India Consumer - Enjoying a slice of luxury - Anand Rathi

Targeting the time-poor and cash-rich, consumer companies are making the most of 'more pleasure at higher prices' strategy. Most companies have raised distribution ~100% and capacities 50% in the past 2-3 years. Also, the rural story is plush with higher NREGA and MSP. Premiumisation is upon us and here to stay.

- Moving up the brand curve. We believe the launch of premium products (offering solution to specific problems) by companies and higher ad-spend on them has improved players' realizations by at least 200-300bps. Notably, this growth is devoid of price hikes. Importantly, it has helped players raise gross margins and reduce susceptibility to volatile input prices, keeping them afloat amidst competition.

- Benefits of investments come to fore. Consumer companies have invested aggressively in more than doubling distribution network over past 2-3 years. They have also increased production capacities by more than half and introduced new products and variants, over the past 2-3 years. Yet, balance sheets (net cash) remain radiant. We believe the stage is set for Indian consumer companies to post 16% CAGR over the next three years.

- Rural juggernaut to continue. We expect the rural story to remain strong with income sources for the populace more diversified than ever, supplemented further by higher MSPs and NREGA allocations. We believe higher penetration into the rural belt will also allow the organised players to eat from the unorganised share of the pie.

- Top picks. Our large cap top picks are GSK Consumer, Colgate, Emami and Pidilite. Among the mid cap companies, our top picks are Agro Tech Foods, Bajaj Corp., and Zydus Wellness. Out top Sell ideas are Hindustan Unilever, Britannia Industries, and Jyothy Laboratories.

Source : Equity Bulls

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