hair oil note - on a slippery slope.pdf
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7/24/2019 Hair Oil Note - On a Slippery Slope.pdf
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
Thematic Note on Indian Hair Oil Category
On a slippery slope
March 2014
Find Spark research on Bloomberg (SPAK ), Thomson First Call, Reuters Knowledge and Factset 1
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
FMCG Index vs. Sensex
Executive Summary
Performance (%)
1m 3m 12m
Sensex 5% 4% 18%
Nifty 6% 5% 17%
BSE FMCG 6% 1% 19%
Market data
BSE SENSEX 22095
Nifty 6601
BSE FMCG 6954
Date Mar 27, 2014
Tejash Shahtejash@sparkcapital.in+91 22 4228 8155
Gnanasundaram Sgnanasundar@sparkcapital.in+91 44 4344 0062
On a slippery slope
As Indian consumer begins to emulate west, we have witnessed several traditional categories in the Indianbeauty and personal care (BPC) space struggling for survival. Notably a few categories have not only survivedthis western consumerism onslaught but also managed to find global acceptance. Though sporadic in usage,
several categories such as hair oils have begun to emerge on a global platform as MNCs have begun to showrenewed interest in these offerings.
Indian hair care space continues to be dominated by hair oils despite emergence of several other substituteofferings in terms of gels, serums and conditioners. Coconut Hair Oil (CHO) continues to be the largest sellinghair oil, with growth in this category being driven by conversion from unorganized market. However the shareof coconut hair oil has been stealthily on the downward trend as Value Added Hair Oils (VAHO) have madeinroads into the coconut oil market. We see that VAHO has a definitive advantage considering they are lessexposed to raw material vagaries and command better pricing power than CHO. Given the establishedconversion pattern from CHO to VAHO, it was least surprising that the competitive intensity in the VAHOcategory has increased manifold. Not only did several regional players venture into the category, but MNCs(HUL,LOreal, etc) also began to show renewed interest and launched several brands to have a pie of the VAHOcategory. The early entrants though enjoy unabated market leadership in their respective VAHO categories(Dabur in Amla hair oil, Bajaj Corp in Light Hair Oil (LHO) and Emami in Cooling hair oil) driven by their superior brand strength, value for money offering and wide established reach.
Marico: Marico with a strong presence in the CHO category has begun to feel the pinch as conversion to VAHO gainsmomentum. Limited pricing power due to wide unorganized market and heavy copra cost vagaries is weighing downCHO market. Though present in VAHO markets, market leadership edge as in CHO could be lost in conversion theme.
Dabur: Dabur is the market leader in the Amla hair oil platform, with presence in CHO and LHO too. Dabur Amlagaining prominence as usage and reach of Amla based hair oils increase. Being present vertically across other haircare categories, to end up as key beneficiary if there is a shift away from hair oils to other categories.
Bajaj Corp: Would be one of the key beneficiary of this conversion to VAHO. Market leader in LHO under its BajajAlmond drops (ADHO) brand, it has miniscule presence in Amla and Cooling hair oil space. Heavy reliance on singlebrand ADHO (97% to revenues) could be fatal with competition intensifying in the LHO space.
Emami: Market leader in the Cooling hair oil through its brand Navratna, which contributes to ~25% of its revenues.Though medicinal in nature, wider availability (Salons) and affordability (Sachets) have made them widely popular.
