MONTHLY PUBLICATION 17 March 2021 | Vol-3, Issue-3 Road Less Travelled INSIDE THE ISSUE Takeaways of call with the President of the Nashik Painters Association Cement: Supply-chain efficiency improvements Detailed story on pg. 2 visible Detailed story on pg. 4 RETROSPECTIVE PERSPECTIVE Key events of the last few weeks…. Perpetual bonds – what’s up? The rise of NFTs Takeaways of call with north-India based ITC Congress Rift: G23 distributor Polar Silk Road Detailed story on pg. 2 The state of spending in India and fuel Electric vehicles – are we there yet? 1984’d? India’s new rules to regulate online content News round-up of the month Detailed story on pg. 5-9 Channel checks with north India-based distributors of Emami Detailed story on pg. 3 Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA-member broker-dealer. Takeaways of call with the President of the Nashik Painters Association by Vishal Gutka • Demand is gradually recovering in the individual home for completion of segment: Demand is almost back to pre-covid levels owing to projects has reducing cases of covid-19, vaccine rollout and adoption of best-in- reduced class sanitization practices by paint companies. Trend such as a substantially. Not reducing repainting cycle, premiumization, and increased usage of all contractors can branded products are helping. afford these • Projects business on an accelerated growth mode: Paint machines, as they contractors have healthy order books, since real-estate developers are costly and if are focusing on giving possession to buyers, and there is good they get damaged, uptick in real estate demand due to lower interest rates. the project might get stuck. • Berger has made good inroads into the contractor segment: • Aggressiveness of paint companies into the waterproofing Many of the paint contractors in Nashik area have switched to range: Paint companies today have established a separate division Berger from Asian Paints over the past few years, because of the for waterproofing, providing products like membrane and former’s better margins, better quality of products in certain sub- membrane-coating. They have targeted internal waterproofing as segments, and improved service standards. well. • Has automation led to decrease in number of laborers? Even • Price hike: Paint companies have taken low-single-digit price hikes with automation of painting projects to a certain extent (increased in exterior paints; few financially strong contractors have started adoption of putty mixer, spraying machines), there is no significant stocking paint products, expecting more price hikes ahead. decline in the number of laborers needed. However, the duration Takeaways of call with north-India based ITC distributor by Vishal Gutka which involves high-level engagement with government officials (specifically regulatory authorities) to curb sales of contraband. The government is taking a keen interest, given its precarious fiscal situation. • Subdued volume growth is hurting brand investments: ITC has gone on a cost rationalization drive and reduced display pay-outs to retailers for its key cigarette outlets, which again is taking a toll on its volume growth. • FMCG: Since most covid-19-related tailwinds have abated, the • Demand, after seeing an uptick in Jan, has stagnated again: FMCG segment growth has seen significant moderation from Historically, cigarette consumption increases during winter, but this 1HFY21 levels. time, it has not seen a similar jump. This is because of increasing noise around covid-19 and the perception that smokers are more Product performance: prone to covid as it harms lungs. In fact, demand reduced. With 1) Savlon range of products, which had even outperformed Dettol schools and colleges not opening, and a rise in temperature in during the initial phase of the pandemic, have registered negative coming months, cigarette volumes will be hit. Many retailers had growth due to the roll-out of the vaccine and easing up of the covid stocked up, anticipating price hikes due to expectations of tax scenario. increases in the Union Budget. Jan 2021 saw 10% value growth; 2) Yippee: Sales for Yippee have gone down drastically vs. 1HFY21, Feb saw +5%; March is down 20% so far. since Maggi, which earlier was facing distribution constraints, has • Market share in overall cigarette industry is declining: started reaching every nook and corner. To enhance sales, it has Although ITC might be gaining some market share from other started giving complimentary namkeen packets with select Yippee organized players (VST Industries, GPI) who are grappling with their packs. own challenges, overall, it is losing market share to contraband/ 3) Bingo: ITC came up with new launches in Bingo such as No Rule, illegal / unorganized players. These are gaining