INDIA RESEARCH OCTOBER 2012 CONSUMER T HEMATIC HelloHello India!India! FMCG & RETAIL AUTO & AUTO ANCS Abhijeet Kundu Ashish Nigam Kunal Jhaveri +91 22 4031 3430 +91 22 4031 3443 Saksham Kaushal [email protected] [email protected] Deepak Agarwal Hello India! INDEX Executive Summary ......................................................................................... 3 Interesting Tidbits ......................................................................................... 4 Synopsis ............................................................................................. 5 Valuation & Recommendation: FMCG ................................................................................................ 8 Automobiles......................................................................................... 9 Geography: Rajasthan ......................................................................................... 10 Punjab ............................................................................................. 28 Uttar Pradesh.................................................................................... 46 Chhattisgarh .................................................................................... 55 Andhra Pradesh................................................................................ 76 Company Section ......................................................................... 86 ANTIQUE STOCK BROKING LIMITED 1 Hello India! Hello India! ANTIQUE STOCK BROKING LIMITED 2 Hello India! Abhijeet Kundu FMCG & RETAIL +91 22 4031 3430 Executive Summary [email protected] We travelled across five states - Chhattisgarh, Uttar Pradesh, Punjab, Andhra Pradesh Ashish Nigam AUTO & AUTO ANCS and Rajasthan, and covered both, rural and urban regions in all states. Our primary +91 22 4031 3443 agenda was to assess the underlying consumer sentiment in these states and the [email protected] gravity of the concern over delayed monsoons. Kunal Jhaveri In the process, we met with >60 farmers, >70 retailers/distributors, >50 Auto +91 22 4031 3411 [email protected] dealers and even the consumer at large. The idea really was to cover the trend at every level of discretionary spends - starting with something as low-discretionary Saksham Kaushal as laundry, to something as high-discretionary as a Harley Davidson motorcycle +91 22 4031 3433 [email protected] (while we met a few luxury car dealers as well, demand for a bike that costs ~INR2m, deserves special mention). Deepak Agarwal +91 22 4031 3377 We also met up with ~10 administrators to gauge the progress of social welfare [email protected] schemes like NREGA/mid-day meal, and the much-touted benefits. Each state in a nutshell: In Chhattisgarh, consumption seems to be at an inflection point, with rapid industrialisation and infrastructure development. In Uttar Pradesh, while consumption drivers seemed intact, corruption at the grass-root level has restricted the effectiveness of social schemes. In Punjab, locals aren’t letting short-term income variations affect their lifestyle. In Andhra Pradesh, the general consumer sentiment has been affected by the Telangana issue. In Rajasthan, offshore labour has strongly emerged as a preferred career option for the educated rural youth (who otherwise are reluctant to work as labourers in India). While we have discussed our findings at length in this report, here are some broader trends that could not be missed: A. Across rural geographies, dependence on agriculture as the primary income stream has reduced consistently over the past few years. This is partially alienating rural income from the vagaries of monsoon. B. Contrary to popular belief, social spends, like NREGA, are no longer an incremental driver for demand in the rural markets (at least in the states we visited). Also, in certain cases, we gathered that the farm loan waiver has built-in complacency among the farmers. C. There is a declining preference among labourers to work on farms. Rising literacy rates and uncertainty in agricultural income have led to a significant shortage of unskilled labour. This has been a key trigger for inflationary pressures for the farming community and SMEs across geographies, while it has been a positive catalyst for broad-based consumption. D. In consumer staples, most categories continue to witness healthy growth rates despite price hikes. Higher discretionary categories like paints and consumer durables have witnessed moderation in certain cases, but dealers expect things to recover in the festive season. E. We were enthused post our interaction with Auto dealers. While conversions are yet to see a meaningful uptick, footfalls and enquiries remain extremely robust. Every