Coverage Universe View: On a relative basis we prefer ITC to HUL among the large caps and prefer Bajaj Corp(BJCOR), Emami (HMN) and Jyothy Labs (JYL) among the small & mid-cap. Stock Calls: ITCBuy (TP:Rs.389), HUL-Reduce (TP:Rs.526), BJCOR-Buy (TP:Rs.253), Emami Buy (TP:Rs.502), DaburReduce (TP:Rs.165), ZYWLReduce (TP:Rs.502), JYL-Buy (TP:Rs.246), GCPL-Reduce(TP:Rs.717), GSKCHAdd(TP:Rs.4632), MaricoReduce(Rs. 214) CLGT- Sell (TP:Rs.991)
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mailto:tejash@sparkcapital.inmailto:gnanasundar@sparkcapital.inmailto:gnanasundar@sparkcapital.inmailto:tejash@sparkcapital.in -
7/24/2019 Hair Oil Note - On a Slippery Slope.pdf
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
Hair quotient in global context
Hair Care as % of global Beauty & Personal Care CY13
Source: Industry , Spark Capital Research
In the global hair care space, conditioner & oils recording strongest growth
Source: Industry , Spark Capital Research
Global Per capita consumption in terms of $ remains in favor of hair care
Source: Industry , Spark Capital Research
Global top 10 hair care brands and their market share CY13
Source: Industry , Spark Capital Research
Skin Care23%
Hair Care17%
Cosmetics13%Fragrances
10%
Oral Care9%
Bath and Shower9%
Others19%
5.2%
5.2%
5.6%
5.7%
5.7%
5.9%
6.1%
6.7%
6.7%
6.8%
7.1%
Bath and Shower
Depilatories
Hair Care
Fragrances
Oral Care
Skin Care
Cosmetics
Sun Care
Deodorants
Men's Grooming
Baby Products
0.7
1.3
2
2.9
5.4
5.8
5.8
6.1
7.7
10.6
14.1
Depilatories
Sun Care
Baby Products
Deodorants
Bath and Shower
Oral Care
Men's Grooming
Fragrances
Cosmetics
Hair Care
Skin CareBrand Company Market share (%)
L'Oral Paris L'Oral 7.6
Pantene Procter & Gamble 7.0
Garnier L'Oral 5.1
Schwarzkopf Henkel 4.4
Sunsilk Unilever 4.2
Head & Shoulders Procter & Gamble 4.0Clairol Procter & Gamble 2.7
Dove Unilever 2.3
Wella Professional Procter & Gamble 1.8
TRESemm Unilever 1.5
Hair care remains a
prominent part of theglobal BPC market,
In a dove hair care
study 75% of the
participants agreed
hair care products
are used to feel
more attractive
(Click for additional
data)
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
What led to rise of hair oils on a global platform
Source: Industry , Spark Capital Research
Rise of the oils - G lobal ly
Since CY2010 hair care markets in Western
Europe and Nor th Amer ican witnessed massive
slowdow n pressure (Click for additional data)
Ever since prominence of Asia Pacific andLatin America is on the rise. Industry
sources predicted 80% of hair care growth inthe next 5 years to come from these markets.
Innovation in line with emerging regioncultural habits
Saloon treatment alternate to priceconscious consumers
HAIR OIL(as ingredient and format)
Garniers Olia oilhair dye
Coconut Oil Argan Oil
Moroccan oiltreatment
LOreal MythicOil Shampoo
Dove hair oiltherapy
Sunflower oil Olive Oil
Conditioners (oils included) recorded the strongestgrowth among hair care offerings as a wide posit ive
response was witnessed in developed markets to oilas ingredient and finished product.
Brands as Mythic oil from LOreal professionnel,Kerastaces Elixir Ult ime and Moroccan Oil recordedimpressive volume offtakes.
Hair oils fast replacing the serums, as oils come withan additional promise of protection and nourishmentwithout compromising on the glossy looks
Customising offerings ataffordable prices remained
the challenge
=
0.3%
2.3%
2.5%
6.0%
6.1%
6.2%
8.6%
0.0% 5.0% 10.0%
Others
2-in-1
Salon
Hair Loss
Colourants
Shampoos
Conditioners & oil
2010 -13 hair care categories CAGR
Sourc e: Indus try , Spark Capital Research
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
GCC
Wide market for hair
oils, given the largeIndian Diaspora.Market beyond theIndian diasporaremains miniscule
(Click for addit ional
data)
Latin America
Given the high salon
pattern in markets as
Brazil, Salon styled
serums and hair oils
typically tend to do
better (Click for
addition al data)
North America
U.S. consumers seem
more comfortable with the
idea of oil for the hair than
for the skin, because hot-
oil hair treatments have
been on the U.S. market
for years(Click for
additio nal data)
Europe
One in five women in Europe now regularly
use a hair oil to do everything from washing off
hard-to-r inse product to condit ioni ng frazzled
hair and giving a glossy finish LOreal study
(Click for addition al data)
Source: Industry sources, Spark Capital research
Africa
Huge unbranded and un-organised market thoughconsidering the availability of
various oils as Argan oil,Olive oil Castor oil, jojoba oil,avocado oil, virgin coconutoils (Click for addition al data)
Hair oil has taken off globally though usage remains sporadic
5
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
18%
29%
30%
30%
47%
50%
54%
0% 10% 20% 30% 40% 50% 60%
Hair care
Color Cosmetics
Deodrants
Mens Grooming
Oral Care
Bath & Shower
Skin care
2
3
34
6
7
9
11
12
15
0 2 4 6 8 10 12 14 16
Baby
Men's Grooming
CosmeticsOral Care
Deodorants
Depilatories
Skin Care
Bath
Fragrances
Hair Care
India - Hair care significance in Beauty and Personal care(BPC)
Haircare remains a key constituent of the Indian BPC market (CY13)
Source: Industry data , Spark Capital Research
CY10-13 revenue CAGR of hair care in line with most emerging categories
Source: Industry data , Spark Capital Research
15 players occupying the top 2/3rd of the hair care market (CY13)
Source: Industry data , Spark Capital Research
Indian Hair care market leader commands 17% share (CY13)
Source: Industry data , Spark Capital Research
Bath28%
Hair Care26%Oral Care
13%
Skin Care12%
Men's Grooming7%
Others14%
10.7%13.5% 13.9%
18.4% 19.3% 20.1%22.0%
26.9% 27.4%
39.9%
high number of subcategories within thehair care space, has
led to lot more playersoccupying 2/3rd of the
market
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
Hair oils continue to be the dominant force in Indian hair care
Acceptability and reach makes hair oil the largest category
Source: Industry data , Spark Capital Research
Consolidated hair care segment grew ~20% CAGR from CY10-13.