due to the high Breakfast Snack, and newer variants in Mad Angles, but they failed. margins they give retailers, plus, they don’t carry pictorial warnings These have now been withdrawn from the market. Key products on their packs, and their cigarettes are priced cheaper. such as Bingo Chips and Tedhe Medhe are doing well. • ITC is working on an aggressive combat plan to curb sales of contraband cigarettes: ITC is working on a plan across India, 17 March 2021 | Vol-3, Issue-3 | Page - 2 Road Less Travelled | MONTHLY NEWSLETTER 4) Ashirwad Atta (flour): With other branded players (such as • New launches: ITC is planning a big bang foray into new Nature's Fresh) and unorganized players coming back to the categories. It is focusing on cake, bottled soup, chocolates (Rs 5/10) market, ITC, which had gained lot of market share during 1HFY21, and flavoured milk. It has also started installing chillers in select has started giving it back. This has made it become aggressive – by retail outlets, as it plans to prepare a high-decibel media campaign giving flat Rs 50 discount on a 50kg atta packet. around chocolates and flavoured milk. Channel checks with north India-based distributors of Emami Key takeaways by Vishal Gutka from Nielsen. But, it was not that impactful, and it was expensive as well. Hence, the company decided to reduced its exposure to negligible. New launches tracking well During Covid, Emami reduced the MRP of its new launches (home- care range) instead of opting for promos. This, and RB (Harpic) facing some stock-related issues helped Emami gain. Acceptance for its Strong recovery in the wholesale channel toilet cleaner and dish-wash is better than other companies’ home Two years ago, Emami’s wholesale channel was under tremendous care ranges. pressure; it was seeing sales decline by 40-45% – mainly related to In soaps, its LUP is doing extremely well, and is expected to gain the north region. To counter this challenge, it launched a loyalty some market share. program called Champions Club to revive its wholesale business. Acceptance of Aloe Vera Gel is good due to its huge distribution Under this programme, Emami targeted top-20% wholesalers who network in the north region (150,000 outlets) as there aren’t many contributed mainly to sales, and designed extra schemes for them players in this space apart from Patanjali. specifically. As a result, this channel has revived and has started seeing healthy growth. Power brands Its wholesale business is tracking well on solid improvement in • Navratna: Placement for Navratna brand, ahead of the summer cash-conversion, as wholesalers are now ordering quantities season, has been quite robust, as temperatures have started equivalent to near-term demand vs. the erstwhile practice of soaring. stocking more-than-desired quantities. • Kesh King: Kesh King continues to perform; recently, Emami As a result, investment in stocks has reduced significantly. changed its MRP for its 300ml pack. However, the MRP for its 100 Moreover, the credit period in metro cities to the wholesale channel ml and 50 ml packs remains the same. has approximately halved to 8-10 days (from 15-20 days), and in • Zandu: Zandu Balm’s growth has seen a significant boost in non-metro cities, it is only around 3-7 days. 9MFY21 on market-share gains from unorganized /local players and increased consumption (customers apply balm while taking Emami needs to take new steps to enhance distribution reach: steam). However, this has receded as both the factors have reversed Emami came up with an expansion project called ‘RACE’ to increase now. direct distribution in the outskirts of metro cities. This was based on data 17 March 2021 | Vol-3, Issue-3 | Page - 3 Road Less Travelled | MONTHLY NEWSLETTER Cement: Supply-chain efficiency improvements visible Clear indications from the ground on various initiatives by several manufacturers. Next structural and sustainable re-rating trigger for the sector by Vaibhav Agarwal Over the last few days there have been several media reports of a robust increase in cement prices across regions ranging from Rs 20-50/bag. While cement prices are likely to improve in Q4, our channel checks do not corroborate robust price hikes. The maximum we hear is Rs 10-20/bag price hikes across pockets. We hear of a strong volume commentary for February 2021, and a similar sustained trend in March 2021 too. Despite February being just a 28-day month, most of the cement manufacturers and dealers have recorded historic high volumes, and this is a huge morale booster for cement manufacturers. But, the caveat to this is that we also hear that many marketing executives are running with phenomenal volume targets and most manufacturers have an internal wish to bring their FY21 despatch numbers closer to FY20 despatches.