INDIACONSUMER：THROUGHTHELENSOFIMPLIEDEXPECTATIONS0115.ppt

Consumer & RetailIndia ConsumerIndia ConsumerThrough the lens of implied expectationsHSBC Consumer & Retail coverage snapshotabcGlobal Research Outperformance in 2012 has priced insignificant expectations For 2013, we select stocks that still buildreasonable expectations in valuations andare long-term structural winners OW ITC, Colgate and Titan; upgradeCompanyTickerHSBCRatingPrice Target(INR) Price(INR)Pot’lreturnHindustan Unilever to OW from N withunchanged TP after the sell-off; N Nestle,ITCHindustan Unilever LtdColgate-PalmoliveITC INHUVR INCLGT INOWOWOW2734981,5013465881,76026.6%18.0%17.2%Godrej Consumer, Dabur and MaricoTitan Industries Ltd TTAN INNestle India NEST INDabur India DABUR INMarico Industries MRCO INGodrej Consumer Products GCPL INOWNNNN2704,8401262277283105,30013323574014.9%9.5%5.5%3.4%1.7%Consumer stocks did well in 2012, with the sector’s rising tidelifting nearly all boats. While the long-term attractiveness of thespace is largely intact, frequent periods of sharp rerating beg aNote: Priced as of 11 January 2013. Potential return equals the percentage difference between the currentshare price and the target price.Source: Bloomberg, HSBC estimates.14 January 2013Amit Sachdeva *AnalystHSBC Securities and Capital Markets (India) Private Limitedquestion: are the expectations built into the share prices realistic?Even though the stocks may be trading at similar multiples, theirgrowth potential could differ widely. The implication of sunk costs,dominant scales, category cost economics and competitivedynamics make these divergences even wider.As the market chases beta, consumer names could witness sell-+9122 2268 1240amit1sachdeva@hsbc.co.inoffs which may create attractive entry points for names we see asErwan Rambourg *Head of Consumer and Retail, Asia PacificThe Hongkong and Shanghai Banking Corporation Limited+852 2996 6572 erwanrambourg@.hkKuldeep Gangwar*, CFAAssociateBangaloreView HSBC Global Research at: *Employed by a non-US affiliate of HSBC Securities (USA) Inc,and is not registered/qualified pursuant to FINRA regulationsIssuer of report: HSBC Securities and Capital Markets (India)Private LimitedDisclaimer & DisclosuresThis report must be read with thedisclosures and the analyst certificationsin the Disclosure appendix, and with theDisclaimer, which forms part of itlong-term thematic winners. Our stock-picking frameworkemploys the following bottom-up approach. We strip out growthexpectations built into each stock’s valuation. We compare theseexpectations against each category that the companies operate inand assess their capabilities, scale and competitive advantages towin in respective categories.Using this approach, we identify four stocks that we thinkinvestors should add as the sector may derate: 1) ITC for itsearnings resilience, expected turnaround in other FMCG businessand least demanding valuation among staples; 2) Colgate-Palmolive for its superior ability to capture value from theattractive oral care space; 3) Titan Industries as a long-termstructural winner in the Indian jewellery space, with consensusbecoming overly bearish amid a regulatory overhang; and 4)following the recent sell-off, we think earnings growthexpectations built into Hindustan Unilever’s current price arefairly realisitic. We upgrade Hindustan Unilever to OW from N,as we believe the slowdown in volume growth in its CanteenStores Department’s (CSD) is temporary and could rebound inFY14, serving as a key stock catalyst. We have increased NestleIndia’s TP to INR5,300 (from INR4,975) as we move our 12-month valuation basis from April 2013 to December 2013.Consumer & RetailIndia Consumer14 January 2013India Consumer Consumer stocks significantly outperformed the broader market in2012 driven by solid earnings and sector rerating While we have turned cautious on consumer staples, we believe2013 will still provide good entry points to strong structural stories We prefer ITC in large-caps and Colgate-Palmolive in mid-caps.We like Titan for its long-term attractiveness, while the near-termregulatory overhang should keep the stock subduedabcThe year 2012 was great, butwhat about 2013?Consumer stocks under our coverage posted 53%returns in the calendar year CY12, significantlyoutperforming the broader market, which was up28% during the year. This outperformance wasdriven by impressive earnings growth of c20%(simple average of our coverage universe) withthe remaining c33% coming from multiplesrerating. This strong performance begs a question:is the consumer sector now too expensive?Differences in their returns last year reveal someinteresting insights, which in our view provideimportant points of reference for how we shouldview their individual outperformance.In CY11, Titan saw its multiples sharply derate.Despite impressive 39% earnings growth, thestock delivered -5% returns as the gold price rosesharply, triggering fears that jewellery demandmay collapse. CY12 indeed witnessed a sharpdecline in gold jewellery demand, but Titanresponded with aggressive expansion of retailarea, improved its revenue mix towards high-margin studded jewellery and delivered earnings2that were ahead of expectations during what wasessentially one of the weakest periods of jewellerydemand in India. This led to a sharp rerating ofTitan in CY12, with the stock rising 56%. In ourview, this was a reversal of Titan’s derating thatoccurred in 2011.Other ‘derating and rerating stories’ includeGodrej Consumer Products (GCPL) and ITC.Despite solid earnings growth in CY11, GCPLstock was flat as it made acquisitions using USDdebt and INR witnessed a sharp depreciationagainst USD. In CY12, GCPL maintained solidearnings growth, but paid down part of the debtusing equity funding from Temsaek. GCPLregistered a 90% return in the last one year.Following this, we believe GCPL’s valuationimplies aggressive growth expectations, which areachievable, but leave very little margin for error inour view.ITC too is a derating and rerating story. In CY11,it underperformed despite solid earnings growthdue to the fear of imminent excise duty hike. ITCdelivered solid earnings in a year, when exciseduty on cigarettes was hiked by 23%. ITC passedConsumer & RetailIndia Consumer14 January 2013on large price hikes to consumers and stillmanaged to maintain flat volumes and earningsgrowth in excess of 20%.In sum, all of these stocks performed strongly, butthis was in part due to a reversal of a derating thatthey witnessed in the previous year, in our view.Marico was the only stock that witnessed itsvaluation multiples expand in both CY11 andCY12 despite its earnings being downgraded.Expectations built in the currentprices are significantNonetheless, with a sharp rerating, most of thevaluations of consumer stocks have built insignificant expectations for long-term growth thatmake us cautious in general on consumer staplesvaluations.As the market chases beta, consumer names couldwitness sell-offs, which may create attractiveentry points for names we see as long-termthematic winners.12-month forward PE movement for consumer stocks50Our stock-picking framework employs a bottom-up approach. We strip out growth expectationbuilt into each company’s valuation. Wecompares these expectations against each of thecategories in which the companies operate andassess their capabilities, scale and competitiveadvantages in their respective categories.Through this approach, we identify four suchstocks that we think investor should add, as thesector may derate. These are ITC, Titan, Colgateand Hindustan Unilever (HUL). For HUL, weupgrade to OW from N on an unchanged targetprice of INR588.abc40302023 22 2427 272928222627 26343837 3528232419 182725 2530100ITCHU LTitanC olgateNestleDaburGC PLMaricoPalmoliv eJ an-11Jan-12Jan-13Source: Thomson Reuters Datastream, HSBC310%5%Consumer & RetailIndia Consumer14 January 2013In CY11, multiples contracted for ITC, Titan, GCPL despite solid earnings growth and even earnings upgradesabc40%30%20%10%0%-10%-20%23%15%4%ITC39%8%-5%Titan14%11%-8%ColgatePalmolive31% 30%7%HUL17%7%1%Nestle13%-1%-8%Dabur23%0%0%GCPL20% 21%-12%Marico40%30%20%10%0%-10%-20%Despite solid earnings multiplecontraction: 1) Titan as gold priceincreased triggering fear of demandcollapse 2) ITC for expectedtaxation 3) GCPL for acquisitionrelated USD, while INR depreciated4) Nestle for input price inflationMultiple expansion despiteearnings downgrade; Marico,which saw input prices impactingEarning Growth(lhs)Earning surprise(lhs)CY11 stock return(rhs)gross marginsHUL despite impressiveearnings, multiples were flatSource: HSBC, Thomson Reuters DatastreamRising against the tide stories (Titan, ITC and GCPL) saw the reversal of 2011 de-rating, HUL continued to perform in line with earnings growth30%25%20%15%10%5%0%-5%-10%-15%21%35%2%ITC22%56%2%Titan21%53%6%ColgatePalmolive22%26%5%HUL17%6%Nestle-10%19%28%-2%Dabur90%21%0%GCPL24%50%-3%Marico100%75%50%25%0%-25%-50%Multiple re-rating in 2012, reversalof 2011 1) GCPL as it deleveraged anddelivered solid earnings 2) Titan: Retailexpansion and earnings despitecollapse of jewellery demand 3) ITC forsolid earnings despite excessivetaxation 4) CP for earnings upgradeand market share gains 5) Dabur forearnings growth, A&P backed volumerevivalMarico was only player withEarning Growth(lhs)Earning surprise(lhs)Last 1 year stock return(rhs)multiple expansion despiteearning downgrades in successiveCY11 and CY12Source: HSBC, Thomson Reuters DatastreamLong-term annualised implied growth in current valuation multiples20%15%Key OW callsConstructivelycautiouscautiousCY13: Earnings momentumdriven stories to hold themomentum with reasonablegrowth expectations built in thecurrent prices: 1) ITC and Colgatescore well overall where growthexpectations are realistic and0%ITCHULTitanColgatePalmoliv eNestleDaburGCPLMaricoearning momentum is likely to staysolid 2) HUL and Nestle to be comeattractive as the volume growthrebounds 3) Dabur is on the rightCurrentLast y eartrack builds in relatively modestexpectations compared to Maricoand GCPLSource: HSBC estimates, For detailed methodology, refer to our thematic report Personal Touch, 7 December, 20114Consumer&RetailIndiaConsumer14January2013abc5depth.Indian consumer sector snapshotITCHindustan UnileverColgate-PalmoliveTitanNestle IndiaDabur IndiaMaricoGodrej ConsumerBloomberg tickerRatingTarget price (INR)Current market pricePotential return (%)ITC INOverweight34627326.6%HUVR INOverweight58849818.0%CLGT INOverweight1,7601,50117.2%TTAN INOverweight31027014.9%NEST INNeutral5,3004,8409.5%DABUR INNeutral1331265.5%MRCO INNeutral2352273.4%GCPL INNeutral7407281.7%Investment Case1) Taxation is unlikely todampen cigarettemomentum: ITC cigaretterevenues and profits havegrown in double digits,1) Long-term growthmomentum to sustain as aCSD channel inflictedslowdown in volume growthis not permanent.1) Growth opportunity in 1) Titan is the key 1) In the packaged food 1) Dabur' business on core 1) Solid core domestic 1) GCPL has strategicallyoral care is attractive, driven beneficiary of the structural category, which is the fast capabilities (health businesses (edible oils and chosen to focus on coreby penetration, trend towards branded growing segment of India’s supplements), is rock solid hair oils), but input costs are capabilities and keypremiumisation and jewellery (currently c7-8% FMCG space, Nestle India and should continue to volatile and not always markets to build growth,category extension. Colgate of jewellery market) as has a natural competitive grow. possible to pass on. We which we think is eminentlydespite modest volume inthe last decade due to2) Base effect in S&D isbenefits from its scale,brands and distributionurbanisation and incomelevels rise. First-moveradvantage with its estimate Marico’s 75% sensible and will createdistribution network, strong 2) A&P-led volume focus is profit pool is still linked with long-term value throughpunitive taxation. Pricingpower and modestless benign going forward,but a sharp decline in palmadvantage, brand strength, brand names andand national scale and leadership acrosssensible and volume growth commodity linked products. scale and coremomentum has helped competencies acrosscompetition should helpsustain the double-digitoil prices may help inmargin expansion.2) The potential impact of distribution give Titan aProctor & Gamble’s (P&G) strong competitivecategories.Dabur’s stock to rerate in 2) Marico’s focus onthe last few months but wellness and beauty care ismarketsrevenue and earningsmomentum.2) ‘Other’ FMCG businessmay continue to grow in3) Our implied growthmodel suggests thatexpectations built into thisvaluation are stillentry has been advantage 2) Volume growth continues subscale categories are still prudent, but acquisition-led 2) rerating in our view hasexaggerated, in our view. to be weak, but having vulnerable. growth (Paras) comes at a been driven by sustainedEven if P&G acquires 20% 2) Titan is well positioned to doubled the capacity and cost. Foray in functional operational performanceof the target market in the benefit from demand revival distribution depth, volume 3) Despite the structural food categories is sensible and broader acceptance ofnext five years, we believe as jewellery retail expansion growth is likely to rebound challenges Dabur faces in preparation for the long GCPL’s 3x3 strategy thatstrong double-digits and weexpect business to becomereasonable and multiplecontractions are unlikelyColgate’s value growth is on track to meet annual next year, but short-termtrajectory would decline by guidance remains challengingsome categories, ourimplied growth valuationterm but these categories feeds into the GCPL’sface significant competition target of 10 times revenueEBIT positive in FY14e.3) Hotels to benefit fromunless volume growthtrajectory permanentlyslows down at sub-7%only a modest 1-2ppt. trade-off model suggests from multinationals.Therefore, it is unlikely to 3) A FY14e PE of 25x 3) High-growth expectations that long-term earningsdent Colgate’s growth implies a long-term growth are built into current expectations built in the 3) International businessin 10 years.3) But valuation is nowcapacity expansion and lowbase, while agri business islevel.prospects materially.rate of c10%, which in our valuation. Even though we price are realistic.view is realistic. High-end believe that Nestle canhas yet to evolve whilevaluation has priced inpricing in 10X10 strategy,hence, we see limitedstrategic and providesbackward linkages to3) We believe theexpensive multiple (33xwatches, transition towards deliver on thesediamond-studded jewellery expectations, it has littlesignificant growth upside and further multipleexpectations, in our view. expansion unlikely.Valuationstaples and cigarettes.We value ITC on a SOTPbasis, which is based on aDCF valuation of thecigarette business. Hotels,agri, ‘other’ FMCG, andP&PB business are valuedusing a relative valuationWe use a DCFmethodology to derive ourtarget price. For our DCFwe use a cost of equityof 10.8%, which includes arisk free rate of 8%, marketrisk premium of 5% andFY14e PE) implies still should help margins and margin for error.realistic long-term earnings new businesses to boostgrowth of c11%. growth momentum.We use a DCF We use DCF methodology We use DCF methodology We use DCF methodology We use DCF methodology For our DCF valuation, wemethodology to derive our to derive our target price. to derive our target price. to derive our target price. to derive our target price. assume a cost of equity oftarget price. For our DCF For our DCF valuation, we For our DCF valuation, we For our DCF valuation, we For our DCF valuation, we 11.25%, which includes aWe use a cost of equity of use a cost of equity of 11%, have used a cost of equity have used a cost of equity have used a cost of equity risk free rate of 8%,11%, this includes a risk- our average cost of equity of 11%, which includes risk of 11%, which includes risk of 11%, which includes risk market risk premium of 5%free rate of 8%, a market for the consumer sector in free rate of 8%, market risk free rate of 8%, market risk free rate of 8%, market risk and beta of 0.65.risk premium of 5% and a India. premium of 5% and beta of premium of 5% and beta of premium of 5% and beta ofapproach. We use a cost ofequity of 11% in our DCFbeta of 0.55.beta of 0.6.0.6.0.6.0.6.valuation for the Cigarettebusiness, which includes arisk-free rate of 8%, marketrisk premium of 5%, andbeta of 0.6.Source: HSBC estimates. Prices as of 11 January 2013. Under our research model, for stocks without a volatility indicator, the Neutral band is 5ppts above and below the hurdle rate of 11% for Indian stocks. For HUL, our TP implies a potential return above the Neutral band; therefore, we upgrade the stock to OW from N.For ITC and Colgate Palmolive, the TPs imply potential returns above the Neutral band; therefore, we reiterate OW on these stocks. For Nestle India, our new TP implies a potential return within the Neutral band; therefore, we reiterate N on Nestle India. For Titan, Dabur, Marico and Godrej, at the time we set our targetprices, they implied potential returns that were above/within the Neutral band; therefore, we rate the stocks OW/N accordingly. Potential return equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated.6Consumer&RetailIndiaConsumer14January2013abcgrowing categories inexcessive taxationshocks.and packaged foodsIndian consumer sector snapshot (cont’d)ITCHindustan UnileverColgate-PalmoliveTitanNestle IndiaDabur IndiaMaricoGodrej ConsumerRisk factorsKey downside risks, in our Upside risks include aview, are slower-than- moderation in commodityKey downside risksinclude destructive priceKey downside risksinclude: 1) a severeUpside risks: 1) lower-than-anticipated inputOn the upside, apermanent change inUpside risks: 1) lower- Upside risks: better-than-than-anticipated input expected market shareanticipated progress or prices and better-than- competition and a severeeconomic slowdowncosts of raw materialsshampoo trends would costs of raw materialsand margins in domesticloss of market share in expected volume growth. macro slowdown.leading to a fall insuch as milk, sugar and bode well for itssuch as copra prices and categories and growthDownside risks include aother FMCG, and ITC’s return in destructive pricestock price’s sensitivity to competition in the S&Dcategory as input priceinflation tapers off; and aprice war in personalproducts in the wake ofincreased competition.discretionary spending;2) a sharp correction orhigh levels of volatility inthe gold price; and3) price destructivecompetition in brandedjewellery. Whilecompetition may increasepenetration in thissegment, it could alsolead to profit erosion.wheat; 2) acceleration ofdemand for packagedfoods.Downside risks: premiumpricing of new launchesimpacting volumes, costinflation and increasedcompetition, as bothIndian FMCG giants andglobal players’ eye theIndian petitive positioning inthe tough HPC market.Higher-or-lower thananticipated raw materialcosts and performancelevels of new acquisitionswould continue toinfluence the stock priceboth ways.crude oil etc, prospects in international2) acceleration of demand operations.for personal care products Downside risks include:1) international operationsahead of our estimates failing to meetDownside risks: expectations due to1) international operations execution problems andfailing to meet macro uncertainties;expectations, 2) destructive competition2) destructive competitionin domestic business and3) higher raw materialcostSource: HSBC estimates.Consumer & RetailIndia Consumer14 January 2013ITC (ITC.BO, OW, TP INR346)Performance in 2012ITC’s stock performance of +47% (includingdividend yield) in CY12 was quite impressive, andwas backed by an equally strong operatingperformance of double-digit earnings growth (13quarters in a row with +20% PAT growth). In ourview, the multiple rerating was due to: 1) asignificant acceleration in EBIT growth forcigarettes to 20% in the last six quarters from 16% inthe previous six driven by ITC pricing power and itsastute pricing strategy of staggered price increases;2) this was also in part a reversal of the multiplecontraction in CY11 despite solid earnings as a largeincrease in excise duty was anticipated and cameinto effect in March 2012 (a c22% increase).However, ITC still delivered more than 20%earnings in 1H FY13. In our view, ITC’s valuation isstill the least demanding in our coverage universe.Key issuesTaxation is set to remain punitive. The possibility ofanother excise duty (ED) hike in FY14e, coupledwith potential VAT hikes by some states, is a keyrisk. We have modelled in our base case an ED hikeof 9%. Volumes may remain muted if ITC needs tomake significant price hikes in order to offset thetaxation impact.Expectations for 2013ITC is among our top picks for CY13, as we expectthe company may continue to register strongoperating performance across the board.ITC Q3 FY13e preview In the cigarette segment, we expect mid-teensales growth in FY14, driven by average pricegrowth of c10% and low single-digit volumegrowth. We have factored in a c9% ED hike inFY14e, despite a 22% ED increase in FY13 andno precedence for significant ED hikes in twoconsecutive years in the last 10 years. We alsoestimate that the average VAT rate will inch upmarginally to 21% in FY14e.We expect the top line of ‘other’ FMCGbusiness to grow c20% in FY14e andbusiness to become EBIT positive on a full-year basis. Hotels should also register double-digit growthprimarily due to capacity expansion and afavourable base effect as the hotel segment’operating performance was severely impactedby tough macro conditions in y-t-d FY13.Hindustan Unilever (HLL.BO,upgrade to OW from N, TPINR588)Performance in 2012Hindustan Unilever’s (HUL) stock performance of26% (including dividend yield) was backed by astrong operating performance with double-digitearnings growth (seven quarters in a row withdouble-digit PAT growth). HUL registered a highsingle- or low double-digit volume growth in 10straight quarters till Q1 FY13, which helped thestock to re-rate. In Q2 FY13, volume growthabcINRm3QFY124QFY121QFY132QFY133QFY13e Y-o-y change (%) CommentNet SalesEBITDANet profit Clean61,95423,84617,01068,61422,63416,14466,52223,68416,02271,46026,88318,36473,05027,91919,98717.9% We expect flattish volume growth and17.1% c20% EBIT growth in cigarette segment17.5%-In cigarette segment, we expect overall flattish volume growth and price growth 18.6% y-o-y.