5 4.5 -2.0 -17.0 -4.5 -2.3 -2.8 Marico (Domestic) 9.2 -0.5 5.5 2.7 5.5 1.7 7.0 7.2 4.5 9.2 3.5 2.0 2.5 -4.0 6.0 7.0 11.0 Consumer discretionary Paints (Domestic Decorative) * Asian Paints 11.5 7.5 10.5 4.0 10.0 7.0 10.0 13.5 10.0 13.0 12.5 16.5 6.5 -10.5 12.5 22.5 25.5 Berger Paints 13.5 9.5 10.5 11.0 13.5 11.0 12.0 15.5 13.0 14.5 14.0 14.0 2.5 -17.0 13.0 20.5 23.0 QSR (SSSG) Jubilant Foodworks -2.3 1.7 4.9 7.3 9.5 16.2 13.0 16.2 16.3 15.0 12.7 10.3 1.3 -28.7 -7.6 2.1 4.2 Westlife Development*** 4.7 6.1 7.5 12.9 13.1 16.4 17.1 17.6 15.4 15.4 16.4 11.9 -0.7 -23.7 -16.9 -7.4 1.8 Burger King India -17.5 -5.2 Alco-Bev United Spirits -6.1 -9.6 -7.5 -9.6 -5.3 -8.9 -2.8 -5.2 -0.7 3.6 5.7 1.0 -6.3 -21.6 -1.5 -1.3 -2.7 United Breweries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.5 3.5 -3.5 -10.5 -36.0 -20.5 -11.0 -6.0 Source: Company, Nirmal Bang Institutional Equities Research *Our estimates ** HUL standalone domestic volume excluding GSK CH; *** In case of WDL, 1Q21 & 2Q21 SSG decline of 54.0% & 40.7% respectively is excluding closed stores

Exhibit 8: EBITDA margin performance over the quarters – as expected, most companies sawimpact of raw material inflation Company 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21 Britannia 15.6 14.6 16.1 16.8 15.8 21.0 19.8 19.3 16.1 Colgate-Palmolive (India) 26.9 27.6 26.4 27.6 24.5 29.6 31.8 30.1 32.9 Dabur India 21.5 20.1 22.1 20.9 18.9 21.0 22.6 21.0 18.9 Emami 24.3 20.7 29.2 32.5 18.5 25.5 35.0 36.4 22.3 Gillette India 31.4 6.5 21.2 21.8 19.8 23.0 25.6 26.0 26.2 Hindustan Unilever* 23.3 26.2 24.8 24.9 22.9 25.0 25.1 24.1 24.4 ITC 38.1 40.4 39.1 39.1 38.4 29.7 36.3 36.3 33.6 Marico 18.3 21.3 19.3 20.4 18.9 24.3 19.6 19.5 15.9 Nestle India 25.5 24.1 24.1 21.9 24.1 24.9 25.4 22.1 25.8 Asian Paints 17.8 22.7 18.9 21.9 18.5 16.6 23.6 26.3 19.8 Berger Paints 15.3 17.8 15.7 17.5 15.4 9.9 19.2 19.6 16.6 United Breweries 10.5 16.1 12.2 15.2 9.3 -18.9 4.5 15.2 16.9 United Spirits 12.6 17.9 18.1 16.4 13.6 -7.5 12.6 15.4 18.5 Jubilant Foodworks 17.1 23.3 23.8 23.9 18.9 6.3 26.7 26.4 24.3 Westlife Development 7.5 12.8 14.6 16.4 10.8 -45.0 1.9 15.4 13.8 Burger King India 11.4 10.9 -75.5 13.5 14.8 12.5 Source: Company, Nirmal Bang Institutional Equities Research; Note: Through this heat map, we try to see the margin trend for a company over the last 9 quarters *Inclusive of GSK Consumer Healthcare (GSK CH) numbers as merger effective from 1st April 2020

Exhibit 9: Companies saw sharp growth in domestic business in 4QFY21on a negative base

(%) 50.0 44.0 45.0 40.0 37.0 34.0 35.0 31.2 30.0 25.0 20.2 20.0 15.0 9.7 10.2 10.0 5.0

0.0

BRIT

CLGT NEST

HUVR

Marico Dabur Emami Domestic business growth in 4QFY21 (YoY %) Source: Company, Nirmal Bang Institutional Equities Research; Note: Growth for HUVR excluding GSK

4 Consumer Sector

Institutional Equities

Exhibit 10: India’s FMCG value growth over the recent Exhibit 11: Rural markets continue to grow in double digits, quarters metros seeing growth in consumption (%) (%)( 16.0 15.0

