consumer - ambitreports.ambitcapital.com/reports/ambit_b2cdistributorssurvey... · consumer demand...

CONSUMER

Analysts:

B2C Distributors’ Survey for 3QFY16

Rakshit Ranjan, [email protected]: +91 22 3043 3201

January 2016

ConsumerDiscretionary

Strong demand,

Festive/Weddings-led,

Appears unsustainable

ConsumerStaples

Negative,

Rural slowdown deepens,

Urban flat,

Revival not

before 1HFY17

Bhargav [email protected]: +91 22 3043 3252

Abhishek Ranganathan, [email protected]: +91 22 3043 3085

3QFY163QFY16

B2C Distributors Survey

January 06, 2016 Ambit Capital Pvt. Ltd.

CONTENTS

B2C Distributors Survey: Transient revival in discretionary……………………...3

Survey summary………………………………………………………………………. 4

Investment implications……………………………………………………………….9

FMCG and staples……………………………………………………………………13

Paints………………………………………………………………………………….. 17

Kitchenware………………………………………………………………………….. 19

Jewellery……………………………………………………………………………… 21

Footwear……………………………………………………………………………… 23

Light Electricals………………………………………………………………………. 25

Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision.

Transient revival in discretionary

Demand for consumer staples in 3QFY16 has remained as weak as it was in 2QFY16, both in urban as well as in rural areas (we expect average volume growth of 4.4% YoY in 3QFY16 versus 4.5%/5.5% for 2QFY16/3QFY15 across our coverage universe). Sales growth for discretionary categories like kitchenware, paints, jewellery and light electricals has witnessed a strong revival in demand in 3QFY16. However, this revival has been led largely by a delayed festive season and a longer wedding season, and should not be interpreted as a clear revival in demand for either urban or the discretionary segments of consumption. Margin benefits from softening input costs will support earnings growth for FMCG/paints/kitchenware companies in 3QFY16. Our top BUYs are ITC, Page, TTK Prestige, Titan, Havells and V-Guard.

Summary of our findings from surveying distributors

Category Volume Growth

Price Growth

Promotional Intensity

Most at Risk

Most Secure

FMCG & staples Flat GSK Consumer, Colgate ITC, Britannia

Paints Flat Akzo, Kansai Berger, Asian

Kitchenware Increased Hawkins TTK Prestige

Jewellery Flat Regional/ unorg Titan

Light electricals Increased Bajaj Havells, V-Guard

Source: Ambit Capital research; Note: ‘’ indicates acceleration of YoY growth vs 2QFY16; ‘’ indicates unchanged YoY growth rates vs 2QFY16; and ‘ ‘ indicates deceleration in YoY growth vs 2QFY16.

Market share shifts: Key market share changes in FMCG in 3QFY16: (a) Dabur and Patanjali gained share from Colgate and HUL in modern trade in oral care; (b) ITC and Patanjali gained share from Nestle in noodles. Berger and Asian Paints have both gained share from Akzo and Kansai. TTK Prestige has gained share particularly in north India from Hawkins. Havells is gaining market share from Bajaj particularly in the western region.

Key recommendations: 3QFY16 results are likely to act as a positive catalyst for firms like Asian Paints, Berger, TTK Prestige, Havells and V-Guard where festivities and weddings resulted in a transient increase in volume growth rates, amidst continued margin tailwinds from input costs. We expect 3QFY16 to act as a negative catalyst for the FMCG sector as consensus earnings estimates underestimate the drag from weak volume growth and weak realisation gains. Our top BUYs are ITC, Page, TTK Prestige, Titan, Havells and V-Guard.

Summary of our volume and value growth expectations for 3QFY16

Ticker 3Q volume 3Q value 3Q =

Ticker 3Q volume 3Q value 3Q =

growth growth Catalyst? growth growth Catalyst? GSKCH 0% 2% Negative APNT 15% 14% Positive NEST NA -19% Neutral BRGR 16% 15% Positive CLGT 4% 5% Negative BATA 10% 15% Neutral HUVR 7% 6% Neutral JUBI 4% 28% Neutral DABUR 3% 6% Neutral BJE 8% 6% Negative MRCO 7% 3% Positive PAG 12% 18% Neutral GCPL 5% 6% Neutral HAVL 10% 7% Positive BRIT NA 12% Neutral VGUARD 9% 6% Neutral ITC 1% 11% Positive TTAN 22% 16% Positive TTKPT 10% 16% Positive

Source: Ambit Capital research; Note: Volume growth is YoY and pertains to the domestic business based on our channel checks; Value growth pertains to consolidated growth based on Ambit estimates

THEMATIC January 06, 2016

B2C Distributors SurveyNEGATIVE

Analyst Details

Consumer Rakshit Ranjan, CFA +91 22 3043 3201 [email protected]

Ritesh Vaidya, CFA +91 22 3043 3246 [email protected] Light Electricals Bhargav Buddhadev +91 22 30433252 [email protected]

Deepesh Agarwal, CFA +91 22 30433275 [email protected]

Jewellery Abhishek Ranganathan, CFA +91 22 3043 3085 [email protected]

Consumer



Survey summary During the second half of December 2015, we conducted a survey of more than 100 large distributors and unlisted companies spread across India and across most of the key consumption segments. This survey focused on identifying the YoY growth trends in consumer demand over October-December 2015 across categories as well as individual brands. The key takeaways from our survey:

1 Revival in revenue growth for most discretionary consumer companies: Demand growth in categories like kitchenware, paints, jewellery and light electricals revived significantly during 3QFY16 on a YoY basis. The nature of this demand revival included: a) timing effect of a delayed Diwali, which pushed some product sales from the Sept-Oct period last year to the Oct-Nov period this year; b) even on a like to like basis, festive sales for 2015 were better than those of 2014; and c) healthy sales growth momentum continued even after Diwali, mainly because the weddings season was longer than normal in November and December.

2 Weakness in FMCG sales continues, rural particularly weak: Our channel checks suggest that two consecutive crop failures have impacted end consumer demand. Liquidity squeeze faced by distributors has also led to lower stocking by them. As a result, rural demand is at its slowest and is barely growing in line with urban demand. Urban demand showed a slight uptick during Diwali but has tapered off almost immediately in December. A delayed winter has further added to the woes of seasonal categories.

High degree of promotional activity across categories: Similar to the trends witnessed in 2QFY16, input cost tailwinds in categories like FMCG, paints, and kitchenware have helped firms in these sectors increase spends on adverts and promotions in the quarter. However, brick-and-mortar retail sector saw the ‘end of season’ discounts being offered 3-4 weeks earlier than normal (see exhibit below).

For all the buzz around recovery in consumer spending – ‘end of season’ sale continues to be early

Brand Date of winter sale in FY16 Date of winter sale in FY15

Shoppers Stop 28/12/2015 31/12/2014

Lifestyle 28/12/2015 31/12/2014

Max Fashions 27/12/2015 27/12/2014

Zara 26/12/2015 02/01/2015

Puma 25/12/2015 24/12/2014

Pantaloons 28/12/2015 01/01/2015

Westside 02/01/2016 02/01/2015

Bata 28/12/2015 05/01/2015

Source: Ambit Capital Research

Will the urban discretionary demand growth momentum continue beyond 3QFY16? Our discussions with channel partners suggest that since the factors driving a revival in demand for urban discretionary consumer categories were all event-based (like Diwali or weddings or accelerated promotions), it would be too early to call this a sustained revival in macro demand for urban consumption. Hence, we expect a moderation in these demand growth patterns for discretionary consumer categories in 4QFY16 with a sustained revival expected only in 1HFY17 following an increase in construction sector job creation, expansion of corporate budgets, and signs of improvement in broader economic growth prospects.

3Q demand was weak for staples, and strong for discretionary consumer categories

Confidence in sustainability of improved consumer spending seems to be weak given that ‘end of season sale’ has commenced in 3Q itself vs 4Q



Summary of our sector-specific channel checks FMCG/ staples: Volume growth to remain weak as rural slows down further while urban remains flat QoQ

Consumer demand for 3QFY16 has failed to show any signs of a revival and has continued to remain muted. Our channel checks suggest demand in urban areas has been modest while rural is now barely growing in line with urban. Two consecutive crop failures and distributors facing a liquidity squeeze have led to weakening of rural demand. Companies are trying to tide over the weakness in rural demand by either expanding their rural reach (Marico, GCPL, Britannia, Colgate) or by increasing throughput of existing rural distribution (HUL, Dabur). The key highlights of the quarter:

HUL took a rural distribution clean-up exercise during the quarter, which could have possibly impacted volume growth for the quarter.

During the quarter, Patanjali further increased its share in the oral care and packaged foods category (Instant noodles and Honey).

ITC remains our top pick as we expect to report cigarette volume growth of 1% YoY (first volume growth in last 11 quarters) helped by the weak base and a marginal pick-up in consumption.

Overall, for 3QFY16, we expect average volume growth of 4.4% YoY versus 4.5%/5.5% for 2QFY16/3QFY15 across our coverage. A possible failure of rabi could mean weak rural demand for a further six months, and likely recovery at the earliest, from 2QFY17 onwards.

Paints: Strong quarter for Diwali/weddings-led demand; margin expansion to continue

3QFY16 has witnessed a seasonal revival in the paints sector’s volume growth due to a delayed festive season. This is because Diwali, in mid-November in 2015 versus late October in 2014, has given an extra 2-3 weeks of festivities-related paint demand during the quarter on a YoY basis. Moreover, a greater number of wedding dates in November and December has further supported YoY demand growth in 3QFY16. Besides this, there is no near-term evidence available of a likely revival in demand beyond 3QFY16. Similar to 1HFY16, revenue growth will be driven mainly by volumes, which in turn will be driven mainly by economy products.

Asian Paints and Berger continue to gain share from peers like Kansai and Akzo. Berger’s express painting service appears to be gaining a positive response from painters.

We expect revenue growth of 14%/15% YoY for Asian Paints/Berger Paints in 3QFY16. Soft input costs, partially offset by the depreciation in INR against USD, will result in gross margin expansion of 100bps-200bps in 3QFY16.

Kitchenware: New product launches help TTK Prestige gain meaningful share

3QFY16 has witnessed positive demand trends in kitchenware as: a) Diwali related sales in 2015 (beyond the effect of delayed Diwali) have been better than last year; and b) unlike in 2014, the period immediately after Diwali in 2015 (i.e. the month of December) has not seen a lull period in demand. Also, liquidity in the trade channel has improved significantly during the quarter.