-In ‘other’ FMCG business, we estimate sales growth of 23.6% with a balanced mix of price and volume. We expect EBIT losses to narrowby 209bp to -1.3% reflecting benefits of favourable product mix and supply chain optimisation.-In Hotels segment, we expect Q3 sales to grow c6% y-o-y, primarily due to launch of ITC Grand Chola in September in Chennai shouldhelp the top line growth, though margins may remain under pressure in short termKey focus: Cigarette volume growth in our view is a key statistic to look for, which gives us an indication of price elasticity of demandacross the price sensitive volume segment of cigarettes (as unprecedented price hikes were taken this year in these segments to theextent of 15-18%). If cigarette volume growth is positive (say 1-2%) this should bode well for stock performance in 2013.Source: Company data and HSBC estimates7Consumer & RetailIndia Consumer14 January 2013momentum slowed down primarily due to CanteenStores Department’s (CSD) budget rationalisation,which accounts for c6% of HUL’s top line andadversely impacted volume growth by120bp.Expectations for 2013The key question now is whether this distributionchannel specific issue signals any structuralslowdown in the momentum of Personal products(PP) that HUL has established in the last severalquarters. We think not. Even if the CSD impactcontinues, we find it has a one-time valuation impactof no more than 2-3%, but after a cycle of 3-4quarters, the base for the volume growth is likely toget readjusted. Hence, we don’t see a case formultiples derating based on the CSD inflictedslowdown in volume growth. Noticeably, growthmomentum across all the key brands such as Dove,Ponds and Vaseline remained in strong double digitsand oral care too has now sustained a double-digitgrowth post the revival of growth in the 1Q. HUL’space of innovation and scale makes it much betterpositioned than the competition in the market placeand gives it a cost advantage in the PP category.Soap & detergents (S&D)’s impressive performancehas continued to be pricing-led. We highlightedearlier that the base effect in S&D will not be asevident going forward, but a sharp decline in palmoil prices continues to favour margin expansion. Wesee palm oil costs going into part of Q3 and Q4 as15% lower sequentially, which continues to aidHUL Q3 FY13e previewS&D margins but admittedly, A&P spend is set toremain elevated as well. Hence, we expect marginsto modestly expand y-o-y.Post the recent sharp correction, we think theearnings expectations built into its share price aremodest and hence believe a further multiple deratingis unlikely. Under our research model, for stockswithout a volatility indicator, the Neutral band is5ppts above and below the hurdle rate of 11% forIndian stocks. Our current target price implies apotential return 18%, above the Neutral band; hence,we upgrade HUL to Overweight from Neutral.Potential return equals the percentage differencebetween the current share price and the target price,including the forecast dividend yield whenindicated.Colgate-Palmolive(COLG.BO, OW, TPINR1,760)Performance in 2012In CY12, Colgate’s performance (up 62% includingdividend yield) was better than the sector averagedespite a bearish consensus view. With a c54.5%market share in toothpaste in terms of volume,Colgate benefits from its scale, brands anddistribution depth. High sunk costs, associated withA&P and innovation, have given Colgate an edgeover rivals such as Hindustan Unilever. Colgate’sproducts span multiple price points, making it aabcINRm3QFY124QFY121QFY132QFY133QFY13e Y-o-y change (%) CommentNet SalesEBITDANet profit Clean58,4439,7057,62056,6058,3346,64062,5029,6658,55061,5549,7678,06065,33311,0138,64111.8% We expect about 7.5% volume growth13.5% contribution as budget rationalisation in13.4% CSD channel may continue to hurtvolume growth in the short term-In domestic business, we expect sales growth of c14% with almost balanced volume and price growth contribution. We expect groupEBITDA margin of 16.8% and EBITDA of cINR11bn as we expect decline in Palm Oil prices should help.-In S&D, base affect is less benign, therefore, we expect momentum to slow down as compared to last 5 quarters of +20% top line growth.-In personal products (PP), we expect Q3 sales to grow c14% y-o-y, as CSD inflicted volume growth slow down may have impact foranother 2-3 quarters post marked slowdown in last quarter as PP has a higher salience in CSD sales.Key focus: In the last several quarters HUL has delivered good volume growth, a key factor to sustain high multiples it commands. In Q2FY13, volume growth suffered due to CSD channel budget rationalisation. In this quarter, we expect c7.5% volume growth. Any majordeviation from this trend is likely to be quite sensitive to HUL's valuation.Source: Company data and HSBC estimates8Consumer & RetailIndia Consumer14 January 2013Colgate-Palmolive Q3 FY13e previewabcINRm3QFY124QFY121QFY132QFY133QFY13e Y-o-y change (%) CommentNet SalesEBITDANet profit Clean6,6961,4591,1566,8591,6991,3087,3611,6251,1747,7381,7581,4517,9381,7181,33018.5% We expect c10% overall volume growth17.7%15.1%-We expect toothpaste segment volume growth of c11%, as Colgate continues to maintain above industry average A&P levels.-We expect group EBITDA margin of 21%, as we expect optimisation of other operating expenses will help to offset input price pressure.Key focus: Overall volume growth and toothpaste segment volume growth along with market share dynamicsSource: Company data and HSBC estimatesbeneficiary of the ‘premiumisation’ trend,supporting long-term margins.Key issuesP&G’s expected entry into toothpaste is seen as akey threat and an overhang. In our view, P&G’starget market is likely to be the mid premium/premium segment (c20-40% of the overalltoothpaste market) which is likely to exclude theeconomy/mass market segment, and is roughly 60%of Colgate’s total revenues. Even if P&G acquires20% of the target market in the next five years, webelieve Colgate’s value growth trajectory woulddecline by only a modest 1-2ppt. Therefore, this isunlikely to dent Colgate’s growth prospectsmaterially. For details please refer our recentinitiation report on Colgate: Initiate OW: Stronglypositioned to capture value in oral care, 11December 2012.Expectations for 2013We expect double-digit earnings momentum tocontinue in the short term. We estimate revenuegrowth of 18.9% for FY13 and c18% for FY14.Overall, we expect volume-led double-digit growthacross major segments, i.e., toothpaste andTitan Q3 FY13e previewtoothbrushes. We estimate overall volume growth ofc10-11% for FY13 and FY14.TITAN(TITN.BO, OW, TPINR310)Performance in 2012Titan has performed exceptionally well in CY12, upby 56%, despite overall jewellery demand beingweak. This strong performance has, in our view,three key dimensions: Titan is set to achieve almost a 43% jump injewellery retail area in FY13, adding about200,00sq ft. Titan focussed on building a largerpresence (through large format stores) in its keylocations and through franchises in mid-tiercities, and continued to capture market share. Despite demand for gold and jewellery beingweak, Titan demonstrated its ability toachieve impressive earnings growth throughmix improvement (towards more studdedjewellery) and prudent cost management. It was also partly a reversal of the previousyear’s underperformance (FY11-12), whenTitan stock returned -5%, despite achievingINRm3QFY124QFY121QFY132QFY133QFY13e Y-o-y change (%) CommentNet SalesEBITDANet profit Clean24,4012,2491,64022,8142,0711,44322,0572,1201,56122,7602,4941,80129,1992,9862,10619.7% We expect positive volume growth and32.8% 140bp y-o-y margin expansion in28.4% Jewellery segment.-In Jewellery business, we expect sales growth of c21%, reflecting volume growth pick up coupled with c10% gold price growth. We expectmargin expansion in jewellery business primarily due to excise duty removal from branded jewellery.-In watches segment, we expect price-driven sales growth of c13%, while volume growth remains modest at c4%.Key focus: We expect Q3 will register much better performance than H1FY13 and Jewellery business grammage growth to pick up fromthis quarter onwards. Studded jewellery mix in Jewellery business and margin trajectory are key statistics to look for.Source: Company data and HSBC estimates9Consumer & RetailIndia Consumer14 January 2013earnings growth of c39% as gold demandtrends pointed to significant weakness.Bearish start to 2013 for Titan, butwhy we still like itTitan has corrected recently due to a regulatoryoverhang. The two key issues are: The government is expected to announcemeasures to curb gold imports, which mayresult in increased gold price (and weakdemand) in the domestic market, even thoughgold prices in the international market hasstarted correcting. Furthermore, a reduction in the gold leasingperiod to 90 days from 180 days (throughMMTC will also likely result in higher cost ofgold leasing by 50-60bp.As a result, consensus has turned more bearish onTitan, and consensus estimates jewellery revenuegrowth of c18-22% for the FY14.While broadly it would likely be negative ifpotentially adverse regulatory events materialise,we think the market has already started pricing inthe worst case and Titan has become quiteattractive after the recent share price weakness. Titan is expected to add an additional c43%jewellery retail area in FY13e, the bulk of whichwould be added in the second half and shouldattain normal throughput level in CY13. Titan is likely to aggressively push high-margin diamond studded jewellery in aNestle India Q4 CY12e previewscenario of gold prices remaining elevated.Titan’s diamond activation in August led toall-time high jewellery margins of 12.6% anddelivered earnings growth of 36%, despitenegative gold volumes. Titan can also resort to discounting of itsmaking charges (labour and craftsmanship)that are linked to gold prices. Moreover, 2013 should also benefit from anextremely weak base formed in 2012. In ourview, consensus’ 18-22% jewellery growthexpectations may not be difficult to meet andthere is a reasonable chance that revenuegrowth could even surprise on the upside. Inthe meantime, Q3 FY13 (December CY12quarter) is likely to be a strong quarter on theback of festive demand. Titan has alreadystarted several promotions in Q4 to sustain itsgrowth momentum and Q1 FY14 next yearshould come off a very weak base from Q1FY13. Hence, earnings momentum will likelystay solid in the near term.Nestle India (NEST.BO, N, TPINR5,300 [from INR4,975])Performance in 2012In CY12, Nestle India underperformed the sector, inline with our expectations. Nestle India’s revenueand earnings growth was below consensus, as priceincreases, product mix changes and channeloptimisation adversely impacted domestic volumegrowth. Domestic volume growth was hurt by:abcINRm4QCY111QCY122QCY123QCY124QCY12e Y-o-y change (%) CommentNet SalesEBITDANet profit19,5474,0042,30820,4754,5282,75719,8664,3122,46021,1564,4412,67322,4034,6792,70314.6% We expect volume growth to pick up due16.8% to favourable base effect17.1%-We estimate domestic business top-line growth rate of 15% y-o-y with balanced mix of volume and price growth.