8.0

9.0 4.0 3.0 0.9 7.1 9.4 6.0 10.0 0.0

5.0 2.2

-8.0 14.6

14.2 0.8 10.6 19.0

-16.0 - 0.0 7.1 -24.0 -5.0 -

-10.0

2QCY19 4QCY19 1QCY20 2QCY20 3QCY20 4QCY20 1QCY21 3QCY19 Metro Rural Overall FMCG growth 3QCY20 4QCY20 1QCY21 Source: Nielsen, Media, Nirmal Bang Institutional Equities Research Source: Nielsen, Media, Nirmal Bang Institutional Equities Research

Exhibit 12: Alco-bev companies witnessed progressive recovery in sales in 4QFY21

(%)

20 10.5

10 5.6

14.8 8.4 11.6 18.7

0 3.6

-10 6.5

- -

12.6 11.3 13.1 75.3 53.6 42.9

------20 -30

-40 34.4 -50 - -60 -70 -80 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21 UBL UNSP Radico

Source: Company, Media, Nirmal Bang Institutional Equities Research Note: Radico Khaitan (Radico) is Not Rated

Exhibit 13: As markets opened up in 4QFY21, QSR companies witnessed progressive recovery;JUBI & WDL saw a better recovery with double digit SSSG (%) 40.0

20.0

29.6

6.0 7.0 26.5 25.1 25.9 24.1 33.3 20.5 25.7 28.5 14.6 14.5 33.3 5.6 20.6 4.1 6.7 16.8 4.9 4.4 5.9 9.2 11.8 10.5

0.0

5.4 0.2 3.4 6.9 1.7 4.9

------

61.4 54.0 68.9 20.0 40.7 48.6 24.0 34.8

------20.0 -

-40.0

-60.0

-80.0

3QFY21 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 4QFY21 JUBI (Dominos) WDL (McDonalds W&S) BKIL (Burger King)

Source: Company, Nirmal Bang Institutional Equities Research; Note: In case of WDL, 1Q21 & 2Q21 SSG decline of 54.0% & 40.7% respectively is excluding closed stores

5 Consumer Sector

Institutional Equities

Exhibit 14: Yum! Brands India’s ( Hut) system sales grew 9% YoY on a base of 2% decline (%) 40.0

20.0

21.0 22.0 20.0 14.0 11.0 9.0 2.0 8.0 9.0

0.0

2.0

-

74.0 33.0 14.0

- - -20.0 -

-40.0

-60.0

-80.0

4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21 Yum! India () Source: Company, Nirmal Bang Institutional Equities Research Note: System sales include the sales of all restaurants regardless of ownership, i.e., including Company-owned and franchise restaurants.

Exhibit 15: While some cost savings have sustained, others have come back with improving volumes & aggression in ad spends Operating costs Operating costs as a % of sales Company 4QFY21 YoY (%) QoQ (%) 4QFY21 YoY (bps) QoQ (bps) Britannia 7,617 11.5 1.2 24.3 50 56 Colgate-Palmolive (India) 4,466 3.9 -8.6 34.8 -532 -487 Dabur India 6,965 23.6 -13.0 29.8 -40 46 Emami 2,952 18.7 -6.8 40.4 -627 645 Gillette India*2 1,662 13.8 10.1 31.0 -494 195 Hindustan Unilever*1 34,190 23.2 -3.7 28.2 -263 -174 ITC 27,455 5.1 10.1 20.7 -344 -50 Marico 5,690 24.8 -2.6 28.3 -220 76 Nestle India*2 11,831 10.4 -6.9 32.8 55 -425 Asian Paints 15,539 22.8 22.1 23.4 -394 462 Berger Paints 5,495 43.6 5.3 27.1 -111 248 United Breweries 5,412 -8.7 8.6 35.1 -655 -358 United Spirits 5,658 -0.6 -22.1 25.4 -312 -375 Jubilant Foodworks 5,455 9.4 0.7 53.2 -237 193 Westlife Development 1,885 2.3 15.2 52.7 -206 239 Burger King India 1,040 3.9 29.7 53.0 64 391 Our coverage universe 1,42,271 14.0 0.7 26.8 -274 -37 Source: Company; Nirmal Bang Institutional Equities Research *1 Inclusive of GSK Consumer Healthcare (GSK CH) numbers as merger effective from 1st April 2020; *23QFY21 for Gillette India and 1QCY21 for Nestle India