TTK Prestige has seen significant market share gain during the quarter due to a combination of: a) successful rollout of new product launches; and b) increase in advert spends YoY during December. Disruption due to floods in Chennai (~20% of sales derived from Tamil Nadu) is likely to have been more than offset by demand witnessed by TTK in the last two weeks of December, given proactive initiatives such as ensuring product availability in the channel and rollout of an exchange offer.

FMCG - we expect average volume growth of 4.4% YoY vs 4.5%/5.5% for 2QFY16/3QFY15

Paints – delayed Diwali, longer wedding season helps improve sector demand YoY

Kitchenware – robust quarter for TTK Prestige given successful new launches and input cost tailwinds



We expect 16% revenue growth for TTK Prestige in 3QFY16, and 118bps EBITDA margin expansion given input cost tailwinds and operating leverage from increased capacity utilization.

Jewellery: 3Q will be strong for Titan’s jewellery division

Our channel checks across various stores (including Tanishq), unlisted jewellers and trade participants indicate: (1) significant uptick in demand led by festive season and wedding jewellery demand (2) increase in footfalls, volumes (above 25%) and revenues (3) Tanishq’s new collections such as Divyam and Zuhur were out of stock in most of the stores due to overwhelming demand. Our checks indicate very strong volume growth across gold jewellery for Tanishq led by new collections such as Divyam (temple jewellery) and Zuhur (studded). The impact of the discontinuation of the gold deposit scheme is already factored in last year’s base and therefore, the LTL growth for Tanishq will be comparable from 3QFY15 as the gold deposit scheme was absent in 2HFY15. Therefore, the 3QFY16 results are likely to witness 16% growth in jewellery revenues and 22% in EBITDA due to operating leverage. The commentary for jewellery demand for 3QFY16 by World Gold Council was muted. Therefore, Tanishq’s growth exhibits Titan’s ability to increase market share through designs, range and pricing. We are BUYers of Titan, as it is best placed to gain market share from these organised players and continues expansion of asset-light stores.

Light electricals: Strong festive and industrial demand; gross margin expansion to continue

Our discussions with channel partners suggest improvement in the demand environment led by strong festival demand and construction led demand thanks to the pick-up in execution of real estate projects. Within product categories, whilst small appliances, water heaters, fans and stabilisers have seen YoY volume growth of 11%, 8%, 8% and 8%; lighting, construction wires and switchgears have seen growth of 10%, 9% and 5% respectively.

The channel partners expect FY17 to be a better year as positive momentum in consumer-led demand is likely to remain alongside the likely pick-up in industrial capex. New entrants may be marginalised given weak product quality and lacklustre after-sales service.

We reiterate our BUY stance on V-Guard, Finolex Cables and Havells as their franchises are gaining market share by strengthening their distribution networks alongside introducing new SKUs to strengthen their product portfolios. Reiterate SELL on Bajaj due to loss of market share given fast pace implementation of the theory of constraints.



Summary of our volume and value growth expectations for 3QFY16 Exhibit 1:

Company 3QFY16E Volume Growth

3QFY15 Volume Growth

3QFY16E Value

Growth

3QFY15 Value

Growth

Will 3QFY16 results be a

catalyst?

P/E FY17 (x) Comments regarding catalysts

FMCG/staples

GSK Consumer 0% 5% 2% 17% Negative 31.9 We expect volumes to be flat YoY due to weak rural demand and particularly soft sales of Boost.

Nestle NA 4% -19% 12% Neutral 41.4 Although Maggi noodle sales resumed during the quarter we believe it will take Nestle at least 6-9 months to normalize sales to pre-crisis levels.

Colgate 4% 5% 6% 12% Negative 34.0 Our channel checks suggest that Colgate has continued to lose market share to GSK, Dabur and Patanjali. As a result, we expect low single-digit volume growth.

HUL 7% 3% 5% 8% Neutral 39.5 Weak rural demand, clean-up of rural distribution channel could possibly impact volume growth during the quarter.

Dabur 3% 7% 6% 9% Neutral 31.8

Expect 15%-20% drop in juice sales during the quarter due to the Nepal border issue. Toothpaste sales have been good due to increased consumer demand for ayurvedic products.

Marico 7% 5% 3% 21% Positive 30.7

We expect Saffola volume growth to pick-up to high single-digit while PCNO and VAHO are expected to grow volumes by ~8%/10% YoY. As a result, we expect blended volume growth of ~7% YoY.

GCPL 5% 7% 6% 5% Neutral 25.2 High base and tepid domestic demand is expected to result in only mid-single volume growth for GCPL.

Britannia NA NA 12% 13% Neutral 29.1

Re-launch of Good Day and launch of Choco Lush has done well. Growth for Britannia is expected to be driven by urban areas while rural growth is expected to remain weak.

ITC 1% -16% 11% 3% Positive 27.8 We expect ITC to deliver positive volume growth for the first time in last 11 quarters on the back of marginal pick-up in consumer demand.

Consumer discretionary

TTK Prestige 10% 2% 16% 4% Positive 35.6 Strong macro demand during Diwali. TTK gained share especially in non-South due to successful new launches

Asian Paints 15% 7% 14% 6% Positive 42.3 No price hikes taken over the past 12 months; Category growth supported by delayed Diwali and weddings. Margin expansion continues

Berger Paints 16% 10% 15% 9% Positive 40.2 Marginal market share gains during the quarter. Category growth supported by delayed Diwali and weddings. Input cost benefits to margin continue

Jubilant Foodworks 4% 4% 28% 21% Negative 42.5

SELL ahead of results: Sustained SSG improvement is 3-4 quarters away and margin declines are likely to persist; FY23 store count potential of <2,000.

Bata India 10% -7% 15% 4% Neutral 32.5 Whilst company-specific issues around supply chain have been resolved, the bundled festive season coupled with a low base, this quarter will see a bounce back.

Page Industries 12% 19% 18% 25% Neutral 52.2 Weak macro demand overall affecting growth particularly in menswear. Kidswear products launched in November.

Titan Company 22% 25% 16% 11% Positive 30.2 Strong volume growth (22%) led by wedding collections an differentiated designs and normalized base will aid topline and bottomline growth.

Light electricals

Havells 10% 5% 8% 1% Positive 28.6 Havells should benefit from (a) marginalisation of new players; (b) streamlining of discount across distributors; and (c) pick-up in the demand for the industry.

Bajaj (non-E&P) 8% 3% 6% 2% Negative 16.1 SELL ahead of results, despite low base: Rollout of the ‘theory’ is leading to channel friction and causing market share loss.

VGuard 9% 4% 6% 0% Positive 23.1 BUY ahead of results: V-Guard will continue to gain market share in non-south region. It will also benefit from pick-up in the demand for housing wires

Source: Ambit Capital research



Margin expansion to moderate in 3QFY16 Gross margin expected to expand ~165bps YoY due to further drop in crude oil linked commodities

After the sharp slide in crude oil over the last month, crude oil prices were down ~25% YoY. However, most of the benefit from lower commodity prices is now in the base and hence we expect gains from lower commodity costs to be limited going ahead. Prices of crude oil linked commodities are down 15%-20% YoY which should help drive gross margin expansion.

Firms such as Asian Paints, Berger and Pidilite import 30%-40% of their overall raw materials. As a result, ~10% depreciation in the rupee over the past 3-4 months will partially offset the gross margin gains due to incremental softening in crude prices over the past 3-4 months.

EBITDA margin likely to increase by ~130bps YoY, as gains at the gross margin level are likely to be partially invested into higher A&P spends. The moderation in margin expansion along with muted topline growth is expected to result in PAT growth of only ~14% in 3QFY16 versus 18% in 2QFY16 and 23% in 3QFY15 for our FMCG coverage.

Margin expansion will moderate during 3Q; GM gains to be partially invested in higher A&P spends Exhibit 2:

Company Revenue growth (%) YoY change in A&P

spends as % of sales

bps

YoY change in Gross margin

bps

YoY change in EBITDA margin

bps 3QFY16E 2QFY16 3QFY15

Britannia 11.5% 11.9% 13.4% 29 145 180

Colgate 5.4% 3.8% 11.8% (139) 52 161

Dabur 6.0% 8.6% 8.9% - 133 91

GCPL 5.6% 9.0% 5.0% 15 120 105

GSK Consumer 2.1% 1.1% 16.5% - 153 164

HUL 5.5% 4.7% 7.7% 80 100 39

Marico 2.6% 3.8% 21.0% 246 450 175

Nestle -19.4% -32.1% 11.7% NA 150 (109)

ITC 11.4% -1.3% 2.5% NA 52 (29)

Average (ex-ITC, Nestle) 5.5% 6.1% 12.0% 33 165 131

Source: Company, Ambit Capital research

3QFY16 PAT growth is expected to be slowest at least in the last 2 years Exhibit 3:


-

50

100

150

200

250

300

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16E

Revenue growth (YoY %) PAT growth (YoY %) EBITDA ch YoY (bps), RHS

Gross margin expansion likely due to softening of raw material prices YoY

Heightened competitive intensity has led to partial investment of gross margin into A&P spends

Consequently, we expect EBITDA margin expansion of ~130bps YoY for FMCG



Investment implications Amongst large caps, we reiterate our BUY on ITC due to its longer-term earnings growth potential and limited downside from current valuations. Amongst mid caps and small caps, we reiterate our BUYs on Page Industries, TTK Prestige, Titan, Havells and V-Guard, as 3QFY16 is likely to be a significant positive catalyst for all these stocks.

1 ITC (BUY, TP `420, 29% upside): India’s total cigarette volume consumption has remained unchanged in FY12-FY14; however, a 15% excise hike CAGR over FY13-FY16 and poor implementation of anti-cigarette regulations have resulted in a consumption shift from legal to illegal cigarettes, bidis and chewing tobacco. Thus, the tax collected by the Government from the tobacco sector has reduced. Over 1993-2000, the UK faced a similar situation of rising proliferation of illegal cigarettes due to high taxation, which eventually led to a moderation of the excise levy on cigarettes. We expect a similar sequence of events to unfold in the Indian market and result in a revival in ITC’s cigarette volume CAGR to 1% over FY15-FY25. ITC’s non-cigarette FMCG portfolio is likely to benefit from high-quality middle and senior management teams focusing on product innovation and leveraging on ITC’s scale and distribution channel dominance. Hence, we forecast 21%/12% revenue CAGR in packaged foods/personal care over FY15-FY25 and 4x improvement in EBITDA margin from 2.4% in FY15 to 11.3% in FY25. Overall, we expect the non-cigarette FMCG business to deliver sales/EBIT CAGR of 19%/64% over FY15-FY25. At CMP of `325/share, our reverse DCF suggests that the share price already factors in: (a) cigarette volume decline of 6% over FY15-FY25 and (b) excise duty hike of ~15% CAGR over FY15-FY25. Hence, we see limited downside from current levels. (Click here for our detailed 16 July 2015 note on ITC.)

