The overall RM basket has seen some cool-off with 2% MoM dip in February led by non food-RMs that dipped 3% MoM while food RMs dipped 1% MoM.
Although it is end-Q4FY18, no significant brand price hikes have flowed in yet, in an environment where our RM index is up 8% in the past year, though it dipped 2% month-over-month (MoM) in Feb 2018. To compensate, promotional intensity remains benign with continued uptick in new product launches. Demand uptick remains gradual in rural. Hence, execution remains the key. We prefer discretionary and only select staples.
Raw material, some respite
The overall RM basket has seen some cool-off with 2% MoM dip in February led by non food-RMs that dipped 3% MoM while food RMs dipped 1% MoM. Correction in non-food RMs was led by 15% MoM correction in mentha (positive for Emami), 3% MoM dip in copra and correction continued in March and 6% MoM dip in LLP (positive for hair oil companies). Food-based RMs remained largely stable, with tea and coffee witnessing further MoM correction.
Price hikes, still waiting
Our checks suggest no significant pricing actions yet in the key brands across categories. Effective price reduction was witnessed in Dabur Meswak due to extra grammage (6%) and some SKUs of shampoos (such as Sunsilk). Price hikes are needed in HPC, where RM inflation is inching, up and we expect price hikes in April. Only paint companies initiated significant price increase (1.5% effective from 1 March 2018), Emami 4.5% in cooling oil and Marico 11% in coconut oil in January.
Promotions, stable to down
Promotion intensity in the market appears to have come down amid inflationary pressure. Biscuit category, which was witnessing high promotions, has cooled off now. We are still witnessing heightened promotion in edible oils (particularly from Emami Agrotech), soaps (extra grammage being offered by most of the companies) and shampoos. Parle has increased the shelf space in the modern trade to promote its premium range Platina. Promotions have picked up slightly in toothpaste category as well, particularly in the herbal space.
Innovations, going strong
Innovations continue to remain strong and this is likely to continue. Hence, advertisement spends can see some pick-up, especially on a y-o-y basis considering softer ad spends in the base. Some of the key innovations are Good Knight Power Chip System (GCPL; priced at Rs 45 (Rs 30 for the refill) to drive penetration of HI), Pure Derm Anti-Dandruff Shampoo (HUL; Rs 135 for 180ml), Dove Nourishing Hand Wash (HUL; Rs 99 for 220ml), Axe Ticket (HUL; priced at rs 65), Cornetto Oreo (HUL), Horlicks Protein Plus (GSK Consumer; Rs 495 for 400gm), and KitKat Dessert Delight (Nestle, chocolate priced at Rs 55 for 50g).
What to buy?
Within the ‘superior execution’ bucket in staples viz. HUVR, BRIT and GCPL, we find risk-reward less compelling given very rich valuations now. Thus, we have only HUVR as Buy in this bucket, and BRIT and GCPL as Hold given limited upsides. Our preference is more for ‘potential turnaround’ set of companies on improving fundamentals going into FY19 i.e., NEST, Dabur and ITC, where we have a Buy.