-We expect EBITDA margin of 20.9% and EBITDA of cINR4.7bn, as we expect stable margin inline with company strategyKey focus: Management commentary regarding volume growth and overall operating environment. We expect volume growth shouldbenefit from favourable base as Nestle registered almost flat volume growth in the last 4 quarters.Source: Company data and HSBC estimates10Consumer & RetailIndia Consumer14 January 2013Nestle revised estimatesabc______ New estimates _____________ Old estimates ________ Bloomberg consensus __INRmNet SalesEBITDAOperating ProfitPAT CleanCY12e83,89917,96015,28010,390CY13e100,71522,19619,14913,136CY14e120,56726,73823,35016,102CY12e86,93018,98516,35411,011CY13e104,63223,25020,18013,570CY14e124,95927,84724,12616,427CY12e84,86218,29915,81910,918CY13e99,78621,73418,85012,932CY14e118,00225,80822,67515,464DiffNet SalesEBITDAOperating ProfitPAT Clean-3.5%-5.4%-6.6%-5.6%-3.7%-4.5%-5.1%-3.2%-3.5%-4.0%-3.2%-2.0%-1.1%-1.9%-3.4%-4.8%0.9%2.1%1.6%1.6%2.2%3.6%3.0%4.1%Source: Bloomberg consensus, HSBC estimates.1) demand scenario remaining challenging;2) ongoing pricing pressure in key inputsconstraining the ability to pursue an aggressivevolume strategy; and 3) Nestle India’s currentstrategic focus to improve the sales mix tocompensate for lower volumes and rely on portfoliooptimization to maintain SKU level threshold-profitability.Expectations in 2013Nestle India has: 1) almost completed INR25bncapacity expansion and almost doubled itsproduction capacity to cater to future demand;2) increased its distribution access to about 4moutlets; 3) aims both volume growth and margins butwill not chase volumes at any costs as a guidingprinciple for expansion, pricing and competitiveresponses. Overall, we expect much better prospectsin CY13e with a balanced mix of volume and pricegrowth leading to strong double-digit growth.ValuationWe have rolled our model forward, as we moveour 12-month target price from April 2013 toDecember 2013, and increased our DCF-basedtarget price to INR5,300 (from INR4,975). In ourDCF valuation, we have used a cost of equity of11%, which includes a risk free rate of 8%,market risk premium of 5% and beta of 0.6.Dabur (DABU.BO, N, TPINR133)Performance in 2012Dabur performed better than our expectation inCY12 (up 30% including dividend yield), butperformance was still lower than the FMCG industryaverage (up 53%). Its A&P-led volume focus issensible and volume growth momentum has helpedDabur’s stock to rerate in the last few months.However, subscale categories are still vulnerable.Key issuesOral care is struggling and the pace of innovationhas significantly increased in the category. Dabur,Dabur Q3 FY13e previewINRm3QFY124QFY121QFY132QFY133QFY13e Y-o-y change (%) CommentNet SalesEBITDANet profit Clean14,52723791,72813,63622441,70514,62021581,54115,22626932,02317,26829322,07618.9% We expect c9% volume growth in23.2% domestic business20.1%-We estimate domestic business top-line growth rate of 17% y-o-y as core domestic segments i.e. hair care, foods and health supplementmay continue to grow strongly.-We expect relatively niche domestic businesses like skin care and home care may also maintain double growth from a low base.-We expect consolidated group EBITDA margin of 17% and EBITDA of cINR2.9bn, as we expect input price pressure to ease on y-o-ybasis.Key focus: Dabur's recent rerating has been driven by acceleration in domestic volume growth as a result of Dabur choosing to spendsignificant amount in A&P and prioritizing volume growth over margins. We expect A&P spend to stay at elevated levels and sustaineddomestic volume growth performance will be a key catalyst to watch over the next few quarters, especially as base effect also builds up.Source: Company data and HSBC estimates11Consumer & RetailIndia Consumer14 January 2013too, is recalibrating its offering in oral care andlooking for profitable growth but Dabur remainsweak in this segment. In skin care, the focus remainsniche rather than confronting MNC incumbents inmass categories. Hence, growth continues butsuccess in the broader skin care segment is unlikely.The home care segment also needs a broader productline-up and is likely to face stiff competition fromprivate labels.Expectations for 2013Despite the structural challenges Dabur faces insome categories, our implied growth valuation trade-off model suggests that long-term earningsexpectations built in the share price are realistic.Domestic businessDabur has stepped up A&P spending to support thevolumes and it should stay at elevated levels. Webelieve that high-single digit volume growth issustainable, but price growth will be limited to low-to mid-single digit in medium term, in our view.Dabur has a very strong and differentiated positionin hair oil as well as the necessary scale. Shampoosstill remain vulnerable as Dabur’s presence issubscale and competitive intensity is high.Dabur has a strong position in health supplementsand foods but we remain cautious on Dabur’s oralcare, home care and skin care businesses.International businessDabur is looking to rely more on organic growthinstead of acquisitive growth as it is trying toMarico Q3 FY13e previewintegrate existing international businesses andNamaste’s (Dabur’s subsidiary), subduedperformance in the recent past highlights that aninorganic international strategy is still evolving andwill require significant investment and time.Marico Industries (MRCO.BO,N, TP INR235)Performance in 2012In CY12, Marico performed in line with the sectoraverage (up 53% including dividend yield). Maricohas a sensible strategic focus but challenges persist.Marico is looking to strengthen its wellness andbeauty care business as a long-term strategy andgrow in Asia, the Middle East and Africa. To thisend, it has acquired the Paras brands (largely massmarket and A&P hungry), though at an expensivevaluation.Key issuesThe company’s core businesses – edible oils and hairoils – are solid, and we expect them to grow at ahealthy rate. However, these segments have lowentry barriers (edible oils) and face input pricevolatility that is not always possible to pass on toconsumers. We estimate Marico’s 75% profit pool isstill linked with commodity-linked products (copraand other edible oils) and strengthening the personalcare and foray in functional food categories is asensible preparation for long-term but thesecategories face significant competition fromabcINRm3QFY124QFY121QFY132QFY133QFY13e Y-o-y change (%) CommentNet SalesEBITDANet profit Clean10,50012598419,094112669712,6721879123811,559151285912,5991711109620.0% We expect domestic business volume35.9%growth of c17% primarily due to Paras30.3% consolidation. We expect domesticorganic business volume growth of c9%.-We estimate domestic business top-line growth rate of 19% y-o-y as core domestic segments i.e. edible oil and Hair Oils to grow indouble digits, while Paras gives additional boost-We expect c15% y-o-y growth in international business, as we expect Bangladesh operations may grow in low double digit. We expectSE Asia growth will remain quite robust.-We expect consolidated group EBITDA margin of 13.6, as we expect decline in copra prices will continue to help in margin expansion.Key focus: Organic volume growth ex-Paras in domestic business is key statistic. Ex-Paras, gross margins and A&P are other keyfigures.Source: Company data and HSBC estimates12Consumer & RetailIndia Consumer14 January 2013multinationals and may take time to achievethreshold profitability. For details, refer to our recentinitiation report on Marico Industries, Initiate at N:On the right track, but challenges persist, 11December 2012.Expectations for 2013Overall, we expect volume-led double-digit growthacross major segments, i.e. edible oil and hair oil inthe domestic business, along with the overallinternational business.Domestic business Edible Oil. We expect volume-led sales growthof c15% for FY13e and FY14e. Hair oils. We expect the value-added hair oilrevenue growth of c26% for FY13e and c22%for FY14e. This is driven by double-digitvolume growth of 19.6% in FY13e and 17% inFY14e, as Marico reaps the benefits ofdiversification in various sub-categories.International businessWe expect international business revenue growth ofc16% for FY13e and c15% for FY14e. We haveassumed double-digit growth across internationaloperations excluding the Bangladesh operation,where we believe a tough macro environment mayrestrict growth to high single-digits in FY13e.Godrej Consumer Products(GOCP.BO, N, TP INR740)Performance in 2012Godrej Consumer Products performedexceptionally well in CY12 (up 96% includingdividend yield) as the stock has experienced asignificant rerating. This rerating, in our view,was driven by sustained operational performanceand broader acceptance of GCPL’s 3x3 strategythat feeds into the GCPL’s target of 10 timesrevenue in 10 years (an implied CAGR of 26%).GCPL aims to achieve organic growth of 15- 20%and the balance through the inorganic route. Inour assessment, a sharp rerating of the stock hasstarted building in expectations that encompass alarge part of GCPL’s organic growth ambitions.Key issuesA key concern may be the sustainability of stronggrowth in domestic soaps and hair colour business.In the international segment, successful integrationof acquired businesses and GCPL’s ability to findfuture acquisition targets at reasonable valuations arethe key issues, in our view.Expectations for 2013Our implied growth model suggests that GCPLneeds to grow its earnings at a c16% CAGR (10-abcyear period beyond FY15e) to justify the currentmultiples, which in our view borders on valuing theorganic growth potential of GCPL’s 10x10 strategy.GCPL Q3 FY13e previewINRm3QFY124QFY121QFY132QFY133QFY13e Y-o-y change (%) CommentNet SalesEBITDANet profit Clean13,44126791,72013,23025001,68413,88620831,41115,95324901,66917,00331432,13726.5%17.3%24.3%-We estimate domestic business top-line growth rate of 19% y-o-y as all the three major domestic segments i.e. Soaps, Hair Colour andHome care business expected to grow in double-digits-We estimate international business’ top-line growth rate of c37% y-o-y, primarily due to CN consolidation in Latam and 2nd phaseconsolidation of Darling group in Africa. Excluding the Darling group and CN contribution, we expect c18% y-o-y reported organic growthin international business-We expect consolidated group EBITDA margin of 18.5%. Decline in palm oil prices should help the group margin.Key focus: Sustainability of strong double-digit growth in domestic soaps business and potential gross margin expansion due to palm oilprices decline.Source: Company data and HSBC estimates13Consumer & RetailIndia Consumer14 January 2013This makes us cautious. Even though we believegrowth momentum should continue apace, we don’texpect a significant rerating in a short span of time,which may limit further upside.Domestic business Soaps: We expect sustainable long-termvolume and price growth in mid-single digits.This segment should benefit from an expectedfall in palm oil prices over the next 12 months. Home care business: This is the most value-accretive part of the domestic business, offeringhigh growth, stable margins and a rationalcompetitive environment which may continue tohelp in maintaining double-digit growth. Hair colour: The launch of Crème Sachet isexpected to bridge a gap in Godrej’s offeringsand accelerate growth in this lucrative segment.International businessWe expect international business growth to remainrobust, as it is buttressed by the ongoing integrationof Darling Group (DGH) in Africa, CosmeticaNacionale (CN) in LatAm and recent acquisition ofthe Soft & Gentle brand in the UK.Sharp execution in Africa and GCPL’s ability tocontain margins in this growth phase could stillprove to be a significant catalyst for the stockprice and help the stock further rerate.14abcConsumer&RetailIndiaConsumer14January201315abcCompanyCompanyCompanyIndian Consumer sector comparisonCompanyBloomberg Ticker RatingCurrencyTarget priceCurrent priceDiff. to TP 52 Week RangeYear End (Month)Shares inissue(m)Market Cap(USDm)HighLowITCHindustan Unilever LtdColgate-PalmoliveTitan Industries LtdNestle IndiaDabur IndiaMarico IndustriesGodrej Consumer ProductsITC INHUVR INCLGT INTTAN INNEST INDABUR INMRCO INGCPL INOverweightOverweightOverweightOverweightNeutralNeutralNeutralNeutralINRINRINRINRINRINRINRINR3465881,7603105,3001332357402734981,5012704,84012622772826.6%18.0%17.2%14.9%9.5%5.5%3.4%1.7%3075801,5783145,0251402507681973759321703,930921443703333123337,8712,161136888961,74364534039,29119,6563,7274,3758,5204,0112,6764,521Valuation Multiples___________________________P/E (x) _____________________________________________________ P/BV (x) __________________________________________________ EV/EBITDA (x) ________________________FY12EFY13EFY14EFY15EFY12FY13EFY14EFY15EFY12FY13EFY14EFY15EITCHindustan Unilever LtdColgate-PalmoliveTitan Industries LtdNestle IndiaDabur IndiaMarico IndustriesGodrej Consumer ProductsAverage34.3x39.9x45.7x39.5x47.6x34.3x43.9x40.4x40.7x28.5x32.6x37.7x32.3x44.9x28.7x35.3x33.4x34.2x23.7x27.8x32.6x25.2x35.5x23.6x28.4x26.1x27.9x20.1x25.1x28.0x20.0x29.0x19.9x23.6x22.2x23.5x10.9x29.3x46.9x16.4x36.6x12.8x12.2x8.4x21.7x10.1x39.4x45.1x12.3x29.1x10.4x7.4x7.6x20.2x9.2x34.8x41.2x9.4x23.8x8.5x6.1x6.3x17.4x8.4x31.4x37.5x7.2x20.3x6.9x5.0x5.3x15.3x22.4x30.3x34.7x27.5x30.7x24.9x30.9x29.3x28.8x18.3x25.6x28.6x21.7x26.5x20.9x22.8x23.7x23.5x15.0x21.3x24.2x16.7x21.3x17.1x19.1x18.3x19.1x12.5x18.0x20.3x13.1x17.5x14.4x15.6x15.2x15.8xIncome Statement_____________________ Revenue (in INRm)________________________________________________ EBITDA _____________________________________________ EPS (reporting currency) ___________________(INR,m)ITCHindustan Unilever LtdColgate-PalmoliveTitan Industries LtdNestle IndiaDabur IndiaMarico IndustriesGodrej Consumer ProductsFY12261,795229,87726,23988,48474,90852,83239,68248,509FY13E308,781267,60731,194102,26983,89963,26548,07563,893FY14E360,645309,40836,887126,641100,71573,37456,89676,695FY15E418,711355,97243,349152,231120,56784,55466,68790,124FY1292,09834,8365,7858,36315,3738,9024,8448,759FY13E111,87541,4717,01310,47517,96010,5086,62710,914FY14E134,82949,5018,29613,40422,19612,6247,73814,187FY15E160,20058,1879,85016,75526,73814,7329,17616,691FY128.012.532.86.8101.63.75.218.0FY13E9.615.339.98.3107.84.46.421.8FY14E11.517.946.110.7136.25.38.027.9FY15E13.619.853.613.5167.06.39.632.7Average102,791121,123142,658166,52522,37027,10532,84739,041Growth Rates & Margins___________________ Revenue (Growth y-o-y) __________________________________________EBITDA Margins ______________________________________________ EPS (growth) ________________________FY13EFY14EFY15E2-Yr CAGRFY12FY13EFY14EFY15EFY13EFY14EFY15E2-Yr CAGRITCHindustan Unilever LtdColgate-PalmoliveTitan Industries LtdNestle IndiaDabur IndiaMarico IndustriesGodrej Consumer ProductsAverage17.9%16.4%18.9%15.6%12.0%19.7%21.1%31.7%19.2%16.8%15.6%18.2%23.8%20.0%16.0%18.3%20.0%18.6%16.1%15.0%17.5%20.2%19.7%15.2%17.2%17.5%17.3%17.4%16.0%18.6%19.6%16.0%17.8%19.7%25.7%18.9%35.2%15.2%22.0%9.5%20.5%16.8%12.2%18.1%18.7%36.2%15.5%22.5%10.2%21.4%16.6%13.8%17.1%19.2%37.4%16.0%22.5%10.6%22.0%17.2%13.6%18.5%19.7%38.3%16.3%22.7%11.0%22.2%17.4%13.8%18.5%20.0%20.5%22.2%21.4%22.3%6.0%19.2%24.3%21.1%19.6%20.2%17.4%15.5%28.2%26.4%21.8%24.4%27.8%22.7%18.2%10.7%16.3%26.2%22.6%18.6%20.2%17.4%18.8%20.3%19.8%18.5%25.2%15.8%20.5%24.4%24.4%21.1%Note Priced at close of 11 January 2013. Source: Bloomberg, HSBC estimates16Consumer & RetailIndia Consumer14 January 2013This page has been left intentionally blankabcConsumer & RetailIndia Consumerabc14 January 2013Appendix17Earninggrowth18Consumer&RetailIndiaConsumer14January2013abc12%11%10%9%7%22xROE22%-1%4%2%term.14%7%Anatomy of ITC’s growth expectation; ITC valuation multiples still compellingRevenue Profitshare ShareFMCG - Cigarettes:Largest revenue (49%) and profit pool (82%).Grow th driver: cigarette volumes to benefit fromGutka ban in several states and potential volumeKey Issues: Ta xation and regulatory issue sRevenues and profits have grown in double digits in thelast decade despite modest volume growth, curbed bypunitive taxation. Pricing power and modest8%FY14 PE26x24x49%82%upside from 64mm cigarettes which ITC will continueto push across markets.The fact that despite the steep price increases takenin April last year in the perceivably price sensitivevolume segments (almost 60-70% of total volume),volume growth has remained in flat to positive petition should help sustain momentum. Taxationis likely to continue to increase in line with the realGDP growth rate but we don’t rule out periods ofabnormal tax increases. Note that volume sensitivity toprice increases appears to have fallen considerably inthe last decade.This signals the shape of overall of the price elasticity,which was never tested in the recent times as largerCompetition is limited as there is ban on advertisingand FDI. W e don't expect the picture to change much.6%5%15%25%35%45%55%65%price hikes in past were limited chiefly to premiumsegments.FMCG - Others: The food business benefits from ITC’sagricultural supply chain and has significant costadvantage over competitors. The company has quicklygained a dominant market share in the branded AttaKey Issues: Personal products and lifestyle retailingare challenging categories and will take longer to beprofitable.Personal care is an attractive category but it requiresKey positives w ith ITC's Investment Ca seCigarettes to remain the core value driver; double-digitrevenue and EBIT growth to sustain, even as taxationremains punitiveSome 75% of the 'other' FM CG business benefits from thecore capabilities of ITC. The double-digit revenuemomentum, scale and improvement in volume mixshould improve margins and profitability.Agri business is strategic and provides backward linkagesto staples and cigarettes.Despite significant re-rating, w e find valuation still quitecompellingM ultiple re-rating in our view is driven by significantupward change in the EBIT growth trajectory of Cigarettesto 20% in the last six quarters from 16% in the previous sixdriven by ITC pricing power and mix improvement despitethe ongoing punitive taxation and in our view this growthtrajectory is likely to sustain.Our implied growth trade off model suggests thatexpectation built in the current multiples are quite realisticand that multiples de-rating is unlik ely as earnings growthshould remain strong.market and continues to premiumise its portfolio ofbiscuits. W hile its noodles too have gained a sizeablemarket share.Hotels: W e expect FY13e to remain challenging forthis segment, but +17% additions in room capacityowing to launch of ITC Grand Chola in Chennai inSeptember should help the top line going forward,though margins may remain under pressure in shortAgri Business: In-house demand and sourcing abilitythrough e-Choupals gives the agri business acompetitive edge and helps the business maintain arelatively steady pace in a volatile industry.Pape rboards, paper and packaging: Increasingurbanisation, favorable demographics and bettereconomic growth prospects suggest the outlook ispositive. ITC benefits from its education and stationerybusiness. Consumption driven structural demand willeconomies of scale to justify A&P expenses.Lifestyle retailing business has high operating costsand competition is strong.Ke y issues: In recent quarters, ITC registered modesttop line growth while margins collapsed, reflectingongoing adverse impact of tough macroeconomicconditions and increased room supplies in majorIndian cities.Key issues: Internal sales account for 38% of the agribusiness gross sales (mainly cigarettes and packagedfood). W e expect double-digit volume growth inpackaged food, which in turn helps drive the top-linegrowth of the agri business other than exportsKey issues: Significant cost inflation, primarily inwood, adversely impacted the segment margins inrecent quarters.benefit ITC owing to its dominance in value addedpaperboards, branded copier paper and fine paper.Source: HSBCConsumer&RetailIndiaConsumer14January2013Earninggrowthabc1912%11%31x10%29x8%29%48%11%10%6%1%Anatomy of HUL’s growth expectation; HUL valuation multiples likely to sustainFY14 PERevenueshareProfitShareSoaps and Detergents:Largest contributor to group revenue (49%)Sustainable volume grow th 6-7%Growth driver: In soaps business, premiumisationKey Issues: This is a mature category, with low marginsand in our view HUL has emerged as a price shaper in acompetitive market which continues be more rationalthan its notorious past.trend is picking up and Palm Oil prices have easedWe see low palm oil costs will continue to aid S&D9%26x49%41%significantly. In our view, HUL strategically will prioritisevolume growth over margin expansion, should it need tochoose. In detergents business, although pricingsupport will wean off in the next 2-3 quarters, butpremiumisation trends are supportive of double digitmargins but admittedly A&P spend will continue to stayelevated as well. Hence we expect margins to modestlyexpand yoy in the next two quarters.revenue and EBIT growth sustainably.7%50%60%70%80%ROE90%100%110%Personal products(PP):Largest contributor to group operating profits (48%)Sustainable volume grow th in low double digits.Grow th driver: Increase in penetration rate, rise in perKey Issues:CSD inflicted slowdown in volume growth is morepronounced in PP, which has a higher salience in CSDsales, but after a cycle of 2-3 quarters, the base for thecapita consumption and premiumisation are the majorgrowth drivers.volume growth is likely to get readjusted and we expectlong-term growth momentum to sustain. Therefore,Key positives w ith HUL's Investment CaseWe believe the Canteen Stores Department (CSD) channelbudget rationalisation may impact short-term volumegrowth , but as a distribution channel issue it should havean impact for one cycle only. This doesn’t change thevolume growth trajectory of HUL’s personal productsportfolio and we expect long-term growth momentum tosustain.Soap & Detergents(S&D) growth going forward should havelesser pricing element, which we had highlightedpreviously that the base effect in S&D is less benign goingforward, but a sharp decline in palm oil prices hascontinued to favor margin expansion.Why multiples are likely to sustainWe highlighted the case for multiple expansion for HUL ininitiation thematic personal Touch Dec 7, 2011,underpinned by HULs' aggressive approach towards itsbrands, pace of innovation, distribution depth, categoryexpansions has generated double digit earning momentumfrom past few quarters. Focus on volume and market sharereflects in strategic choices HUL makes, it deters price warsby demonstrating long commitment to defend (in S&Dspace), focuses on attractive packaged foods business asnext engine for growth continues to assert its scaleadvantage in personal products. We believe double digitearnings are now here to stay, and recent rerating nowreflects this success. But contraction of multiple is stillunlikely as strong volume led growth continues.Note: ‘Other’ businesses account for rest of the revenue and profitsSource: HSBCPace of innovation and scale make HUL much betterpositioned relative to the competition in the market placeand in the PP category cost economics. We expectvolume led double-digit growth across mostsubcategories and brands of hair care and skin care.Beverages: It is a commodity linked category w ithlimited scope of margin expansion.HUL is the market leader in the tea segment andfocuses on premiumisation as the volume growth in thiscategory is modest. The premium category is still below10% of the market and secular value growth will comefrom volume mix improvement.HUL has gained volume leadership in instant coffeesegment through Bru brand. Coffee consumption is onthe rise owing to evolving café culture which should helpin maintaining high single digit revenue growth.Packaged Foods: continues to struggleSegment is low margin. Nearly 50% of the revenue in thissegment comes from canned fruit and vegetables,essentially the Kissan and Knorr brands. HUL is marketleader in soups and jams with Kissan brand. In the nearterm business to witness a moderation growth rates, butin long term, HUL needs to re-invent its food strategyotherwise it will continue to be drag.despite the apparent slow dow n in short termvolume grow th in PP, w e don’t foresee multiplesde-rating.Key issues: Tea is a highly penetrated category andpackaged tea volumes are growing in low single digits.Around 40% is still sold loose but this will decline asurbanisation and income levels increase. Commodityprices volatility is a major issue and margins arerelatively lower.Overall we expect long term earning growth will be just atthe threshold to meet the required growth rate to justifycurrent multiples.Key issues: HUL’s performance in this area has beenpatchy. It previously dabbled in a few product launchesthat failed to pick up momentum. Although the segmentis a priority, it doesn't appear to be one of the corecapabilities with HUL portfolio.Earninggrowth20Consumer&RetailIndiaConsumer14January2013abc16%15%14%13%40x9%8%28%14%Anatomy of Nestle India’s growth expectation; Nestle India’s valuation multiples likely to sustain12%CY13 PE36xRevenueshare45%Milk products and nutrition:Largest revenue contributor (45%)Sustainable volume growth 7-8%Growth driver: Nestle has leadership and pricingpower. Increase in per capita consumption coupledwith new users should lead to sustainable volumegrowth. We expect volume and price growth will be inhigh single digits and this should continue in themedium to long term.Key Issues: cost inflation is a key concern as freshmilk prices, which account for more than 25% ofNestle India’s overall raw material cost, are growing indouble digits since last 5 years. Nestle followed thestrategy to pass on all the cost pressure toconsumers in its efforts to protect margins, which inturn has impacted the volume growth.11%32x10%Beverages: This segment remains one of the concernareas, as Nestle’s external sales in this segment wasin single digit, while volume remained flat and productKey Issues: We estimate that overall segmentperformance, including exports, was rather dismalgiven this category accounts for the majority of40%50%60%70%80%90%mix improvement benefit was also very modest.exports and overall exports have growth at c4% in 9MROEKey positives with Nestle's Investment Case13%From long term perspective, we believe coffee volumegrowth will be higher than the Tea, as out-of-homeconsumption of coffee is increasing, backed bychanges in age and income demographics.CY12.We expect cost inflation in key inputs may continueto hurt volumes if Nestle stick to its preference ofmargin over volume.We believe current slow growth period, in which Nestle isfine tuning its long term strategy, is a brief pause andreflect consolidation phase and we expect Nestle India’scurrent strategic focus may fetch long term dividendsFurther rerating is difficultHigh growth expectations are built in to current valuationmultiples as Nestle should grow its earnings by 12% forthe next 15 year (beyond 2014). Even though we believethat Nestle on an average can deliver on theseexpectations, margin of comfort is perhaps missing, whichin our view will deter Nestle's further re-rating.Conversely, any short fall on volume growth expectationcan potentially trigger de-rating.In our view, chances of that happening are remote, weexpect limited upside from here, even though we areconfident that Nestle can deliver c23% earning CAGR inCY 12e-14e.Prepared dishes and cooking aids:Primarily a volume driven segmentWe expect the category dynamics will unlikely changesignificantly in the medium term and this segment willcontinue to experience volume led double-digit growth.Nestle is market leader in instant noodles, ketchupsand No 2 in healthy soups. Competition is increasingbut Nestle has maintained its dominant share.Chocolate and confectionary: In 9M CY12, segmentregistered low single digit value growth, according toour estimates. Volume decline was in double digit butproduct mix improvement helped to offset the impact ofKey issues: We expect strong growth to continueowing to growing acceptance by consumers andincreasing reach through popularly positioned productsat lower price points.Key issues: Sugar prices have increased in doubledigit since Q2 CY12, which may require further pricehikes, if commodity prices persist at elevated level.volume de-growth. Segment real internal growth (RIG),a metric which measures the combined impact ofvolume growth coupled with change in product mix,was positive reflecting focus on premium SKUs.Source: HSBCConsumer&RetailIndiaConsumer14January2013Earninggrowthabc2118%16%24%14%12%14%10%24x8%20x6%ROE14%9%6%5%5%Anatomy of Dabur growth expectation; Dabur valuation multiples unlikely to expand furtherDomestic(c67% of revenueand 73% of Profit)FY14 PE28xRevenue share17%Hair Care: Dabur has a strong and differentiatedposition in the hair oil as well as the necessary scale.Shampoos still remain vulnerable as Dabur’s presenceis subscale and competitive intensity is high.Health Supplement: Dabur may continue to registersteady revenue growth and stable margins as its scaleand leadership and its core capabilities on the Ayurvedaplatform give it sustainable competitive edge.Food(Fruit Juices): Dabur has created a strongdefense in this category owing to its scale and reach,which may continue to help Dabur in registering volumeled double digit growth in medium term.Key Issues: Persistent input price inflation resulted inprice hikes which in turn impacted the volumes growth,but Dabur has strong brand equity and leadership(Dabur Amla) and is going for category extension.Key Issues: Dabur is natural winner in this categoryand as income levels continue to rise, this categoryshould sustain the rate of secular growth.Key issues: Competition is moderate owing to thevirtual duopoly of Dabur and Pepsi (Tropicana brand).Strong growth momentum and low margins give noincentive for price competition.20%25%30%35%40%45%Oral Care: We believe Dabur is losing overall valueKey issues: Dabur has a niche position in thismarket share, as it's performance is quite inferior tomarket leader Colgate, while HUL also registereddouble-digit growth in the segment.s egm ent, m ay have a loyal custom er base which, in ourview, is unlikely to grow subs tantially. We expect highs ingle/low double digit growth on a sus tainable bas is.Key positives with Dabur's Investment CaseA&P-led