2 TTK Prestige (BUY, TP `5,388, 16% upside): TTK Prestige’s revenue growth is likely to revive to 16%/21% YoY in 2HFY16E/FY17E (from 7% YoY in FY15), as the external headwinds that affected its revenue growth over FY14 and FY15 have now dissipated. TTK is likely to continue to benefit from its renewed focus on product innovation. Its recent tie-ups with e-commerce aggregators and establishment of fulfilling centres in Hosur and Maharashtra will ensure expansion of TTK’s presence in this channel without inventory de-stocking in the brick-and-mortar channel. Also, the Prestige Smart Kitchen (PSK) franchisee network has been growing strongly thanks to the efficient handling of new launches and large value SKUs. Whilst softening in input costs will help expand gross margins in the near term, improved capacity utilisation (20% increase targeted in FY16) will support EBITDA margin expansion and help deliver 38% EPS CAGR in FY15-FY18E. Our DCF model generates a TP of `5,388 (16% upside, 36x implied FY17E P/E). We reiterate BUY.

3 Page Industries (BUY, TP `16,046, 19% upside): We expect Page’s sales growth of 18% YoY in 3QFY16 to be marginally higher than 16% YoY reported in 1HFY16 (vs more than 25% until 4QFY15) mainly due to a weak macro environment and liquidity constraints at the distributor level. A fall in cotton prices is likely to result in EBITDA margin benefit of 75bps-100bps over the remainder of FY16. Page continues to build on its competitive strengths around manufacturing, distribution and brand recall through: (a) rapid expansion of the exclusive brand outlet (EBO) network; (b) launch of its e-commerce portal; (c) recent launch of kidswear products (Nov ’15); and (d) ongoing IT investments in streamlining distribution.

http://reports.ambitcapital.com/reports/Ambit_ITC_CompanyInsight_Itsalwaysdarkestbeforethedawn_16Jul2015.pdf



Hence, the recent weakness in revenue growth (vs 30%/35% revenue/EPS CAGR over FY15-FY20E) offers attractive entry points for investors. Gradual revival of revenue growth in future supported by the recent launch of kidswear collection and upcoming implementation of new software for supply chain management are likely to be the key positive catalysts in 2HFY16. We reiterate BUY.

4 Havells (BUY, TP `338/share, 10% upside)

Marginalisation of new players to benefit Havells: Competitive intensity is likely to ease, with new players struggling to survive given sub-par products and poor after-sales service.

Streamlining discounts and new products to aid market share: Finally Havells is moving away from giving extra discounts to large distributors (20% of overall market) to a uniform discount policy. This should result in market share gains, as streamlining of discounts leads to a reduction in price wars, thereby developing a trust amongst the distributor community. Alongside, Havells has improved its product portfolio by launching new SKUs to consolidate its position in a weak market.

Proceeds from Sylvania stake sale can help boost appliances franchise: `11bn cash allows Havells to acquire a strong appliance franchise. An up to 20% overlap with the existing distribution network and gaps in after-sales service network given Havells’ nascent appliances franchise, makes a strong case for acquisition. Scaling up the regional appliance franchise for Havells should not be a challenge as Havells can leverage its strong brand recall and management expertise (regional franchises are facing management issues) to the distribution and service networks of regional players. Consequently, Havells should at least earn 25% RoIC (vs 36% over FY11-FY15 for regional franchise) on the appliance business.

Havells’ standalone franchise is trading at a meagre 16% premium to peers on FY17 P/E (vs 20% premium a year ago) despite being a market leader with an average RoIC of 59% in FY16-FY17 vs 25% for peers. Our TP of `338/share (̀ 44 for cash) for the standalone implies FY17E P/E of 31x (26% premium to peers).

5 V-Guard (BUY, TP `1,163/share, 25% upside)

Fast emerging as a pan-India player: V-Guard is strengthening its non-south franchise by beefing up its distribution network and recruiting marketing employees from leading competitors. Consequently, the company is gaining market share in all five product categories in the non-south market.

Expansion of scale in non-south is margin-accelerative: Non-south’s EBITDA margin has starting improving with expanding scale (improved from - 1.3% in FY12 to 1.5% in FY15 and ~4% in 1HFY16). There is tremendous scope for further improvement, as the non-south EBITDA margin is 980bps lower than that in the south.

Product diversification: V-Guard is successfully reducing its dependence on stabilisers by launching new products. The revenue share of stabilisers has declined from 37% in FY08 to 19% in FY15, led by strong growth in newer products such as inverters, fans, induction cooktop and switchgears

V-Guard is trading at 23.1x FY17 P/E, 8% discount to peers despite higher FY15-FY17E EPS CAGR of 31% (vs peers’ 21%) and 520bps higher FY17E RoE of 24.4% (vs peers’ 19.3%). We believe a ‘growth company’ like V-Guard deserves to trade closer to the price multiple to peers given higher return ratios and higher earnings growth. We value V-Guard at `1,163, implying FY17E P/E of 29x .



6 Titan (BUY, TP `404, 15% upside) New GHS to contribute materially from FY17E: The new GHS will begin contributing materially from FY17E, wherein it will form 12% of revenues. Moreover, the discounts offered by this scheme are 80bps lower than the erstwhile scheme, hence resulting in better like-for-like margins.

Competition is in a tight spot: Low making charges (8%-10%), high debt:equity (1.5x) and restrictions on customers’ deposits will affect sustainability and expansion of competition. Thus, Tanishq will gain market share not only from unorganised players but also from organised players at a higher pace than ever (260bps over FY16-FY20E vs 150bps over FY10-FY15).

Whilst withdrawal of the erstwhile deposit scheme will lead to flat revenue/PAT in FY16E, PAT/revenue CAGR will be strong at 28%/25% FY16-18E given the scheme’s return, maturing retail space (37% less than 3 years old) and rising share of studded jewellery (32% in FY15 vs 26% in FY12). Our DCF-based fair value of `404 (34x FY17E EPS) reflects the strengthening competitive position and market share gains. As adornment jewellery (28% of the market; lower ticket size and gold content) grows with changing demographics, designs and repeat buying will override the impact of gold prices, thus warranting higher multiples than the historical average of 32x.

7 Bata (SELL, TP:̀ 388, 25% downside)

Whilst 3QFY16 performance will be aided by bundling of festive season (spread across in 2Q and 3Q in FY15) compared with last year and rolling out of the year-end discount scheme will lead to an optical jump in revenues; however, our concerns on eroding distribution equity, under-investment in the brand (meagre 1% of revenues over CY08-CY15), high fixed costs (35% of sales) and risk from ecommerce (to at least 15% of the revenues) remain. A significant turnaround is some time away given: (a) historical high inventory (nine months) requiring write-downs, (b) high possibility for gross margin compression, and (c) declining asset turns (2.4x in FY17 from 3.1x in CY09); we expect FY17E RoE to be 19%. We remain SELLers with an implied valuation of 23.5x FY17E EPS.



Relative valuation table Exhibit 4:

Relative valuations CMP (`)

Mcap (US$ mn) Stance

Target Price

(`)

Up/ Down

Implied Multiple

P/E EV/EBITDA ROCE (%) Div. Yield (%)

EPS Growth

Rev growth

FY17E FY16E FY17E FY16E FY17E FY16E FY17E FY17E FY15-18E FY15-18E

Cons: Staples

HUL 848 28,741 BUY 955 13% 39.5 43.3 35.0 29 24 103.3% 105.6% 1.9% 19.7% 12.7%

Nestle 5,665 8,521 SELL 5,420 -4% 41.4 52.9 43.3 33 27 32.0% 35.2% 1.0% 9.7% 5.4%

Dabur 275 7,511 SELL 270 -2% 31.8 38.2 32.4 31 26 28.8% 29.4% 0.7% 18.3% 15.1%

Godrej Consumer 1,315 7,006 SELL 950 -28% 25.2 42.5 34.9 28 23 17.8% 19.7% 0.4% 16.8% 12.4%

GSK Consumer 6,594 4,340 SELL 5,910 -10% 31.9 41.5 35.6 32 26 30.5% 30.1% 0.9% 15.7% 14.6%

Colgate 973 2,073 SELL 900 -8% 34.0 44.4 36.8 28 23 69.6% 69.8% 1.3% 15.7% 12.3%

Marico 228 2,304 BUY 223 -2% 30.7 39.6 31.4 26 21 32.9% 36.8% 1.1% 25.6% 15.4%

ITC 325 40,819 BUY 420 29% 27.8 24.6 21.5 17 15 30.9% 31.8% 1.9% 13.0% 13.3%

Britannia 2,965 5,561 SELL 2,375 -20% 29.1 43.7 36.4 19 16 45.3% 42.4% 1.4% 28.9% 15.8%

Cons: Discretionary TTK Prestige Ltd 4,646 831 BUY 5,388 16% 35.6 45.0 30.7 30 21 17.6% 23.1% 0.5% 38.4% 18.1%

Jubilant Foodworks 1,476 1,452 SELL 1,213 -18% 42.5 72.5 51.7 30 22 21.2% 23.9% 0.1% 31.9% 25.2%

Berger Paints 263 2,762 BUY 286 9% 40.2 50.2 36.9 29 23 20.0% 23.7% 0.5% 29.4% 16.6%

Asian Paints 886 12,774 BUY 986 11% 42.3 46.5 38.1 30 25 33.5% 34.6% 0.7% 22.5% 15.9%

Bata India 515 1,002 SELL 388 -25% 25.0 44.2 32.9 25 18 17.2% 21.8% 1.1% 27.8% 14.5%

Page Inds 13,465 2,286 BUY 16,046 19% 52.2 61.3 43.8 39 29 43.1% 49.4% 0.5% 33.7% 27.4%

Titan Company 352 4,725 BUY 404 15% 34.0 39.2 30.4 27 21 30.3% 32.7% 0.8% 25.0% 23.3%

Light Electricals V-Guard 933 430 BUY 1,163 25% 29.0 26.0 19.0 18 15 22.0% 23.0% 1.0% 29.0% 18.0%

Havells 308 2,956 BUY 338 10% 24.0 39.0 29.0 7 6 18.0% 19.0% 1.0% 20.0% 11.0%

Bajaj Electricals 207 326 SELL 225 9% 15.0 19.0 16.0 9 8 15.0% 16.0% 2.0% NA 13.0%

Source: Bloomberg, Ambit Capital research



FMCG and staples Consumer demand for 3QFY16 has failed to show any signs of a revival and has continued to remain muted. Our channel checks suggest demand in urban areas has been modest while rural is barely growing in line with urban. Two consecutive crop failures and liquidity squeeze for distributors have led to weakening of rural demand. Companies are trying to tide over rural demand weakness by expanding their rural reach (Marico, GCPL, Britannia, Colgate) or by increasing throughput of existing rural distribution (HUL, Dabur). HUL took a rural distribution clean-up exercise during the quarter, which has possibly impacted volume growth. During the quarter, Patanjali further increased its share in the oral care and packaged foods category (Instant noodles and Honey). ITC remains our top pick as we expect it to report cigarette volume growth of 1% YoY (first volume growth in last 11 quarters!) helped by the weak base and marginal pick-up in consumption. Overall, for 3QFY16, we expect average volume growth of 4.4% YoY vs 4.5%/5.5% for 2QFY16/3QFY15 across our coverage. Possible failure of rabi could mean weak rural demand for a further six months and likely recovery at the earliest, 2QFY17 onward.