Exhibit 16: Ad spends, while improving, remain low for majority of the companies

(%) (bps) 20.0 300 18.0 200 16.0 18.5 100 14.0 0 12.0 -100 10.0 11.6 11.6 -200 8.0 10.6 6.0 8.6 -300 4.0 6.6 -400 2.0 4.6 -500

0.0 -600

GILL

CLGT

UNSP

HUVR

Dabur Marico Emami YoY QoQ Ad spends as % of revenue

Source: Company, Nirmal Bang Institutional Equities Research

6 Consumer Sector

Institutional Equities

Exhibit 17: Key industry, demand and company-specific commentary (across coverage companies and beyond…) Company Commentary Consumer Staples (1) In the coming year, BRIT would start two factories - one each in Egypt and Uganda through its contract manufacturing partners for the respective regions and its neighbouring countries. The Uganda factory is capable of generating a turnover of ~US$11mn and the Egypt plant can generate even higher than that. Besides these two countries, the company is also looking to enter more geographies for its export operations in the coming years. (2) Britannia Commenting on the PLI scheme, BRIT mentioned that it is waiting for details. Looking at the current draft, the company might benefit from the implementation of the PLI scheme but cannot quantify the same. (3) BRIT has decided to scale up the Milk Bikis brand aggressively across the country and gain further market share. Earlier, it was a regional brand (primarily renowned in Tamil Nadu & Kerala), but it has gradually become an important brand for the company at a national level. (4) Overall ICDs have remained the same on YoY basis. (1) Demand momentum of Mar’21 continued in Apr’21. (2) Management has guided for double-digit value growth in FY22 (high single digit volume growth and price increase of ~3%). In FY22, the health supplement business would grow in low single digits because of the high base in Chyawanprash and Honey. However, Chyawanprash, Honey and other health & immunity boosting products have started picking up again following the second covid wave. Hence, the health Dabur India supplement portfolio may see some tailwinds again which may lead to a fairly high-volume growth. (3) Total cost savings worth ~Rs500mn accrued in FY21 through project Samridhi; ~Rs1bn targeted for FY22. (4) Rural contributed ~45-47% to Dabur’s domestic business. Although pockets of rural markets have been affected due to the second covid wave, the management believes that the rural segment will fare well even going ahead. (1) In 4QFY21, while rural demand sustained, urban demand gradually picked up. (2) The company had embarked on its focused rural expansion drive under Project Khoj by increasing rural footprint in the top 4 potential rural contributing states (potential to expand it to 13 states). This is the only project which has got a little delayed because of the second covid wave but would start by the second half of June’21. (3) Despite a higher base, the management is confident that the healthcare portfolio (excluding balms) will deliver strong growth in FY22, aided by new launches under Zandu and Emami expansion of healthcare-focused distribution channel. (4) Contribution of new product developments (NPD) to domestic sales stood at 3% in 4QFY21 and 4% in FY21. (5) While menthol prices are quite steady, other key commodities have seen inflationary pressure. Management has taken one round of price hike in April’21, in the pain management and summer portfolio. It expects to take a total price hike of 4% for the full year. (6) Promoter pledge has reduced from ~33% in 4QFY21 to 30% as of date. The reduction is primarily led by share price movement. (1) For the overall industry, rural market grew in double digits while urban entered positive territory, growing by low-to- mid single digits in 4QFY21. (2) First two weeks of April'21 saw same growth momentum as March'21. The impact of second covid wave led lockdowns in the second half of April'21 was not as severe as in 1QFY21. (3) Palm oil prices are up 40-50% YoY and even sequentially they are up significantly from 3QFY21 to 4QFY21. The company is leading the Hindustan Unilever pricing action in the impacted categories and would have increased prices by ~7-8% till now. If the inflation course holds along with the competitive intensity, the company will not shy away from further price hikes. HUVR has also taken price hikes in small lots and frequencies in the tea portfolio to offset steep inflation. Since new crop is only a few months away, it will wait and watch the situation. (4) E-commerce now contributes 5-6% to sales. (1) Momentum seen in 4QFY21 extended to the first 20 days of April’21. But, the last 10 days of April’21 saw some softening in momentum due to supply chain disruptions. (2) Inflation and price interventions: (i) Copra: As against company’s expectations, copra market prices were up 25% YoY in 4QFY21 due to low supply. But, in April’21, prices corrected 15-16% from peak and management expects them to cool off further as the peak season sets in. MRCO pulled back consumer offers and increased MRP by 4% in 4QFY21. It executed a cumulative price increase of ~9% in 2HFY21. Marico For FY22, copra prices are expected to be flattish to marginally higher. (ii) Edible oil: MRCO implemented price hikes of ~30% in 2HFY21. Given the inflationary environment seen in March’21, it had to take further hike of 15-20% in April’21 (overall 50% increase). Management expects prices to remain range-bound in the near term before retracing back in June/July’21. (3) For traditional trade, rural grew 1.8x of urban in 4QFY21. Rural contribution to domestic sales was up by 2% to 33% in FY21. (1) While rural continued to outpace urban, urban growth came back in the quarter and thus narrowed the gap. (2) CLGT executed price hikes even in 4QFY21 to combat input cost increases. (3) The e-commerce business has grown 23x over FY16-FY21. It now forms a reasonable part of the business and continues to grow at a strong pace. Market share in e- Colgate-Palmolive (India) com increased by ~1400bps in YTD21 from FY19. Market share in the modern trade channel increased by ~170bps in YTD21 from YTD20. (5) Management believes that the premiumisation trend will continue to grow in the future. However, the pace of premiumisation will depend on the growth of the retail environment. (1) Rural grew 1.4x of urban in 4QFY21 and the company expects rural to continue doing well. (2) E-comm saliency stood at 4% in 4QFY21 (3) Till date, GCPL has taken 6-7% price increase in soap (sequentially 3-4%). Company has GCPL followed a calibrated price increase and will follow the same going ahead. Vegetable oil prices were sequentially steady, they are likely to stay there in the near term. 40-50% inflation in vegetable oil prices would warrant further 10-15% price change. (4) GCPL will not launch food business and will also not make too many changes to its portfolio.