volume focus is astute and volume growthmomentum has helped Dabur’s stock re-rate in the lastfew months. Dabur recognises the challenge of HPCcategories, and is trying to capture the pie through deeperrural distribution level, nearly similar to what HUL doeswith its project Shakti.But why multiples are unlikely to expandOral care (14% of domestic revenues) is struggling andpace of innovation has significantly increased in thecategory, Dabur, too, is recalibrating its offering in Oralcare and looking for profitable growth but Dabur remainsweak in this segment.In skin care, the focus remains niche rather thanconfronting MNC incumbents in mass categories, hence,growth continues but success in broader skin caresegment is unlikely. Home care segment too needsOTC & ETHICALs: Dabur’s business includes genericand branded supplements and wellness products.Dabur is expanding its OTC product portfolio andlaunching new products in emerging therapeutic areas.Digestives: Dabur's flagship Hajmola brand commands56% market share. Competition in this category ismodest and Dabur has a clear lead over its competitorbrand Satmola.HomeCare: The homecare market is modern tradedriven business with good potential. Dabur, with fewerproducts, doesn’t stack up competitively and itsvulnerable in the long run.Skin Care: Dabur's competitive position is generallyniche. Niche Products such as Fem, are likely tocontinue to perform well with double-digit growth butbuilding scale in broader skin care is tough.Key Issues: Dabur has niche Ayurvedic and herbalpositioning and we believe the segment will continue togrow in double digits.Key issues: We expect high single digit revenuegrowth in this segment as volume growth is slowingdownKey issues: Dabur is up against bigger rivals such asReckitt, who have a wide range of homecare products andus es bundling to cross s ell and up s ell products . Dabur isals o likely to face stiff com petition from private labels.Key Issues: we are skeptical about Dabur's chancesof success in the broader skin cream category amidintense competition from multi-nationals and the rapidpace of innovation.broader product line up and is likely to face stiffcompetition from private labels.Despite the structural challenges Dabur faces in somecategories, our implied growth valuation trade off modelsuggests that long term earnings expectation built in theprice are realistic, hence we have Neutral rating.InternationalBusinessRevenue Profitshare Share33% 27%International business: This division has startedregistering strong growth due to increased penetrationas well as market share gains. But it is relatively lowermargin business and will need significant investments.Key Issues: Namaste business in the US is strongbut to expand it overseas will be a tough task. The USmarket is showing steady growth but we believe thateven though attractive opportunities may be available inAfrica, Dabur will be required to make significantinvestments and needs time to benefit from thisopportunity.Note: ‘other’ businesses account for c6% revenue in domestic business.Source: HSBCEarninggrowth22Consumer&RetailIndiaConsumer14January2013abcshare24%20%18%16%14%12%10%ROE5%3%25%19%27%20%11%8%Anatomy of Marico’s growth expectation; Marico valuation multiples likely to derateDomestic(c70% of revenueand 90% of Profit)Revenue ProfitShareCoconut oil: Largest domestic revenue (49%) andprofit pool (66%). Sustainable volume grow th 7-8%Grow th driver: market share gains from fragmentedplayers, Parachute brand is strong with limitedKey Issues: input price volatility is significant,inflationary prices not easy to pass through and thereis risk of down tradingEBITDA margins highest of all categories but falls22%49%66%competition.short in long term growth expectationsEdible Oil (Saffola): Modern trade driven, Saffola hasstrong brand positioning and dominant market share inpremium oils. Volume growth is sustainable in theKey Issues: Premium positioning but limitedpricing pow er. EBITDA m argin is in s ingle digit. Inputprice inflation is pers is tent and difficult to pas s through.FY14 PE21%11%range of 12-13%, however the market is becomingincreasingly fragmented.Fragm ented m arket as product has lim ited differentiation.Volum e can grow, but m argin expans ion lim ited32x29x25x25%20%Value added Hair Oils: robust volume growth closeto mid teen is sustainable, Marico has 25% volumemarket share which is up from 17% in FY07 driven bymarket share gains by Shanti Amla, where Maricocontinues to be a price aggressorKey issues: Marico's value added portfolio is solid andoffers good gross margins, but EBITDA margins arearound 14% as A&P spend in the category is alsohigh. Nonetheless, this is attractive category and itcan easily meet growth expectations10%14%18%22%26%30%Personal Grooming (ex Paras) and Functionalfoods: Paras acquisition strengthened Marico'spersonal care business significantly. Marico’s entryKey issues: We think Paras acquisition is valueneutral to marginally positive to Marico, consideringthe significant upfront cost of acquisition. FunctionalKey positives w ith Marico's Investment CaseCore business of Coconut oils has solid margins,sustainable growth and limited competition and remainscore value driverInternational(c23% of revenueinto functional foods (muesli, oats), leveraging theSaffola brand, offers strong growth opportunities.food is a good start but it is unlikely to be a game-changer due to very small contribution to overall group.Value added Hair oil is attractive, sustainable volumegrowth is in double digits and M arico is gaining marketshareBeauty and wellness focus is a long term positive, andinternational expansion strategy is sensible.But w hy multiples are likely to derateGrowth expectations built in to current valuation multiplesare significant. M arico should grow its earnings by c17%for the next 10 year (beyond 2015). W e estimate two thirdof the profit pool of M arico may fall short on deliveringthese expectations.75% of the group profit pool is exposed to significantcommodity price volatility. Even though theoretically thegrowth may be robust in category such as Saffola edibleoils, input price volatility makes that growth less valuable.Foray into functional food is attractive, but it will takelong time to generate scale and threshold profitabilityand c16% of Profit)Revenue Profitshare Share37% 53%Bangladesh: 90% of revenues are from Coconut oil,Marico has 80% market share in branded coconut oil ,hence sustainable volume growth is in low singledigits. Value added oil is growing from low base, butare still insignificant overall.South East Asia: Vietnam is main geography throughICP acquisition, offers good growth and reasonablemargins. Cross pollination opportunities are limitedspecially in edible oil space.Middle East: Marico is market leader in the haircream category in GCC with c27% market share.Marico’s brands Fiancée and Hair Code togetheraccount for 57% market share in Egypt’s hair stylingmarket and it successfully defended its market share.South Africa: Business is subscale and low margin.Admittedly, this offers presence in Africa but is toosmall and shallow as base for long term growthoptions unless significant investments are made.Key Issues: Margins are low and are nearly two thirdthat of India's coconut oil business, and input pricesare difficult to pass on. From growth expectationsperspective, Bangladesh significantly falls shortKey issues: Mass market positioning, but leadershipin male shampoos. Sustainable growth is doubledigits and meets its share of expectations, but itssalience overall is small and can help little to improvethe overall picture.Key issues: MENA market has good potential and inthe long term, Marico should benefit from localmanufacturing in Egypt despite short term disruptionsdue to political unrest in the region. Cross-pollinationshould help in sustainable double-digit growth.Key Issues: A significant part of operating profit isused in servicing the debt ,therefore, contribution tointernational operations bottom line is almostnegligible.Note: Above analysis excludes Kaya which makes up c7% of group revenue and negative profitsSource: HSBCConsumer&RetailIndiaConsumer14January2013Earninggrowth23abcshare22%20%18%14%12%27xROE47%47%27%33%19%11%9%6%Anatomy of Godrej’s growth expectation; Godrej valuation multiples unlikely to expand further16%FY14 PE30xDomestic(c56% of revenueand 62% of Profit)Revenue ProfitShare37% 35%Soaps:Sustainable long-term volume and price growthin mid-single digitsGrowth driver: market share gains from fragmentedplayers as new product launches, backed by A&P,help to register strong growth.Hair Colour: Crème Sachet based launch is expectedto bridge the gap in Godrej Offering and accelerate thegrowth in this lucrative segment, which is growing inKey Issues: Highly penetrated categorySoaps penetration is about 90% across urban andrural markets but GCPL continues to outperform withstrong double digit growth. in short term, this segmentstands to benefit from the recent fall in palm oil priceswhich should aid to the margins but the sustainablevolume growth is in low to mid single digitsKey Issues: Struggling segment in the recent past aspowder format is losing market share to crème basedcolorant. With aggressively priced Godrej Crème10%24x11%13%strong double digits.colorant, hair color growth profile can now rebound toorganic growth range of 15-20%8%10%15%20%25%30%35%Home care and Others: HI business benefits fromincreased distribution reach post GCPL merger withGHPL. Recent Air care launch to further lift the growthtrajectory of this segment. We believe potential launchKey issues: The most value-accretive part of thedomestic business, offering high growth, stablemargins and a rational competitive environment whichhelp to maintain double digit growth. This is the largestKey positives with GCPL's Investment CaseGCPL performed exceptionally well in CY12 (up 96%)against the FM CG sector (up 53%). GCPL's significantrerating in our view has been driven by 1) sustainedoperational performance and 2) infusion of equity byTemasek, which helped deleveraged the balance sheet andInternational(c44% of revenueof Hit magic may give favorable push to GCPL’s homecare growth trajectory in medium term.value driver of domestic FMCG businessallowed financial flexibility to execute the growth strategy,3) broader acceptance of GCPL’s 3x3 strategy that alsofeeds into the GCPL’s target of 10 times revenue in 10years.But why multiples expansion cycle is now complete inour viewGCPL's focused approach towards expansion into marketsin Asia, Latin America and Africa while staying within itscore capabilities has generated double digit earningmomentum from past several quarters. This has resulted inpositive shift in growth profile of GCPL and hence theexpansion of multiples till 27x.