Category-wise trends Cigarettes – Expect volume growth of 1% YoY for 3QFY16 vs ~15% YoY decline in 1HFY16

Our channel checks suggest that cigarette volumes have been flat to slightly positive over the last three months. The proportion of 64mm cigarettes is likely to have increased marginally in the overall mix. Overall we expect ITC to deliver cigarette volume growth of +1% YoY driven by volume growth in KSFT and the 64mm segment. The positive volume growth should allay investor concerns about the increased price elasticity of cigarette demand. We expect volume growth to remain flat to positive for 4QFY16 as well.

ITC launches new brand of clove cigarettes at a lower price point

Marlboro clove mix is the second biggest variant for Marlboro contributing ~25% to total sales volumes. Indonesian clove cigarettes (Kreteks) from brands such as Gudang Garam and Djarum Black also form the lion’s share of smuggled cigarettes. To curb the growing menace of smuggled cigarettes and counter Marlboro, in Dec ’15 ITC launched a new brand of 84mm clove flavoured cigarettes called Black Prince. These cigarettes have been priced at `100/10 sticks vs `109/10 sticks for Marlboro Clove mix. The competitive pricing will help it compete with smuggled cigarettes which normally retail at the `10/stick price point. Our channel checks suggest Black Prince is well received by consumers.

Stock impact: Positive for ITC



ITC’s Black Prince cigarettes look similar to Djarum Black clove Exhibit 5:cigarettes

Source: Ambit Capital research

Biscuits – Britannia continues to lead the category

Our channel checks suggest that Britannia continues to grow the fastest in the biscuit category; and is expected to grow volumes by 7%-8% YoY mainly driven by urban areas. In rural areas, Britannia is finding it difficult to grow due to: a) weakness in overall rural growth, and b) Parle has used its significant rural presence and lower raw material prices to offer trade and consumer promotions on Parle G glucose biscuits and Parle 20-20 cookies. Urban growth for Britannia has been driven mainly by the successful re-launch of Good Day and launch of Pure Magic Choco Lush. ITC’s Mom’s Magic continues to do well and has been gaining share mainly from Parle and other smaller brands. However, the slowdown in creams category has dampened overall growth for ITC’s biscuits segment. ITC’s recent re-launch of Delishus cookies has been successful and is expected to help ITC gain market share in the premium cookies segment.

Stock impact: Positive for Britannia

Packaged food and beverages – ITC, Patanjali gaining share in instant noodles; MFD category slows down further

The recent Maggi noodle controversy had led to a cut back in consumer demand for the entire instant noodles category. Our channel checks suggest that ITC’s ‘Yippee!’ has been able to retain some portion of its consumers despite Maggi’s re-launch. Channel checks in modern trade suggest that Patanjali is also emerging as a strong competitor in the instant noodles category.

Demand slowdown in southern India has impacted sales growth of GSK’s Horlicks and Boost. In Kerala – a key market for GSK, lower tax collections for the state government due to ban on liquor sales in the state has also led to lower purchasing by state sponsored grocery outlets. Boost has been particularly weak and the company has plans to re-launch this brand. Rural growth has been weak for both Horlicks and Boost. Stock impact: Negative for GSK.

Hair oil and edible oil – Price cut in Parachute and new products driving volume growth; Saffola seeing some signs of volume pick up

Following the ~6% weighted price cut on Parachute coconut oil, there has been a pick up in volume growth for the brand. The company has been aggressive with price promotions for Parachute Advansed and Shanti Amla Hair oil. In the new product launches, Parachute Advansed Aloe Vera and Parachute Advansed Ayur Gold hair oil have been successful for Marico with repeat purchases for these brands.

“Mom’s Magic has been increasing market share despite the re-launch of Good Day”

– a Parle distributor based out of Maharashtra

“Yippee and Patanjali are doing well in the instant noodles category” – a distributor supplying to modern trade outlets



Due to localized price promotions taken for Saffola and the initiative to promote lower price variants - Saffola Tasty and Saffola Active, the brand reported a pick up in volumes for the quarter. However, overall premium edible oil category urban demand continues to remain sluggish.

Stock impact: Positive for Marico

Soaps and detergents: Price cut in Dove and modest price hikes in detergents

HUL reduced the price of Dove 50gm SKU from `24 to `20 and has also been offering one soap free on purchase of a pack of 3 Dove soap bars. In detergents, there were modest 4%-6% price hikes by HUL across variants while Jyothy and P&G withdrew promotional offers for their detergents. Our channel checks suggest that sales of Wheel and Rin detergent continue to be lackluster particularly in North India where Ghari detergent has a stronghold. Weak rural demand has particularly impacted sales of soaps and detergents.

Stock impact: Neutral for HUL

Oral care – Category slows down; Patanjali gaining share

Our channel checks suggest that toothpaste growth rate has slowed down across companies. GSK witnessed slowing sales growth for Sensodyne. Colgate continues to be aggressive with consumer promotions and is offering Buy One, Get One (BOGO) promotional packs of Colgate Sensitive Pro-Relief in modern trade. Patanjali has been gaining share and is believed to be holding 2%-3% market share currently in toothpastes. Colgate’s Active Salt with Neem has had moderate success since its launch two quarters ago. However, Dabur Red has been doing well due to the increased consumer interest in ayurvedic products. Our channel checks indicate that Pepsodent has failed to show signs of recovery in the quarter.

Stock impact: Negative for Colgate and HUL; Neutral for GSK and Positive for Dabur.

Rural distribution clean -up by HUL to possibly impact sales in 3Q but positive in the long term

Over the last two years HUL has been aggressively expanding its rural direct coverage by incentivizing distributors. Distributors were offered `50/new outlet added to the direct distribution list. However, this led to several bogus outlets being added to the database which artificially inflated rural outlet coverage for HUL. In order to show that these outlets are real, distributors would generate fake bills and sell the goods at a lower margin to the wholesale instead. This led to lower profitability for distributors and also poor secondary sales visibility for HUL. During the last quarter HUL has tried to stop this practice through audits and by asking the erring sales persons to leave. HUL is now incentivizing its trade partners to increase throughput per outlet instead of only increasing outlet coverage. While this could impact volume growth for HUL during the quarter, we believe, improved profitability for distributors will help HUL over the longer term.

Volume growth in 3Q likely to be flat QoQ Exhibit 6:Company 3QFY16E 2QFY16 3QFY15

Colgate 4.0% 3.0% 5.0%

Dabur 3.0% 5.0% 7.4%

GCPL 5.0% 9.0% 7.5%

GSK Consumer 0.0% -1.0% 5.0%

HUL 7.0% 7.0% 3.0%

Marico 7.0% 4.0% 5.0%

Nestle NA NA 4.0%

ITC 1.0% -15.0% -16.0%

Average (ex-ITC, Nestle) 4.4% 4.5% 5.5%


“Patanjali has been gaining share while Colgate has slowed down” – a Colgate distributor based out of a metro

“Although my sales have dropped for this quarter, my profitability has improved and so I am happy” – HUL distributor in Uttar Pradesh



Margin expansion to moderate in 3QFY16 Gross margin expected to expand ~165bps YoY due to further drop in crude oil linked commodities

After the sharp slide in crude oil over the last month, crude oil prices were down ~25% YoY. However, most of the benefit from lower commodity prices is now in the base and hence we expect gains from lower commodity costs to be limited ahead. Prices of crude oil linked commodities are down 15%-20% YoY, which should help drive gross margin expansion.

EBITDA margin likely to increase by ~130bps YoY, as gains at the gross margin level are likely to be partially invested into higher A&P spends. The moderation in margin expansion along with muted topline growth is expected to result in PAT growth of only ~14% in 3QFY16 vs 18% in 2QFY16 and 23% in 3QFY15 for our FMCG coverage.

Margin expansion will moderate during 3Q; GM gains to be partially invested in higher A&P spends Exhibit 7:

Company Revenue growth (%) YoY Change in A&P

spends as % of sales bps

YoY Change in Gross Margin bps

YoY Change in EBITDA Margin bps 3QFY16E 2QFY16 3QFY15

Britannia 11.5% 11.9% 13.4% 29 145 180

Colgate 5.4% 3.8% 11.8% (139) 52 161

Dabur 6.0% 8.6% 8.9% - 133 91

GCPL 5.6% 9.0% 5.0% 15 120 105

GSK Consumer 2.1% 1.1% 16.5% - 153 164

HUL 5.5% 4.7% 7.7% 80 100 39

Marico 2.6% 3.8% 21.0% 246 450 175

Nestle -19.4% -32.1% 11.7% NA 150 (109)

ITC 11.4% -1.3% 2.5% NA 52 (29)

Average (ex-ITC, Nestle) 5.5% 6.1% 12.0% 33 165 131


PAT growth for 3QFY16 is expected to be slowest in last two years at Exhibit 8:least


-

50

100

150

200

250

300

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16E

Revenue growth (YoY %) PAT growth (YoY %) EBITDA ch YoY (bps), RHS

Gross margin expansion likely due to softening of raw material prices YoY

Heightened competitive intensity has led to partial investment of gross margin into A&P spends

Consequently, we expect EBITDA margin expansion of ~130bps YoY for FMCG



Paints We expect ~10%-15% revenue growth for paints companies in 3QFY16 compared to only 5%-7% reported in the 1HFY16. This revival is likely to be driven by: (i) a delayed Diwali (leading to a shift in demand from 2QFY16 to 3QFY16); and (ii) superior wedding season demand vs last year, given higher number of auspicious dates in November and December. Given 2% YoY decline in price realisations and zero price hikes in the quarter, revenue growth will be largely volume led. Asian Paints and Berger continue to gain market share from Kansai and Akzo Nobel. Berger’s express painting service appears to be gaining a positive response from painters. We expect revenue growth of 14%/15% YoY for Asian Paints/Berger Paints in 3QFY16. Soft input costs, partially offset by the depreciation in INR vs USD will result in gross margin expansion of 100bps-200bps in 3QFY16. We reiterate BUY on Asian Paints and Berger.

