Growing disposable income makes Indians ‘Have it – flaunt it’
The change in lifestyle is not only rapid but is also of high magnitude affecting multiple segments including health.
Because of the high involvement of consumers, Fast Moving Health Goods (FMHG) is now a burgeoning market in India.
FMHG market represents products for health that are directly promoted to end users. For eg. Saffola Gold, a FMCG
product, is more like a FMHG product the way it is promoted and used; health drinks (like Complan and Horlicks) are
categorically FMHG products along with other health beverages such as fruit, energy and protein drinks. Equal, Sugar
Free, Natura and other low calorie sweeteners, Rejuvenators are some of the other FMHG products.Weight loss products,
dietary supplements, honey, and even pregnancy test kits and emergency contraceptive pills have found their way in this
segment.
Competition creates compulsion
The onset of private labels is making the matters more difficult in the popular segments, where penetration is close to
maturity, but consumption is not. The persistent efforts of brand positioning can only provide marginal leeway against
these pressures. In our understanding, the growing awareness of health and wellness has created a window of opportunity
for FMCG players to create a new territory away from the one where they fight intense daily battles on marginal products.
Mega-trends of differentiation on consumer purchasing decision will create more desirable product lines, new opportunities
for increasing market share and improving margins by creating preference and brand stickiness.
Under this backdrop, we like Agro Tech, Dabur, GSK CHL, Marico, Nestle and Zydus.
Agro Tech: CMP: Rs 205 Tgt: Rs 256 (20x FY11E EPS)
Transformation from oil trading to branded foods business has yielded results in terms of financial performance. New
products like peanut butter would be the next growth driver.
Dabur: CMP: Rs 143 Tgt: Rs 160 (20x FY12E EPS)
With a couple of domestic acquisitions, Dabur has created a wide-spread product profile from Hair/skin care to health
supplement to Food. With annual cashflow of Rs 5-6 Bn, company is poised for big ticket acquisitions. We expect it
would be for geographical expansion.
GSK Consumer: CMP: Rs 1140 Tgt: Rs 1360 (20x CY10E EPS)
After establishing firm footing in malted foods, brand extension of its key brands in HFD segment, offer to play on wider
demography. Superior financials and increasing dividend payout continue to remain striking features.
Marico: CMP: Rs 90 Tgt: Rs 110 (18x FY12E EPS)
After establishing strong brands like Parachute and Saffola, the company has also delivered superior performance in
overseas markets. Now it is gunning the much bigger market of Health and Wellness service offering through Kaya.
Possible Initiation of franchising would enable company to create disproptionate growth opportunity.
Nestle: CMP: Rs 2507 Tgt: Rs 2630 (30x CY10E EPS)
Low penetration, market leadership and broad yet focused product profile makes Nestle the best investment proposition
in FMCG sector. Superior financials in terms of earning growth, highest ROE and 75% dividend payout are compelling
arguments for higher valuation. Top tier valuation is justified for Nestle due to strong brands in under-penetrated product
lines and superior financial management.
Zydus Wellness: CMP: 176 Tgt: Rs 196 (18x FY11E EPS)
After integrating three product lines of Sugarfree, skin care and bread spread; the company has transformed its balance
sheet. With aggressive promotional strategy, we believe the company would grow all the three product lines where in
penetration levels are abysmally low.