Source: Industry data , Spark Capital Research
Rural expansion in hair care is limited and presents a great opportunity
Source: Industry data , Spark Capital Research
Penetration too except in coconut hair oils and shampoo remains low
Source: Industry data , Spark Capital Research
Shampoo31%
Value addedhair oil30%
Coconut hair Oil21%
Conditioner2%
Colorants
16%
20%40% 35%
5% 10%
80%
60% 65%
95% 90%
0%
10%20%
30%
40%
50%
60%
70%
80%
90%
100%
Shampoo Coconut hair Oil Value addedhair oil
Conditioner Colorants
Rural Urban
57%
89%
30%
2% 5%
37%
83%
25%
0 2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Shampoo Coconut hair Oil Value addedhair oil
Conditioner Colorants
Urban Penetration Ruralpenetration
15.9%14.4%
21.1%
8.5%
25.0%
20.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
Hair care Shampoo Perfumed Oil Coconut Oil Conditioner Colorants
7
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
Value added hair oils beginning to emerge larger than coconut hair oil
Light Hair Oil gaining traction
Source: Industry data , Spark Capital Research
CY10-13 growth rates suggest that other hair oils growing much faster
Source: Industry data , Spark Capital Research
Share of unbranded has remained largely limited in other hair oil categories
Source: Industry data , Spark Capital Research
Strong market leadership across the four categories.
Source: Industry data , Spark Capital Research
Coconut hair Oil42%
Light hair oil18%
Amla hair Oil17%
Cooling hair Oil11%
Other hair oil12%
8.5%
22.5%
27.7%
14.1%
17.8%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
Coconut hairOil
Amla Based Oil LHO Cooling hair Oil Other hair oil
98%
63%
95% 95% 90%
2%
37%
5% 5% 10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Light Hair Oil Coconut Oil Amla Oil Cooling Oil Others
Branded Unbranded
Category# share(CY13)
Company Leading Brands
Coconut Hair Oil(CHO) 56% Marico Parachute & Nihar
Light Hair Oil(LHO) 59% Bajaj Corp Bajaj Almond Oil
Amla Hair Oil 60% Dabur Dabur Amla
Cooling Hair Oil 55% Emami Navratna Oil, Extra Thanda
VAHO =Light hair oil +Amla hair Oil +
Cooling hair oil +Other hair oil
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
Hair Oil Industry - Overview
Hair Oil (Rs.810bn)
Usage pattern
COCONUT HAIR OIL (~42%)
Daily/ Weekly
AMLA HAIR OIL (~17%)
Daily/ Weekly
LIGHT HAIR OIL(~18%)
Daily
COOLING HAIR OIL(~11%)
Medicinal
Gender appeal Unisex Unisex Unisex Predominantly Male
Geographicalprominence
South, West North, West North,West, East East, South
Land-scapeorientation
Rural - Urban Rural - Urban Urban All
User Class
Across spectrum, mainly SecC & D Mainly Sec B, C & D Mainly SEC A,B Across Classes
Positioning Nourishment, Prewash Nourishment, Prewash Lifestyle, Post-wash Medicinal. Prewash
Slicing/Dicing of the category salience
9
Source: Industry data , Spark Capital Research
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
OrganisedCoconut hair oil
based market(Rs.~34bn)
Unorganisedhair oil market
(Rs.~15bn)
Light hair oil
market
Amla hair oil
market
Other hair oil(Herbal/
Fragrance)
Cooling hair oilCompeting
Substitutes
Triggers
Non sticky value proposition
Rising propensity to spend
Rising niche needs in haircare
Emergence of post washusage pattern
Triggers
Risingdisposableincome
Risingaspirations
Urbanisation
Increasing LUPofferings
Better availability
Serums
Conditioners
Shampoo
Styling gels
Complimentary proposition
#1 Conversion/Premiumization - Conversion to be a key theme in hair oils
10
Sourc e: Spark Capital Research
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
Hair care inIndia
Hair oil inhair care
Popularvariants
Weakeningconsumption
Emergenceof
substitutes
Solution liesin getting
light
Hair has always assumed a key role in Indian beauty context. Anecdotes on hair and beauty evident
in Indian scr iptures
However hair care has predom inantly meant only h air oi ls, oi ls were extensively
used as nour ishment c ondi t ioners.
