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  1. Consumer sector: Price hikes and dip in promotions

Consumer sector: Price hikes and dip in promotions

The market saw more price hikes, with price increases in paints, toothpaste, hair oil and edible oil segments.

By: | New Delhi | Published: October 9, 2018 1:16 AM
The market has been witnessing more price hikes, as we saw price increase in categories such as paints, toothpaste, hair oil and edible oil.

The market saw more price hikes, with price increases in paints, toothpaste, hair oil and edible oil segments. Earlier, price hikes were witnessed in categories such as detergents, skin care, hair oil and soap, led by HUVR. However, some cooling off in promotions is a breather in an inflationary scenario. While gradual demand recovery is underway, with peaking margins and stretched valuations, we remain cautious. Prefer discretionary over staples.

Raw materials stable, but trending up
Both food and non-food based RMs were flattish in August but the trend remains inflationary. We saw sharp upward movement in the price of mentha, soda ash and crude. Most other RMs were stable, with some correction coming in agri RMs such as copra, coffee, tea and sugar. INR depreciation will also result in higher RM prices for USD-denominated input raw materials.

Pricing action continues
The market has been witnessing more price hikes, as we saw price increase in categories such as paints, toothpaste, hair oil and edible oil. Earlier, price hikes were witnessed in detergents and skin care; HUVR has already taken price hikes in detergents, skin care and select soap brands in the 5-7% range; the weighted average of 3% at company level.

Promotions, some cooling off
Our checks suggest that promotional intensity, which heightened in the past three-four months, now seems to be coming down. This is also a function of increase in raw material prices, especially crude-linked RMs. We saw some ease in promotions in detergents and shampoos, which have been high for quite some time now, though some promotions were still on. Promotional intensity, however, remains high in soaps in the higher volume pack. Promotions are high in juices.

Our view and top picks
Within the ‘superior execution’ bucket in staples, viz. HUVR, BRIT and GCPL, we find risk-reward less compelling given very rich valuations. Thus, we have HOLD on all the three names given no upside. Our preference is more for ‘potential turnaround’ set of companies on improving fundamentals going into FY19 i.e., ITC, Dabur and NEST where we have Buys. We still remain on the sidelines and less convinced with risk-reward on Marico, Emami, Colgate and UNSP. Within discretionary space, APNT and JUBI remain BUY rated while TTAN is a Hold on less compelling risk-reward.

 

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