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Investment Thesis
The Indian consumer sector has outperformed the overall benchmark indices for
obvious reasons – the appeal of defensive stocks increases when the macro
environment is volatile given their ability to demonstrate relatively stable and
visible earnings growth. Going forward, we believe that outperformance will
moderate and thus become more selective in our stock focus.
Over F05-08, the consumer sector as a whole has reported above-trend
revenue growth rates (after a slowdown in FY02-04). Earnings growth has thus
been driven by a combination of robust revenue growth, coupled with margin
expansion. Over the next 2 years, we expect growth rates to moderate, given
the confluence of: a) a fairly high base effect, b) a pernicious inflation rate that
is above the bank deposit rate (post tax basis), which implies that interest rates
on bank deposits are negative, and c) soaring commodity prices which will
effectively reduce disposable income levels as food prices rise (we estimate
that the price of the average consumer's food basket is up around 16-20% on a
YoY basis). We thus focus on margins and attempt to discern which companies
can deliver margin surprises and where the potential pitfalls are.
Changes in Rating and Recommendation
Rating Changes – We downgrade Asian Paints to Sell (from Buy) and Dabur and
Marico to Hold (from Buy).
High-conviction Recommendations – Hindustan Unilever and ITC are our top
picks in the sector. United Spirits is also a very strong secular growth story,
albeit there will likely be some short-term weakness on account of negative
sentiment surrounding molasses costs, in our view. We reiterate our Sell on
Nestle as we believe the stock is richly valued.
目录
Investment Thesis 3
Valuation Matrix 7
Company Focus 9
Asian Paints (ASPN.BO) 10
Colgate Palmolive (India) (COLG.BO) 16
Dabur India (DABU.BO) 20
Hindustan Unilever (HLL.BO) 24
ITC (ITC.BO) 30
Marico (MRCO.BO) 35
Nestle India (NEST.BO) 39
Tata Tea (TTTE.BO) 43
United Spirits (UNSP.BO) 48
Appendix 55
Indian Market Snapshot 56
Key Commodity Price Trends 59
Appendix A-1 62
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