7 Consumer Sector

Institutional Equities

Company Commentary Consumer Discretionary (1) The company witnessed healthy demand in Apr’21. But, management stated that the current situation is far from normal. Spread of virus in hinterland is a key concern. (2) Rural saw strong uptick in 2Q-3QFY21, resulting in a 10-20% differential between rural & urban growth. In 4QFY21, the gap narrowed, as urban also recorded strong growth. (3) After Asian Paints taking 2.8% price hike effective 1st May, APNT may look at more price hikes as the markets opens up. It expects raw material prices to cool down in 2HFY22. (4) Management believes that the company has gained significant market share from both unorganized and organized players. (1) While there was no price hike in the domestic decorativebusiness in FY21, BRGR took 2.2-2.5% price hike effective May’21 (on water-based products). It is also planning to take another round of price hike in July’21 (on solvent-based products), after considering demand scenario once the markets open up. (2) BRGR has upped its capex guidance for Berger Paints FY22 and is now expecting project cost of ~Rs8bn entirely in FY22 (subject to any construction related disruptions). It would include capacities for most of its portfolio, barring general industrial & automotive. (3) Mr. Roy has commented that the company has managed to gain a marginal market share from organized & unorganized segments and BRGR’s current market share is at ~18.5%. (1) Since demand in the first three weeks of April’21 was quite robust (across geographies), it can offset weak demand in May/June’21 to a certain extent. (2) RM prices rose sharply in 4QFY21 and even in April’21 prices did not subside. Company took price hike of 2.5% in the decorative segment only during the last week of March’21 (which took care of ~5% of inflation) since input cost for the first half of 4QFY21 was not very high. As on April’21, inflation was 13-14%. Kansai Nerolac Paints Input cost for the industrial segment had been rising from Jan’21 itself and hence price increase was relatively high at 3- (Not rated) 4%. Company took 8% price increase in powder coatings, 5% in refurbish paints and 3% in performance coatings. (3) In the near term, topmost priority would be to take appropriate price increases in order to protect margins. In case of industrial paints, the company has approached its customers for further price increase but is waiting for markets to open up. (1) Decorative paint is already a Rs400bn industry and adds Rs40-50bn in market size every year. (2) Company saw strong demand momentum in the first 15 days of April’21. (3) Unlike the industry, Indigo implemented price increases much earlier (in tranches between Nov-Mar) to partially offset the impact of RM inflation. For FY21, company took 2.5% Indigo Paints (Not rated) price increase at an overall portfolio level (~1% on weighted average basis). Company took majority price increase in water-based paints. Little or no price increase was taken in solvent-based paints, for which Indigo will undertake another price increase of 3-4%. Management stated that the overall industry will need to implement another round of price increase to tackle RM inflation. (1) The early part of April’21 saw continuation of the momentum that UBL had seen in March’21. UBL had then witnessed the onset of the second covid wave and the consequent lockdowns. All the different actions taken across markets will certainly have an impact. (2) While the company is covered till 1QFY22 with last year’s barley prices, it is United Breweries seeing higher procurement prices in this buying cycle (up 15% YoY). There is also a headwind in craft paper, cartons and aluminium prices. But, the company believes that the ongoing cost optimization programs will mitigate the damage to a large extent. (3) Market share, which contracted in 1QFY21/2QFY21 due to on-trade being closed and unfavourable state mix, recovered to normal levels in 3QFY21/4QFY21. Overall market share in 4QFY21 stood at 52%. (1) Scotch portfolio has grown at a very strong double-digit rate and was the fastest growing segment within UNSP’s business. Within scotch, Bottled-in-Origin (BIO) has grown much faster than Bottled-in-India (BII), partially due to some softening of duty-free sales and regulatory unlocks in certain states (Delhi, UP, etc.), leading to price rationalization (2) Management stated that it is better not to predict anything in case of the ethanol blending policy. While some inflation United Spirits may come in ENA price, near-term scenario would be manageable. UNSP is progressively increasing in-house distillation to make ENA so that it can hedge itself against the policy impact (3) In 4QFY21, the company had kept aside some amount to spend on certain activities which it couldn’t fully execute, thereby leading to lower spends. In a normal scenario, UNSP spends 8-9% of revenue on A&SP (with double-digit spends on P&A). (4) Management believes that UNSP outperformed competition in all the four quarters of FY21. (1) Radico has been growing faster than industry in the past few years. In 4QFY21, the company’s P&A segment grew 3x industry’s growth (3) Volume (excluding route to market changes in Andhra Pradesh) would have grown in double digits in 4QFY21.(4) Premium brands will continue to grow, driven by limited impact on affluent India. Radico’s P&A RadicoKhaitan portfolio will continue to grow in high double-digits and thus the salience of P&A is expected to rise from ~50% to 60- (Not rated) 65% over the medium term. (5) Company saw some inflationary pressure in packaging costs towards the end of FY21 but management believes it will stay stable at current levels. ENA prices were benign in 4QFY21, but the ethanol blending policy may pose certain challenges going ahead. (1) In 4QFY21, delivery growth was strong across all town classes, with the smaller towns growing faster than Tier 1 towns. (2) International business saw strong performance, with both countries turning EBITDA positive in 4QFY21. (3) In 4QFY21, margin was affected QoQ due to increase in food costs (cheese & edible oil) and was partially offset by Jubilant Foodworks reduction in wastage. Going ahead, the management does not expect much of an impact from inflationary headwinds (if any) since that would be offset by the company’s internal measures. (4) Domino’s commands ~70% value market share in the pizza category in India. (5) No price hikes or further increase in delivery charges were taken in 4QFY21.

8 Consumer Sector

Institutional Equities

(1) 4QFY21 saw 5-7% growth in Informal Eating Out (IEO) category, within which Western Fast Food (WFF) segment grew by 18% due to higher consumer preference for hygiene and assurance. WDL gained share in both WFF and IEO, which also had a positive impact on SSSG in 4QFY21. (2) Management believes that the shift to an organized segment will continue in future and WDL will be a key beneficiary. (3) Currently, WDL has 5-6 restaurants under ground break. Westlife Development Even if the company is not able to open any stores in 1QFY22, it will still work towards opening 20-30 stores in FY22. Over the medium term, the company will continue with its store expansion plan of adding 25-30 stores/year. (4) Excluding the impact of reinstatement of salary and bonus to employees (paid entirely in 4Q instead of in respective quarters), operating margin (pre INDAS-116) for 4QFY21 would have stood at ~11% vs. the reported 9.1%. (5) Capex for FY22 is expected to be ~Rs1bn. (1) Burger King menu follows a barbell strategy – with Whopper & King’s Collection (which helps drive frequency & premiumization) while at the other end is the value menu, which helps drive traffic. (2) Burger King has soft launched a Burger King India branded value proposition – the Stunner menu – which offers a variety of formats like rice, burger, volcano, rice. All veg

products are priced at one price point of Rs50 and chicken products at one price point of Rs70.(3) Company is launching BK Café towards the end of FY22 and would set up 75 stores by FY23. Source: Company, Nirmal Bang Institutional Equities Research

9 Consumer Sector

Institutional Equities

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10 Consumer Sector

Institutional Equities

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11 Consumer Sector