dealer we interacted with was upbeat about the festive season given that the first leg of festivities, i.e. Ganesh Chaturthi, has begun on a very encouraging note. Overall, we came back convinced that the Indian consumer (both urban & rural) continues to aspire for better products and lifestyle (notwithstanding short-term sentiment dampeners). Low penetration levels signify the need for deeper distribution, which we believe will improve with infrastructure development. Nevertheless, companies with deep in-roads in rural India, comprehensive product portfolio, and strong presence in emerging categories, would stand to benefit. ANTIQUE STOCK BROKING LIMITED 3 Hello India! Interesting Tidbits Richer foam, providing richer dividend for Ghadi detergent According to our interaction with wholesalers and retailers, Ghadi detergent’s Pu j dominance is primarily due to the perception amongst consumers about the n ab - A highly matured tractor product’s ability to create richer foam. According to the retailers, consumers market T believe that richer foam leads to higher cleanliness. he Punjab tractor market is highly matured and 95% of tractors that are purchased are for replacement… In fact, Patiala houses the world’s largest used tractor market. Ce relac - Bigge T r pack for les Shortage of truck drivers - A he new Cerel ser content ac pack with a burgeoning issue! apparently lo lesser weig oks bigger tha ht Shortage of drivers is a huge problem that with a high n the older p er weight. Th ack transporters are facing. Several large fleet made hex e new pack is agonal to mak being operators have 5-10% of trucks standing e it look larger. In Chhattisgarh there is a strong idle, solely due to this shortage of drivers. preference for gel based toothpaste The driver to truck ratio which was 1,300 (both urban and rural markets) drivers per 1,000 trucks in 1992 has deteriorated to 1,000 drivers per 1,000 Himgange - trucks in 2002 and currently (2012) stands In the coolingThe oil strongestsegment, Himgange cooling oil is brandthe strongest in the region brand in at 750 drivers per 1,000 trucks. Industry Chhattisgarh, MP and Bihar, while it has recently lost its leading veterans expect this to taper down to 500 position in Uttar Pradesh to Emami’s extra thanda oil. drivers per 1,000 trucks by 2020. Himgange is a Haridwar (Uttar Pradesh) based brand since 1987, estimated to have a all India market share of about 28%. Pulsar’s poor resale continues to haunt Pulsar owners Nestogen, biggest baby food brand in A 2007 model Pulsar 150 which used to Chhattisgarh cost around INR70k when new, is not Majority of the sales in baby and infant foods in finding buyers for even INR10k at the Chhattisgarh (both urban & rural) for Nestle is moment. This is only restricted to the through Nestogen due to its reasonable pricing. Pulsar (2006-07 year models) and dealers cannot put their finger on why this is the case. That said, it isn’t happening on the newer Pulsars. Honda is consciously setting up new dealerships right next to existing Hero dealers Honda is not approving groups that Honda seems to have made a conscious decision to set up already have an existing Hero any new dealership right next to an existing Hero dealership dealership. Presumably, Honda is trying to create a clear and Contrary to market rumours, Honda has not visible demarcation between Hero & Honda in the eyes of directly poached any Hero dealers. In fact, a the Splendor/Passion loyalists. prominent business group in AP (that owns various Auto company dealership chains for “Fancy and gift” stores (Chudi Bindi shops) are fast emerging, indicating the changingHero, lifestyleHyundai, Nissan, among others), also A host of “fancy and gift” stores have been rapidly emerging wanted to add a Honda dealership to its the one stop shops for household products, cosmet network. However, they were not approved These shops are primarily frequented by feminine population of the village. Consequentlyby Honda, these becauseshops play this agroup larger also role has as a Heroa distribution channel for personal care and personal hygiene products as compared to a chemistdealership. shop. in the rural markets. These shops are called ‘Chudi Bindi’ shops w ANTIQUE STOCK BROKING LIMITED ics and personal hygiene, in these villages. hich are 4 Hello India! certain cases, but dealers expect a recovery in the upcoming festive season. Auto dealers cite that while conversions are slow at the moment, footfalls and enquiries remain extremely robust. The first leg of festivities, i.e. Ganesh Chaturthi, has begun on a very encouraging note and hence dealers were upbeat about the upcoming festive season. Resultantly, they weren't too perturbed Punjab about the