Popular i ty and us age were dependent on avai lable oi ls, Coconu t
in South Ind ia and Amla in Nor th Ind ia
Usage patterns ho wever got weaker as oi ls led
to greasy looks
Forcing hair oi ls to be largely
pre wash proposi t ion
Light Hair Oi l
breaks the j inx
#1 Conversion/Premiumization - Evolution of hair care
11
Sourc e: Spark Capital Research
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
12.7%
13.6%
13.0%
15.0%
16.0%
18.0%
15.7%
15.7%
15.0%
15.0%
15.0%
17.0%
10.6%
11.2%
12.0%
12.0%
11.0%
11.0%
61.0%
59.6%
60.0%
58.0%
58.0%
54.0%
FY08
FY09
FY10
FY11
FY12
FY13
Light Hair Oil Amla Hair Oil Cooling Hair Oil Coconut based Hair Oil
Weakness Strength Weakness Strength
Value Added hair oil Coconut Oil
#1 Conversion/Premiumization - Light hair oil seems key beneficiary
12
Source: Industry data , Spark Capital Research
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
Toilet Soap 95.7% Rs.110bn
Specific bath
& showerofferings
15% One bar forentire family
Body wash,
Hair wash,Hand wash
Laundry 90.2% Rs.150bnMatic and
conditioners10%
Largely Barand powder
Fabricconditioners
Hair Oil 74.5% Rs.81bnNew usage
patterns18% Pre wash Light hair oils
Toothpaste 72.8%Rs.55bn
Niche
offerings16%
Daily, low
awareness
Sensitiveofferings,
Mouthwash
Shampoo 60.4% Rs.49bnVariantslaunch
20%Sachets anddaily usage
Anti Hair fallpackages
TalcumPowder
51.0% Rs.18bnSpecific
positioning14%
Cheapersubstitute fordeodorants
Cool talc,Deodorants
Highly penetrated categories beginning to look for alternate niche categories for growth.
Source: Industry data , Spark Capital Research
Category ~# penetration ~Market Size ~FY11-13 growth New Growth d rivers Usage pattern Niche new categories
Emergence of Newand Niche categories
Given the VFM mind-set, pricing increasescould lead to share
loss
Unorganised & MNCprice wars though
limit pricing flexibility
Despite highpenetration per capitavalue usage remains
low.
LUPs though havealso led to lower
margins
High penetrationachieved through
LUPs and distribution
#1 Conversion/Premiumization - Failing to innovate is Innovating to fail
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
#2 Sourcing/Pricing power - Integrated supply in CHO pressurizing margins
Raw materials are either agri-based or commodity based
Source: Industry & Spark Capital Research
Measure Coconut Hair Oil (CHO) Light Hair Oil (LHO) Amla Hair Oil Cooling Hair Oil
Key Raw Material Copra Light Liquid Paraffin Oil (LLPO) Vegetable Oil Mentha Oil
Agri / Chemical Agri commodity Chemical Agri based Agri Commodity
Key Driver Coconut/Copra Brent Crude Palm/soya Mentha Leaves
Imported Local Local Imported Local/Imported Local
Imported From NA Imported by smaller players Imported by smaller players
Production: India world (73%),
China (18%) followed by Braziland US.
Locally sourced atIndividual farmers and Coconut
Development Board (CDB)NA NA
UP, Punjab, Haryana , Himachal& Bihar.
Re impact No Yes Yes No
Policy Impact MSP Import Duty bound Import Duty bound Yes
IntegratedSuppliers
Yes No No Yes
Producers Kerala, Tamil Nadu Imported by smaller players Imported by smaller players Traded commodity in MCX, India
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
0
1020
30
40
50
60
70
80
90
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Rs/KG
Vegetable Oil price trend
Source: Bloomberg, Spark Capital Research
#2 Sourcing/Pricing power - How have the commodities behaved?
Coconut oil price trend
Source: Bloomberg, Spark Capital Research
Light Liquid Paraffin price trend
Source: Bloomberg, Spark Capital Research
Mentha Oil price trend
Source: Bloomberg, Spark Capital Research
0
2000
4000
6000
8000
10000
12000
Rs/100kg
0
10
20
30
40
5060
70
80
90
Rs/kg
0
500
1000
1500
2000
2500
3000
Rs/kg
Prices have been high over the past fewmonths due to lower supply, