September 2016: KIE consumer universe performed in line with broader markets posting 2% absolute decline. RM trends were similar to last month with benign inflation in agri-inputs and higher inflation in oil-based commodities (ex-crude oil). Price changes were limited and promotional intensity remained high in select categories such as shampoos, biscuits, hair oils and toothpaste; however, it has come down in soaps and detergents. Sector valuations remain rich at 33X FY2018e earnings (37X, ex-ITC). We retain our ‘tread selectively’ stance. Preferred picks – ITC, BJCOR, GSK-CH, CLGT and BRIT.
Softer month after a lot of action in August
Soaps/detergents: After a lot of action in August in soaps (both absolute hikes and reversal of promotions), we did not witness any incremental action. In detergents, select promotional activity continues though overall promotional intensity has come down over past three months.
Personal care items: (i) Shampoos – promotional intensity remains elevated; no roll-backs by any player. (ii) Hair oils—promotional intensity remains high (led by Dabur) (iii) Toothpaste — promotional intensity remains high (freebies) across brands.
Food/beverage items: (i) Biscuits—promotional intensity still remains high; we particularly witnessed high promotional activity in bourbon segment (ii) Edible Oils—promotional intensity remains high in larger packs across players. (iii) Tea/coffee— Nestle is offering free container on its 50 gm Nescafe SKU while TGBL is offering free Tata Grand coffee on its Tata Tea 250 gm SKU.
Sector performs in line with broader markets
Our overall coverage universe performed in line with the broader markets posting 2% aggregate decline for the month (ex-ITC performance was marginally better with 1% decline). However, on a portfolio level, 14 out of 24 stocks under coverage outperformed broader market. On a 12-month basis, the sector (our coverage universe ex-ITC) has delivered an outperformance of 7% versus 3% returns for the broader market.