Macro demand: 3QFY16 has witnessed a seasonal revival in the paints sector’s volume growth due to the delayed festive season. This is because Diwali in mid-November in 2015 vs late-October in 2014 has given an extra 2-3 weeks of festivity-related paint demand during the quarter on a YoY basis. Moreover, a greater number of wedding dates in November and December has further supported YoY demand growth in 3QFY16. Besides this, there is no near-term evidence available of a likely revival in demand beyond 3QFY16. Similar to 1HFY16, revenue growth will be driven mainly by volumes, which in turn will be driven mainly by economy products.

Asian and Berger continue to build on their competitive advantages: As the velocity of the supply chain (i.e. time taken to deliver products once the dealer has placed an order) is the most important metric for a competitive advantage, Asian Paints continues to build on its strengths around this metric. Ongoing projects include automation of input/output warehousing in the supply chain and better use of data analytics to more accurately forecast demand. Berger Paints, thanks to its aggressive approach towards distribution expansion, is likely to have further increased its footprint with dealers across the country during the quarter, thereby gaining share from Akzo Nobel and Kansai Nerolac.

Waterproofing segment: The waterproofing segment includes strong brands from Pidilite like Dr Fixit, M-Seal, and ‘Raincoat’ exterior paints. The segment has more than 100 products. Asian Paints (8 products currently) entered the waterproofing segment meaningfully 24 months ago and it has been aggressively pushing its waterproofing range with paint dealers and cement dealers as well. Asian Paints has been offering quality products at a ~35% discount to Pidilite’s waterproofing range. Asian Paints has communicated a revenue target of ~`15bn by FY17 to its dealers (vs no meaningful contribution to revenues currently).

Margin expansion to continue in 3QFY16: With no price hikes since 1QFY15 and the 2%-3% price cut in February 2015, revenue growth for the paints sector will not see material contribution from an increase in realisation rates. This trend, we believe, will partially offset gross margin gains for the paints companies, as they continue to pass on the benefits of softening input costs to customers and the trade channel. We expect gross margin expansion of ~197bps/126bps YoY and EBITDA margin expansion of ~203bps/76bps YoY for Asian/Berger in 3QFY16.



Investment thesis Asian Paints has built impregnable competitive advantages around supply chain in decorative paints through extensive use of the technology to forecast demand accurately, shorten product delivery times and better manage working capital. In a voluminous product category with over 1,800 SKUs, these strengths will result in ~100bps market share gain each year over the next decade, and also help successfully expand in categories like waterproofing and construction chemicals. We expect 17.2%/23.1% revenue/EPS CAGR over FY15-FY20, amidst 13.5%/11.0% decorative paint industry revenue CAGR over FY15-FY25/FY25-FY35. Factoring in the longevity of these growth rates, we arrive at a DCF-based fair value of `986 (11% upside), implying an FY17E P/E of 42x.

Berger has built a strong foundation around high quality talent, a strong work culture and prudent capital allocation over four decades. Having cemented its position as India’s second-largest paint firm, the company has implemented initiatives over FY13-FY15 around supply chain, marketing, operational efficiencies and talent hiring, which should help it increase its market share/EBITDA margin by 500bps/300bps over FY15-FY25E. We expect revenue CAGR of 18% and EPS CAGR of 28% over FY15-FY20 with RoCE rising from 17% to 29% over this period. Factoring in the sustainability of industry revenue growth and Berger’s dominance, we arrive at a DCF-based fair value of `286 (10% upside), implying an FY17E P/E of 40x.



Kitchenware 3QFY16 has witnessed positive demand trends in kitchenware as: a) Diwali related sales in 2015 (beyond the effect of delayed Diwali) have been better than last year; and b) unlike in 2014, the period immediately after Diwali in 2015 (i.e. the month of December) has not seen a lull for demand. Also, liquidity in the trade channel has improved significantly during the quarter. TTK Prestige has seen significant market share gain for the quarter due to a combination of: a) successful rollout of new product launches; and b) increase in advert spends YoY during December. Disruption due to floods in Chennai (~20% of sales derived from Tamil Nadu) is likely to have been more than offset by demand witnessed by TTK in the last two weeks of December given proactive initiatives like ensuring product availability in the channel, and rollout of an exchange offer. We expect 16% revenue growth for TTK Prestige in 3QFY16 and market share loss for peers like Hawkins in north and Gandhimathi in south.

Demand growth: Strong sales both during and after Diwali

Our channel checks across the country (except in east India) suggest that festive season related demand in 2015 has been significantly better than that witnessed last year. In addition, a delayed Diwali in 2015 versus last year has also meant that the festive related demand has shifted from Sept/Oct last year to Oct/Nov this year, thereby benefitting 3QFY16 sales growth momentum. Also, the wedding season this year has had a greater number of auspicious dates in November and December compared with last year, supporting demand growth momentum further. Even demand growth post-Diwali (i.e. in December) has remained robust unlike last year. Liquidity in the distribution channel has improved compared with 2QFY16 especially due to an improved end-user demand, which has resulted in dealers making timely payments to distributors.

New product launches: Successful for TTK Prestige; not so for Hawkins

During 2QFY16, TTK Prestige had launched a wide range of products in selective zones including: (a) ‘Multi-Kadhai’ launched in south India, which had attracted significant demand in 2QFY16; (b) ‘Hard Anodized 3-piece Kadhai set’ launched in north India, which saw a good response from customers in 2QFY16; (c) ‘Cute pressure cooker (inner-lid)’ launched in north India, which had seen a strong positive response from customers in 2Q; and (d) induction cooktops with “keep warm” feature which was a new innovation.

3QFY16 saw all these products being rolled out at a pan-India level. Of these, barring the ‘3-piece kadhai set’, all other products have received strong demand from the channel and from customers across all geographies. Moreover, the firm continued to introduce new products in 3Q like an upgraded version of induction cooktops with a “whistle counter” feature which works in pressure cooking and places the appliance in a “keep warm” mode automatically after a desired number whistles of the pressure cooker.

On the other hand, Hawkins’ new launch of ceramic-coated inner-lid pressure cookers received several complaints from customers regarding the quality of its coating, higher price point, and lack of customer preference for two out of the three colours launched in this range (Mustard Yellow and Apple Green).

Overall, a pan-India rollout of these newly launched products helped TTK Prestige gain market share versus Hawkins in non-south regions, well supported by the success of its new product launches. This is likely to further improve TTK’s market share versus peers.



Chennai floods: TTK Prestige leads from the front

Amongst listed kitchenware companies, TTK Prestige and Gandhimathi have the highest contribution to their revenues from Tamil Nadu. Floods in Chennai during the first half of December would have resulted in sluggish business at the ground level. However, we understand that TTK Prestige has undertaken several initiatives that have resulted in market share gains in the second half of December, as affected households recover from the damage. These initiatives include: a) ensuring regular availability of the company’s products across all stores in Chennai; and b) launch of a promotion offering discounts to customers for exchange of new products against old ones. As a result, despite its significant exposure to Tamil Nadu, we DO NOT expect a significant drag owing to the Chennai floods on TTK Prestige’s revenues for 3QFY16.

Will the 3QFY16 positive momentum sustain in 4QFY16/1QFY17?

Our discussions with distributors and market participants suggest that on the one hand, the buoyancy of demand both in the pre-Diwali as well as post-Diwali period can be considered as a sign of revival for macro demand in the category. On the other hand, since 3QFY16 has also seen temporary support from a delayed Diwali and a good wedding season (in terms of number of auspicious dates), the improvement in demand growth momentum could be short lived. Whilst 4QFY16 will be key to getting clarity on overall demand revival, we maintain our expectations of macro demand recovery for entry-level discretionary consumer companies from 1QFY17 onwards.

Gross and EBITDA margin expansion for TTK Prestige

We expect 148bps gross margin expansion and 118bps EBITDA margin expansion for TTK Prestige in 3QFY16. This expansion will be led by a combination of two factors: a) Aluminum prices have declined by 12%-13% over the past 12 months and by 4% over the past six months; and b) increased capacity utilization through a healthy sales growth rate will result in operating leverage related benefits for the firm. Part of the gross margin expansion, we believe, has been re-invested in increased A&P spends.

Investment thesis TTK Prestige’s revenue growth is likely to revive to 16%/21% YoY in 2HFY16E/FY17E (from 7% YoY in FY15), as the external headwinds that affected its revenue growth over FY14 and FY15 have now dissipated.

TTK is likely to continue to benefit from its renewed focus on product innovation. Its recent tie-ups with e-commerce aggregators and establishment of fulfilling centres in Hosur and Maharashtra will ensure expansion of TTK’s presence in this channel without inventory de-stocking in the brick-and-mortar channel. Also, the Prestige Smart Kitchen (PSK) franchisee network has been growing strongly, thanks to the efficient handling of new launches and large value SKUs.

Whilst the softening in input costs will help expand gross margins in the near term, improved capacity utilisation (20% increase targeted in FY16) will support EBITDA margin expansion and help deliver 38% EPS CAGR in FY15-FY18E. Our DCF model generates a TP of `5,388 (16% upside, 36x implied FY17E P/E). We reiterate BUY.



