Indian Fmcg

22 August 2012
Asia Pacific/India
Equity Research
Consumer Staples / OVERWEIGHT

India Consumer Sector
Research Analysts
Arnab Mitra
91 22 6777 3806
arnab.mitra@credit-suisse.com
Akshay Saxena
91 22 6777 3825
akshay.saxena@credit-suisse.com

INITIATION

Premium rush
Figure 1: GSK, Emami, Marico, ITC and GCPL have strong growth prospects

HIGH

and lower competitive risks
Emami
GCPL

GSK

Marico

Nestle

Micro divers

Colgate

HUL

ITC

LOW

Dabur

HIGH

Competitive risk

LOW

Source: Company data, Credit Suisse estimates

W e initiate coverage on the Indian FMCG sector. We expect its rich valuations
to sustain, as most of the leading companies will likely deliver 15%-25%
earnings CAGR over FY12-15 while maintaining high capital efficiencies. We
initiate on ITC, Godrej Consumer, Emami, GSK Consumer, Marico and HUL
with OUTPERFORM, Nestle with NEUTRAL, and Dabur and Colgate with
UNDERPERFORM ratings.
Focus on micro over macro. Companies in our coverage universe
cumulatively operate in over 25 categories, which have stark divergence in
growth potential as they are at varying stages of penetration, consumption
and premiumisation. We expect categories like skin care, shampoos,
insecticides, hair oils, packaged foods and new segments including face
washes and deodorants to outgrow the broad FMCG market. Companies
with leading brands in these categories are likely to gain the most. GSK,
Marico, GCPL, Emami and Nestle have the best positioned portfolio.
Companies with dominant positions to show margin resilience. W e use
a framework to assess the brand dominance of various companies analysing
each brand in their portfolio. We believe ITC, GSK, Marico, GCPL and
Emami have the highest margin resilience and scope for margin expansion.
Positive on managements investing in innovation and execution
capabilities. Managements at ITC, HUL, GCPL, GSK, Marico and Emami
have upped their investments in brand...