(FY14e)Further expansion of multiple in our view is unlikely asthe implied growth(organic) in valuation of c16% havestarted bordering on organic expectation range of it's10x10 strategy (an implied CAGR of 26%. organic growthof 15-20%, balance inorganic) which in our view includeand c38% of Profit)Revenue Profitshare Share44% 51%Asia : The Megasari group’s, GCPL’s Indonesiansubsidiary, performance continues to rem ain impressiveas new products launches, distribution expansion andA&P helped to m aintain strong growth trajectory. Revenueand profit growth rem ains in double digits sustainably.Africa: The Africa business continues to grow in highteens on like-to-like basis and should further benefitfrom recent HI launch in Nigeria. We estimate atarget size of USD150-200m for the African HI market,which has grown at c10% CAGR in the last 3 years.Latin America: We expect GCPL’s Latam operationswill further benefit from the integration of GCPL’srecent acquisition of Cosmetica Nacional (CN) in theregion and we expect double digit growth momentumcan continue.Key Issues: Megasari is benefiting from econom y ofscale in raw m aterial sourcing, increased autom ationprocess and improved operating efficiency. In lastquarters, Megasari gained market share across m ajorcategories and registered highest ever m arket share inHIT aerosol and Stella aerosol.Key issues: Affordability is still an issue in theAfrican market, which is important for scalability.GCPL is likely to tap the mid to mass end of themarket given its experience in India and othermarkets.Key issues: EBITDA margin remains under pressureowing to ongoing restructuring in Latam business.We expect margins to expand, as GCPL is workingon improving the operating efficiency of Latamoperations.even opportunities of cross pollination to a large extent.While growth momentum remains impressive, stock offerslimited upside with a 12 month view. Pace of execution inAfrica will be important milestone in buttressing market'ssupport of GCPL's acquisition led growth approachNote: ‘other’ businesses account for balance revenue and profit in domestic and international businesses.Source: HSBCUK: Innovation led new product launches buttressedby A&P helps to maintain growth momentum. Recentacquisition of Soft & Gentle brand in UK should furtherincrease the scale, and a realise cost synergies inindirect costs.Key Issues: Matured market and tough macro-environment.Consumer & RetailIndia Consumerabc14 January 2013Disclosure appendixAnalyst CertificationThe following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that theopinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect theirpersonal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specificrecommendation(s) or views contained in this research report: Amit Sachdeva and Erwan RambourgImportant disclosuresStock ratings and basis for financial analysisHSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, whichdepend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations.Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunitiesbased on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon;and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative,technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating.HSBC has assigned ratings for its long-term investment opportunities as described below.This report addresses only the long-term investment opportunities of the companies referred to in the report. As and whenHSBC publishes a short-term trading idea the stocks to which these relate are identified on the website Details of these short-term investment opportunities can be found under the Reports section of thiswebsite.HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor'sexisting holdings and other considerations. Different securities firms use a variety of ratings terms as well as different ratingsystems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each researchreport. In addition, because research reports contain more complete information concerning the analysts' views, investorsshould carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should notbe used or relied on in isolation as investment advice.Rating definitions for long-term investment opportunitiesStock ratingsHSBC assigns ratings to its stocks in this sector on the following basis:For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate,regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stockto reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, thepotential return, which equals the percentage difference between the current share price and the target price, including theforecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months(or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must beexpected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage pointsfor a stock classified as Volatile*). Stocks between these bands are classified as Neutral.Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatilitystatus or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review,expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarilytriggering a rating change.2446%17%51234567891011Consumer & RetailIndia Consumerabc14 January 2013*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However,stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the pastmonth's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating,however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.Rating distribution for long-term investment opportunitiesAs of 14 January 2013, the distribution of all ratings published is as follows:Overweight (Buy)(29% of these provided with Investment Banking Services)Neutral (Hold)Underweight (Sell)37%(27% of these provided with Investment Banking Services)(22% of these provided with Investment Banking Services)Information regarding company share price performance and history of HSBC ratings and price targets in respect of its long-term investment opportunities for the companies the subject of this report,is available from & Analyst disclosuresDisclosure checklistCompanyCOLGATE-PALMOLIVEGODREJ CONSUMER PRODUCTSHINDUSTAN UNILEVER LTDTITAN INDUSTRIES LTDTickerCOLG.BOGOCP.BOHLL.BOTITN.BORecent price1501.20727.65498.10269.90Price Date11-Jan-201311-Jan-201311-Jan-201311-Jan-2013Disclosure1, 5, 6, 7, 111, 51, 5Source: HSBCHSBC* has managed or co-managed a public offering of securities for this company within the past 12 months.HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next3 months.At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by thiscompany.As of 31 December 2012 HSBC beneficially owned 1% or more of a class of common equity securities of this company.As of 30 November 2012, this company was a client of HSBC or had during the preceding 12 month period been a clientof and/or paid compensation to HSBC in respect of investment banking services.As of 30 November 2012, this company was a client of HSBC or had during the preceding 12 month period been a clientof and/or paid compensation to HSBC in respect of non-investment banking securities-related services.As of 30 November 2012, this company was a client of HSBC or had during the preceding 12 month period been a clientof and/or paid compensation to HSBC in respect of non-securities services.A covering analyst/s has received compensation from this company in the past 12 months.A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, asdetailed below.A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of thiscompany, as detailed below.At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or insecurities in respect of this companyAnalysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investmentbanking revenues.For disclosures in respect of any company mentioned in this report, please see the most recently published report on thatcompany available at HSBC Legal Entities are listed in the Disclaimer below.25123Consumer & RetailIndia Consumerabc14 January 2013Additional disclosuresThis report is dated as at 14 January 2013.All market data included in this report are dated as at close 11 January 2013, unless otherwise indicated in the report.HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with itsResearch business. 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MICA (P) 038/04/2012, MICA (P) 063/04/2012 and MICA (P) 206/01/201227abcGlobal Consumer Brands & RetailResearch TeamEuropeConsumer Brands & RetailAntoine BelgeHead of Consumer Brands and Retail Equity Research+33 1 56 52 43 47 antoine.belge@AsiaConsumer Brands & RetailErwan RambourgHead of Consumer Brands and Retail Equity Research+852 2996 6572 erwanrambourg@.hkSophie DargniesAnalyst+33 1 56 52 43 48Cedric BesnardAnalyst+33 1 56 52 43 66Florence DohanAnalyst+44 207 992 4647Jérôme SamuelAnalyst+33 1 56 52 44 23sophie.dargnies@cedric.besnard@florence.dohan@jerome.samuel@Chris ZeeAnalyst+852 2822 2912Christopher LeungAnalyst+852 2996 6531Lina YanAnalyst+852 2822 4344Catherine ChaoAnalyst+852 2996 6570Karen Choichriscmzee@.hkchristopher.k.leung@.hklinayjyan@.hkcatherinefchao@.hkEmmanuelle VigneronAnalystAnalyst+822 3706 8781karen.choi@+33 1 56 52 43 19Paul RossingtonAnalyst+44 20 7991 6734LeisureLena Thakkaremmanuelle.vigneron@paul.rossington@Jena HanAssociate+822 3706 8772Sean MonaghanAnalyst+65 6658 0610jenahan@seanmonaghan@.sgAnalyst+44 20 7991 3448CEEMEAlena.thakkar@Permada (Mada) DarmonoAnalyst+65 6658 0613 permada.w.darmono@.sgConsumer Brands & RetailMichele OlivierAnalystThilan WickramasingheAnalyst+65 6658 0609 thilanw@.sg+27 11 6764208michele.olivier@Abel LeeAnalystSpecialist Sales+8862 6631 2866Amit Sachdevaabelchlee@.twLynn Raphael+44 20 7991 1331lynn.raphael@Analyst+91 22 2268 1240amit1sachdeva@hsbc.co.inDavid HarringtonNorth & Latin America+44 20 7991 5389david.harrington@Consumer & RetailFrancisco J ChevezAnalyst, Latin America & US+1 212 525 5350francisco.j.chevez@Stewart RagarAnalyst+1 212 525 3460stewart.h.ragar@Manisha A ChaudhryAssociate, Latin America & US+1 212 525 3035manisha.a.chaudhry@BeveragesLauren TorresAnalyst, Global Beverages+1 212 525 6972lauren.torres@James WatsonAnalyst, Global Beverages+1 212 525 4905james.c.watson@Food & Agricultural ProductsPedro HerreraAnalyst, Global Food & Agricultural Products+1 212 525 5126pedro.herrera@Ravi JainAnalyst, Global Food & Agricultural Products+1 212 525 3442ravijain@Diego T MaiaAnalyst, Food & Agricultural Products, Brazil+55 11 33718192diego.t.maia@.brHousehold DurablesFrancisco SuarezAnalyst, Household Durables, Mexico+52 55 5721 2173francisco.suarez@.mxBerenice MunozAssociate, Household Durables, Mexico+52 55 5721 5623berenice.munoz@.mx。