Jewellery Our channel checks across various stores (including Tanishq), unlisted jewellers and trade participants indicate: (1) significant uptick in demand led by festive season and wedding jewellery demand (2) increase in footfalls, volumes (above 25%) and revenues (3) Tanishq’s new collections such as Divyam and Zuhur were out of stock in most of the stores due to overwhelming demand. Our checks indicate very strong volume growth across gold jewellery for Tanishq led by new collections such as Divyam (temple jewellery) and Zuhur (studded). The impact of the discontinuation of the gold deposit scheme is already factored in last year’s base and therefore, the LTL growth for Tanishq will be comparable from 3QFY15 as the gold deposit scheme was absent in 2HFY15. Therefore, the 3QFY16 results are likely to witness 16% growth in jewellery revenues and 22% in EBITDA due to operating leverage. The commentary for jewellery demand for 3QFY16 by World Gold Council was muted. Therefore, Tanishq’s growth exhibits Titan’s ability to increase market share through designs, range and pricing. We are BUYers of Titan, as it is best placed to gain market share from these organised players and continues with expansion of its asset-light stores.

Trends Festivities and price dip shoot demand

Decrease in gold prices below the `26,000 levels attracted price savvy consumers’ interest, which led to a 15% increase in demand YoY in 2QFY16, almost touching the peak demands of 2QFY09.

Consistent fall in gold prices has led to demand spike Exhibit 9:


New gold deposit scheme-

Pursuant to the new Companies Act, leading jewellery chains such as Tanishq stopped accepting fresh deposits under the Golden Harvest Scheme (GHS) from early 1QFY15 (deposits typically are redeemed for jewellery at the end of 12 months, resulting in booking revenue). They resumed the same in 3QFY16 after tweaking the scheme to comply with the new regulations. The scheme will begin contributing to revenues from 3QFY16.

Overall investment demand (bars and coins) continues to be tepid

Although demand for bars and coins increased moderately for the first time in four quarters (up by 6% YoY in 2QFY16) as investors capitalized on falling prices, overall investment demand versus jewellery demand spurt continues to remain weak as some investors held back purchases in anticipation of a decrease in import duty on gold and a consequent decrease in prices.

20,000

22,500

25,000

27,500

30,000

32,500

35,000

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

Gold Price in INR for 10 gm Gold (24 karat)



Demand for bars and coins has been declining … Exhibit 10:

Source: World Gold Council, Ambit Capital research

New collections with high design quotient are winning

Our checks indicate that Tanishq’s new collections Divyam (wedding jewellery) and Zuhur (studded jewellery) have witnessed unprecedented demand and have contributed to volume growth. In most locations of India, these collections were out of stock by end of November 2015 with most stores stressing that the unique designs and finishing have resonated with the customers across geographies.

New collection introduced - Divyam… Exhibit 11:


…and Zuhur targeted at weddings and festivals Exhibit 12:


Investment implications

Titan’s jewellery business is likely to witness strong growth (YoY 17%) in 3QFY16 as jewellery revenues will be led by volume growth from the new collections. This growth is on the back of designs and differentiated collections, which highlights the most important element of the Tanishq brand - the product. Titan’s jewellery business would have outperformed the industry led by volume growth (~20%) but for the change in customers’ advance regulations which has impacted most large organized jewelers. This is as for most of the collected customers’ deposits exceeding 100% of net worth, the company’s working capital debt increased after the change in regulation. As a result, low making charges offered by most jewellers will not suffice to cover interest costs. Therefore, apart from their ability to compete on making charges, sustainability as well as scalability of most organised jewellers is suspect. Titan, with a net cash balance sheet (never used customer deposits for working capital financing), is in a stronger position to gain market share from not only unorganised players but also organised players, at a higher pace than ever (260bps over FY16-20E vs 150bps over FY10-15)

We remain BUYers of Titan which has a superior business model – asset light, state-of-the-art supply chain and net cash balance sheet and trades at 30x FY17E EPS discount to the historical average (one-year forward) of 32x.

020406080

100120140

Q1

FY11

Q2

FY11

Q3

FY11

Q4

FY11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Bars and Coin Demand (tonnes)



Footwear Bata had reported YoY revenue growth of 5% in 2QFY16 with SAP implementation issues impacting revenues. The SAP issues are behind as the company has now moved back to its legacy systems. LTL growth continues to be low as e commerce aggregators continue to bite into Bata’s customer base. The festive season along with discounts have aided this quarter’s growth on a low base (-3.1% YoY decline recorded in 4QFY15-FY15 was a 5 quarter year, as Bata changed its accounting year). Meanwhile, footwear continues to be a dominant category in e commerce as stated by the largest e-com player, Flipkart, in its year-end report wherein shoes were the second most searched product on its website. We expect revenues to grow by 15% in 3QFY16 YoY given the low base and remain SELLers as competition continues to chip away Bata’s market share and weak LTL growth adds to its woes.

Channel checks indicate growth on low base led by promotions: Channel checks suggest that footfalls continue to be below par (down by 18%-20%) in 3QFY16, pretty much below expectations, even though this quarter is supposed to lead customers to stores. However, revenues have shot up as compared to last year primarily due to 3 reasons: (1) price hikes implemented in 3QFY16; (2) high-ticket items have been able to generate more revenues compared with low-ticket items; and (3) discounts offered at the beginning of the quarter have led to upsurge in volumes. Revenues are expected to be as high as 15% YoY this quarter due to the low base effect.

E-com bite: A survey conducted by Flipkart across India in CY15 (Jan 1, 2015 – Dec 14, 2015) reveals that footwear is the second most searched category on its website with people in the age bracket of 15-34 forming 73% of those who shop online, mainly office goers and students, indicating that the tastes of the youth of this country have changed and moved beyond Bata on to the plethora of brands available online. Further, Diwali campaigns by e-tailers like Flipkart’s ‘Big Billion Day’ and Amazon’s ‘Great Indian Festive Sale’ attracted majority eyeballs, which in turn generated record revenues for them. This justifies the fall in footfalls in Bata stores and the range and convenience these e-tailers offer. In turn, Bata’s offers limited presence across e-tailing websites and the availability of aspirational foreign brands easily wipes off Bata’s distribution advantage.

Lack of ‘Power’: Revenues of Power, which contribute almost 15% to Bata’s revenues have been 20%-30% lower than normal this quarter with e-commerce cited as the main reason for this downtrend.

K-scheme commission: Interactions with store managers indicate that discussions with the management for a hike in commission from the current 6.5%-7% are due to take place in the first half of January, 2016 which, if materialize, might have an effect on the earnings from 4QFY16 and in FY17E.

Inventory levels: Interaction with store managers reveal that stores’ inventory levels are down by four weeks (company had nine months inventory at end of 2QFY16) mainly due to increased sales this quarter versus the last quarter on account of discounts offered at the start of this quarter.

Brands like Nike and Puma, courtesy e-commerce, have been available at heavy discounts and compete directly with price points at which Power sells and hence, are eating into its revenues.

- Bata store manager



Bata’s inventory days have reached alarming levels Exhibit 13:


Investment implications Whilst 3QFY16 performance will be aided by bundling of festive season (spread across in 2Q & 3Q in FY15) as compared to last year, rolling out of the year-end discount scheme will lead to an optical jump in revenues; however, our concerns with eroding distribution equity, under-investment in the brand (meagre 1% of revenues over CY08-15), high fixed costs (35% of sales) and risk from e commerce (to at least 15% of the revenues) remain. A significant turnaround is some time away given: (a) historical high inventory (nine months) requiring write-downs; (b) high possibility for gross margin compression and (c) declining asset turns (2.4x in FY17 from 3.1x in CY09); we expect FY17E RoE to be 19%.

We remain SELLers with an implied valuation of 23.5x FY17E EPS.

- 50 100 150

200 250 300

-

2,000

4,000

6,000

8,000

10,000

Q2

CY1

1

Q3

CY1

1

Q4

CY1

1

Q1

CY1

2

Q2

CY1

2

Q3

CY1

2

Q4

CY1

2

Q1

CY1

3

Q2

CY1

3

Q3

CY1

3

Q4

CY1

3

Q1

FY15

Q2

FY15

Q3

FY15

Q4

FY15

Q5

FY15

1QFY

16

2QFY

16

Inventory Rs mn Inventory days (rhs)



Light electricals Our discussions with channel partners suggest an improvement in the demand environment led by strong festival demand and construction-led demand, thanks to pick-up in the execution of real estate projects. Within product categories whilst small appliances, water heaters, fans and stabilisers have seen a YoY volume growth of 11%, 8%, 8% and 8%; lighting, construction wires and switchgears have seen growth of 10%, 9% and 5% respectively. The channel partners expect FY17 to be a better year as the positive momentum in consumer led demand is likely to stay alongside the likely pick-up in industrial capex. New entrants may be marginalised given weak product quality and lacklustre after-sales service. We reiterate our BUY stance on V-Guard, Finolex Cables and Havells as their franchises are gaining market share by strengthening their distribution networks alongside introducing new SKUs to strengthen their product portfolios. Reiterate SELL on Bajaj due to loss of market share given the fast pace implementation of theory of constraints.

Pick-up in demand environment: Our discussions with channel partners suggest that demand across categories has improved in 3QFY16 led by: (a) strong festival demand, and (b) a pick-up in construction-led demand.

Channel partners witnessed strong demand during the festival season (Diwali in November) especially for the small appliances wherein they have seen 10%-11% volume growth despite higher competition from the e-commerce players. Pick-up in consumer led demand during the festival season was led by attractive financing schemes along with overall improvement in consumer sentiment. Lastly the corporate gifting segment (corporates/professionals gifts small appliances during Diwali) did very well this time. The robust momentum continued even after Diwali. The positive momentum (though not as strong as seen during festival season) continued even in December.

According to channel partners, real estate developers have started focusing on completion of projects rather than opting for new launches to improve their cash flows (which are linked to milestone based completion). Light electrical products such as wires, switchgear, switches and lighting are the natural beneficiaries of a pick-up in execution of the real estate projects, as they are used in the final phases of construction.

Within the product categories, consumer led products such as small appliances, water heaters, fans and stabilisers have seen a YoY volume growth of 11%, 8%, 8% and 8% respectively in 3QFY16. Volume growth for construction wires has picked up sharply from 2.5% in 2QFY16 to 9% in 3QFY16. Lighting has seen a growth of 10% due to sales under ESL orders. Switchgears have seen volume growth of 5% led by a pick up in the pace of execution of real estate projects.

Snapshot of the growth across light electrical products Exhibit 14:

Product categories Volume growth YoY (%) Value growth YoY (%) Market share in 3QFY16

3QFY16E 2QFY16 FY15 3QFY16E 2QFY16 FY15 Gainer Loser

Cyclical products Construction wires 9.0% 2.5% 13.0% 4.1% -7.5% 5.0% Havells, V-Guard Polycab, Schneider

Switchgears 5.0% -1.3% 4.9% 5.0% -1.3% 14.0% Havells Legrand

Lighting 10.0% 3.0% 3.0% 7.0% 1.0% 3.0% Syska Bajaj, unorganised

Consumer products Small appliances 11.0% 3.0% 10.0% 11.0% 2.5% 17.0% Havells Bajaj, Philips

Water heaters 8.0% 3.5% 15.0% 8.0% 3.0% 17.0% V-Guard, Havells AO Smith, Bajaj

Fans 8.0% 4.0% 12.0% 6.0% 2.0% 15.0% Crompton, Orient Bajaj

Stabiliser 8.0% 3.0% 19.0% 10.0% 5.0% 22.0% No major change

Source: Ambit Capital research; Note: We have estimated industry growth rate across the products for 3QFY16, 2QFY16 and FY15 based anecdote data

“Strong festival coupled with pick-up in construction led demand meant a very good volume growth for us”

- A Delhi-based large distributor



Optimistic outlook for FY17: The channel partners are excited about FY17 as they believe the positive momentum would at least be maintained if not accelerated. The channel partners expect consumer demand to improve further on the back of the 7th pay commission’s recommendations. The channel partners expect small ticket items like small appliances to benefit the most out of the average salary hikes of 24% for the government employees as this time around the revised pay scale may go live with a lag of only 3-4 months vs 30 months last time for 6th pay commission, implying a lower one-off arrears income. Channel partners also expect institutional demand to pick up in FY17 led by improvement in the industrial capex.

Price war unlikely in the Light electricals sector: The FMCG industry is facing a price war, unlike light electrical companies. According to the channel partners, pricing is stable across product categories, except cables and wires (where prices are down ~5% YoY led by weak copper prices) despite the recent fall in copper prices (down 7% YoY) and crude prices (key raw material for PVC; down ~50% YoY). Consequently, we expect the light electrical companies to continue to report YoY improvement in gross margins.

Copper and crude remained weak in 3QFY16 Exhibit 15:


Pick up in promotional activities Light electrical companies ramped up their promotional efforts in 3QFY16 especially during the festival season. Bajaj, Havells and V-Guard were the advertisers. On the new schemes, Bajaj and Surya are giving free LED bulbs with electric water heaters. Competitive intensity to decline as new players struggle: New entrants like Polycab, Luminous, Surya Roshni, RR Kabel and Orient, which have recently ventured into new product categories (such as small consumer durables) are facing tough times in the promotion of their products, given poor product quality and weak after-sales servicing. According to the channel partners, these companies neither have in-house manufacturing (except for Polycab in fans) nor credible sourcing partners. Also, they do not have sufficient product serving staff and relevant technical knowhow, which amplifies their problems. Increase in attrition for these players suggests that many of them are about to pull back the new product categories soon. Attrition is especially severe in companies like Polycab and RR Kabel where a large proportion of employees in the new product divisions are looking out for new jobs (as highlighted by distributors).

Several players in the last two years have introduced new product Exhibit 16:categories… Company Flagship product New products added RR Kabel Electrical Wires Fans Polycab Electrical Wires Fans, lighting, switches, switchgears Orient Fans Small appliances Luminous Invertors Fans, switches, CFLs, switchgears Anchor Switches Electrical cables, lighting, switchgears Surya Roshni Lighting Fans, small appliances, water heaters

Source: Industry, Ambit Capital research

2,000

2,750

3,5004,250

5,0005,750

6,500

280

310

340370

400430

460

Mar

-14

Apr

-14

May

-14

Jun-

14

Jul-

14

Aug

-14

Sep-

14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb-

15M

ar-1

5

Apr

-15

May

-15

Jun-

15

Jul-

15

Aug

-15

Sep-

15

Oct

-15

Nov

-15

Dec

-15

MCX Copper (Rs/kg) MCX crude (Rs/bbl) on RHS

FY17 is likely to be a better year thanks to the recommendation of 7th pay commission.

- Mumbai based large distributor



Investment implications We prefer companies such as V-guard, Finolex Cables and Havells which have strong management teams and aggressive product and regional expansion plans. Whilst we believe revenue growth for the Light Electricals sector will likely decline to low teens over FY15-FY24E after a stellar 18% growth over FY06-FY15, we expect strong franchises to continue to gain market share as no player is enjoying a market share of more than 10% of the overall light electrical industry. We expect V-Guard and Finolex to continue to gain market share in the non-south market led by focus on the distribution network and brand building. For Havells, we believe the company may expand its small appliances portfolio by using the Sylvania sale proceeds for completing an acquisition in the domestic market. Moreover the company is also expanding its strength in the western market; it has recently opened a very large regional office in Mumbai.

We are SELLers in Bajaj, given its weakening franchise led by the fact pace of rollout of the theory of constraints (ToC) and significant volatility in E&P margins.

We prefer V-Guard, Finolex and Havells over Bajaj



Institutional Equities Team Saurabh Mukherjea, CFA CEO, Institutional Equities (022) 30433174 [email protected]

Research

Analysts Industry Sectors Desk-Phone E-mail

Nitin Bhasin - Head of Research E&C / Infra / Cement / Industrials (022) 30433241 [email protected]

Aadesh Mehta, CFA Banking / Financial Services (022) 30433239 [email protected]

Aakash Adukia Oil & Gas / Chemicals / Agri Inputs (022) 30433273 [email protected]

Abhishek Ranganathan, CFA Retail / Mid-caps (022) 30433085 [email protected]

Achint Bhagat, CFA Cement / Roads / Home Building (022) 30433178 [email protected]

Ashvin Shetty, CFA Automobile (022) 30433285 [email protected]

Bhargav Buddhadev Power Utilities / Capital Goods (022) 30433252 [email protected]

Deepesh Agarwal, CFA Power Utilities / Capital Goods (022) 30433275 [email protected] Dhiraj Mistry, CFA Consumer (022) 30433264 [email protected]

Gaurav Khandelwal, CFA Automobile (022) 30433132 [email protected] Girisha Saraf Mid-caps / Small-caps (022) 30433211 [email protected]

Karan Khanna, CFA Strategy (022) 30433251 [email protected]

Kushank Poddar Technology (022) 30433203 [email protected] Pankaj Agarwal, CFA Banking / Financial Services (022) 30433206 [email protected]

Paresh Dave, CFA Healthcare (022) 30433212 [email protected]

Parita Ashar, CFA Metals & Mining (022) 30433223 [email protected]

Prashant Mittal, CFA Derivatives (022) 30433218 [email protected]

Rahil Shah Banking / Financial Services (022) 30433217 [email protected]

Rakshit Ranjan, CFA Consumer (022) 30433201 [email protected]

Ravi Singh Banking / Financial Services (022) 30433181 [email protected]

Ritesh Gupta, CFA Oil & Gas / Chemicals / Agri Inputs (022) 30433242 [email protected]

Ritesh Vaidya, CFA Consumer (022) 30433246 [email protected] Ritika Mankar Mukherjee, CFA Economy / Strategy (022) 30433175 [email protected]

Ritu Modi Automobile (022) 30433292 [email protected]

Sagar Rastogi Technology (022) 30433291 [email protected]

Sumit Shekhar Economy / Strategy (022) 30433229 [email protected]

Utsav Mehta, CFA E&C / Industrials (022) 30433209 [email protected]

Vivekanand Subbaraman, CFA Media (022) 30433261 [email protected]

Sales

Name Regions Desk-Phone E-mail

Sarojini Ramachandran - Head of Sales UK +44 (0) 20 7614 8374 [email protected]

Dharmen Shah India / Asia (022) 30433289 [email protected]

Dipti Mehta India / USA (022) 30433053 [email protected]

Hitakshi Mehra India (022) 30433204 [email protected]

Krishnan V India / Asia (022) 30433295 [email protected]

Nityam Shah, CFA USA / Europe (022) 30433259 [email protected]

Parees Purohit, CFA UK / USA (022) 30433169 [email protected]

Praveena Pattabiraman India / Asia (022) 30433268 [email protected]

Shaleen Silori India (022) 30433256 [email protected]

Singapore

Pramod Gubbi, CFA – Director Singapore +65 8606 6476 [email protected]

Shashank Abhisheik Singapore +65 6536 1935 [email protected]

USA / Canada

Ravilochan Pola - CEO Americas +1(646) 361 3107 [email protected]

Production

Sajid Merchant Production (022) 30433247 [email protected]

Sharoz G Hussain Production (022) 30433183 [email protected]

Nikhil Pillai Database (022) 30433265 [email protected]

E&C = Engineering & Construction



Stock price performance

Hindustan Unilever Ltd (HUVR IN, BUY)


Asian Paints Ltd (APNT IN, BUY)


Nestle India Ltd (NEST IN, SELL)


Dabur India Ltd (DABUR IN, SELL)


Godrej Consumer Products Ltd (GCPL IN, SELL)


Colgate Palmolive (India) (CLGT IN, SELL)


0

200

400

600

800

1,000

1,200

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

HINDUSTAN UNILEVER LTD

0

200

400

600

800

1,000

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

ASIAN PAINTS LTD

01,0002,0003,0004,0005,0006,0007,0008,000

Nov

-12

Feb-

13

May

-13

Aug

-13

Nov

-13

Feb-

14

May

-14

Aug

-14

Nov

-14

Feb-

15

May

-15

Aug

-15

Nov

-15

NESTLE INDIA LTD

050

100150200250300350

Nov

-12

Feb-

13

May

-13

Aug

-13

Nov

-13

Feb-

14

May

-14

Aug

-14

Nov

-14

Feb-

15

May

-15

Aug

-15

Nov

-15

DABUR INDIA LTD

0200400600800

1,0001,2001,4001,600

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

GODREJ CONSUMER PRODUCTS LTD

0

200

400

600

800

1,000

1,200

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

COLGATE PALMOLIVE (INDIA)



Glaxosmithkline Consumer (SKB IN, SELL)


Pidilite Industries Ltd (PIDI IN, SELL)


Marico Ltd (MRCO IN, BUY)


Britannia Industries Ltd (BRIT IN, SELL)


Berger Paints India Ltd (BRGR IN, SELL)


Page Industries Ltd (PAG IN, BUY)


01,0002,0003,0004,0005,0006,0007,000

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

GLAXOSMITHKLINE CONSUMER HEA

0100200300400500600700

Dec

-12

Mar

-13

Jun

-13

Sep-

13

Dec

-13

Mar

-14

Jun

-14

Sep-

14

Dec

-14

Mar

-15

Jun

-15

Sep-

15

PIDILITE INDUSTRIES LTD

0

100

200

300

400

500

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

MARICO LTD

0500

1,0001,5002,0002,5003,0003,5004,000

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

BRITANNIA INDUSTRIES LTD

0

50

100

150

200

250

300

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

BERGER PAINTS INDIA LTD

02,0004,0006,0008,000

10,00012,00014,00016,00018,000

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

PAGE INDUSTRIES LTD



Jubilant Foodworks Ltd (JUBI IN, SELL)


Bata India Ltd (BATA IN, BUY)


TTK Prestige Ltd (TTKPT IN, BUY)


ITC LTD (ITC IN, BUY)


Titan Co Ltd (TTAN IN, BUY)


Bata India (BATA IN, SELL)


0

500

1,000

1,500

2,000

2,500

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

JUBILANT FOODWORKS LTD

0100200300400500600700800

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

BATA INDIA LTD

0

1,000

2,000

3,000

4,000

5,000

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

TTK PRESTIGE LTD

200

250

300

350

400

450

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

ITC LTD

0

100

200

300

400

500

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

TITAN CO LTD

0100200300400500600700800

Jan-

13

Apr

-13

Jul-

13

Oct

-13

Jan-

14

Apr

-14

Jul-

14

Oct

-14

Jan-

15

Apr

-15

Jul-

15

Oct

-15

Jan-

16

BATA INDIA LTD



Havells India Ltd (HAVL IN, BUY)


-Guard Industries Ltd (VGRD IN, BUY)


Bajaj Electricals Ltd (BJE IN, SELL)


050

100150200250300350

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

HAVELLS INDIA LTD

0200400600800

1,0001,2001,400

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

V-GUARD INDUSTRIES LTD

050

100150200250300350400

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

BAJAJ ELECTRICALS LTD



Explanation of Investment Rating

Investment Rating Expected return (over 12-month)

BUY >10%

SELL <10%

NO STANCE We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NOT RATED We do not have any forward looking estimates, valuation or recommendation for the stock Disclaimer

This report or any portion hereof may not be reprinted, sold or redis tributed without the wri tten consent of Ambit Capital . AMBIT Capital Research is disseminated and available primarily electronically, and, in some

cases, in printed form.

Additional information on recommended securities is available on request.

Disclaimer

1. AMBIT Capital Private Limited (“AMBIT Capital”) and its affiliates are a full service, integrated investment banking, investment advisory and brokerage group. AMBIT Capital is a Stock Broker, Portfolio Manager and Depository Participant registered with Securities and Exchange Board of India Limited (SEBI) and is regulated by SEBI

2. AMBIT Capital makes bes t endeavours to ensure that the research analys t(s ) use current, reliable, comprehensive information and obtain such information from sources which the analyst(s ) believes to be reliable. However, such information has not been independently veri fied by AMBIT Capital and/or the analyst(s ) and no representation or warranty, express or implied, is made as to the accuracy or completeness of any information obtained from third parties . The information, opinions , views expressed in this Research Report are those of the research analys t as at the date of this Research Report which are subject to change and do not represent to be an authority on the subject. AMBIT Capital may or may not subscribe to any and/ or all the views expressed herein.

3. This Research Report should be read and relied upon at the sole discretion and risk of the recipient. If you are dissatis fied with the contents of this complimentary Research Report or with the terms of this Disclaimer, your sole and exclusive remedy is to stop using this Research Report and AMBIT Capital or i ts affiliates shall not be responsible and/ or liable for any direct/consequential loss howsoever directly or indirectly, from any use of this Research Report.

4. If this Research Report is received by any client of AMBIT Capital or i ts affiliate, the relationship of AMBIT Capital/i ts affiliate with such client will continue to be governed by the terms and conditions in place between AMBIT Capital/ such affiliate and the client.

5. This Research Report is issued for information only and the 'Buy' , 'Sell', or ‘O ther Recommendation’ made in this Research Report such should not be construed as an investment advice to any recipient to acquire, subscribe, purchase, sell, dispose of, retain any securities and should not be intended or treated as a subs titute for necessary review or validation or any professional advice. Recipients should consider this Research Report as only a single factor in making any inves tment decisions . This Research Report is not an offer to sell or the solici tation of an offer to purchase or subscribe for any investment or as an official endorsement of any investment.

6. This Research Report is being supplied to you solely for your information and may not be reproduced, redis tributed or passed on, directly or indirectly, to any other person or published, copied in whole or in part, for any purpose. Neither this Research Report nor any copy of i t may be taken or transmitted or dis tributed, directly or indirectly within India or into any other country including United States (to US Persons), Canada or Japan or to any resident thereof. The distribution of this Research Report in other jurisdictions may be strictly restricted and/ or prohibited by law or contract, and persons into whose possession this Research Report comes should inform themselves about such res triction and/ or prohibition, and observe any such restrictions and/ or prohibition.

7. Ambit Capital Private Limited is regis tered as a Research Enti ty under the SEBI (Research Analysts ) Regulations, 2014. SEBI Reg.No.- INH000000313. Conflict of Interests

8. In the normal course of AMBIT Capital ’s business circumstances may arise that could result in the interes ts of AMBIT Capital conflicting with the interests of clients or one client’s interests confl icting with the interes t of another client. AMBIT Capital makes bes t efforts to ensure that conflicts are identified and managed and that clients’ interes ts are protected. AMBIT Capital has policies and procedures in place to control the flow and use of non-public, price sensitive information and employees’ personal account trading. Where appropriate and reasonably achievable, AMBIT Capital segregates the activities of staff working in areas where conflicts of interes t may arise. However, clients/potential clients of AMBIT Capital should be aware of these possible conflicts of interests and should make informed decisions in relation to AMBIT Capital’s services .

9. AMBIT Capital and/or i ts affiliates may from time to time have or solicit investment banking, inves tment advisory and other business relationships with companies covered in this Research Report and may receive compensation for the same.

Additional Disclaimer for U.S. Persons

10. The research report is solely a product of AMBIT Capital

11. AMBIT Capital is the employer of the research analyst(s) who has prepared the research report

12. Any subsequent transactions in securities discussed in the research reports should be effected through Enclave Capital LLC. (“Enclave”).

13. Enclave does not accept or receive any compensation of any kind for the dissemination of the AMBIT Capital research reports .

14. The research analyst(s) preparing the email / Research Report/ attachment is resident outside the United States and is/are not associated persons of any U.S. regulated broker-dealer and that therefore the analys t(s ) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satis fy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securi ties held by a research analyst account.

15. This report is prepared, approved, published and distributed by the Ambit Capital located outside of the United States (a non-US Group Company”). This report is distributed in the U.S.by Enclave Capital LLC, a U.S. registered broker dealer, on behalf of Ambit Capital only to major U.S. ins titutional investors (as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”)) pursuant to the exemption in Rule 15a-6 and any transaction effected by a U.S. customer in the securities described in this report must be effected through Enclave Capital LLC (19 West 44th Street, suite 1700, New York, NY 10036).

16. As of the publication of this report Enclave Capital LLC, does not make a market in the subject securi ties.

17. This document does not consti tute an offer of, or an invitation by or on behalf of Ambit Capital or its affiliates or any other company to any person, to buy or sell any security. The information contained herein has been obtained from published information and other sources, which Ambit Capital or i ts Affiliates consider to be reliable. None of Ambit Capital accepts any liabili ty or responsibili ty whatsoever for the accuracy or completeness of any such information. All estimates , expressions of opinion and other subjective judgments contained herein are made as of the date of this document. Emerging securities markets may be subject to risks significantly higher than more established markets . In particular, the poli tical and economic environment, company practices and market prices and volumes may be subject to significant variations. The abili ty to assess such risks may also be limited due to significantly lower information quanti ty and quali ty. By accepting this document, you agree to be bound by all the foregoing provisions.

Additional Disclaimer for Canadian Persons

18. AMBIT Capital is not registered in the Province of Ontario and /or Province of Québec to trade in securities and/or to provide advice with respect to securi ties.

19. AMBIT Capital's head office or principal place of business is located in India.

20. All or substantially all of AMBIT Capital's assets may be situated outside of Canada.

21. It may be difficult for enforcing legal rights against AMBIT Capital because of the above.

22. Name and address of AMBIT Capital's agent for service of process in the Province of Ontario is: Torys LLP, 79 Wellington St. W., 30th Floor, Box 270, TD South Tower, Toronto, Ontario M5K 1N2 Canada.

23. Name and address of AMBIT Capital's agent for service of process in the Province of Montréal is Torys Law Firm LLP, 1 Place Ville Marie, Suite 1919 Montréal, Québec H3B 2C3 Canada. Additional Disclaimer for Singapore Persons

24. This Report is prepared and dis tributed by Ambit Capital Private Limited and distributed as per the approved arrangement under Paragraph 9 of Third Schedule of Securi ties and Futures Act (CAP 289) and Paragraph 11 of the Firs t Schedule to the Financial Advisors Act (CAP 110) provided to Ambit Singapore Pte. Limited by Monetary Authority of Singapore.

25. This Report is only available to persons in Singapore who are ins titutional investors (as defined in section 4A of the Securities and Futures Act (Cap. 289) of Singapore (the “SFA”).” Accordingly, if a Singapore Person is not or ceases to be such an ins titutional investor, such Singapore Person must immediately discontinue any use of this Report and inform Ambit Singapore Pte. Limited.

Disclosures 26. The analyst (s ) has/have not served as an officer, director or employee of the subject company. 27. There is no material disciplinary action that has been taken by any regulatory authority impacting equity research analysis activities . 28. All market data included in this report are dated as at the previous s tock market closing day from the date of this report. 29. Ambit and/or its associates have financial interest/equity shareholding in Hindustan Unilever, Dabur, Marico, Britannia, Asian Paints & Titan. Analyst Certif ication Each of the analysts identi fied in this report certi fies, with respect to the companies or securi ties that the individual analyses , that (1) the views expressed in this report reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this report. © Copyright 2015 AMBIT Capital Private Limited. All rights reserved.

Ambit Capital Pvt. Ltd. Ambit House, 3rd Floor. 449, Senapati Bapat Marg, Lower Parel, Mumbai 400 013, India. Phone: +91-22-3043 3000 | Fax: +91-22-3043 3100 CIN: U74140MH1997PTC107598 www.ambitcapital.com

consumer - ambitreports.ambitcapital.com/reports/ambit_b2cdistributorssurvey... · consumer demand...

Documents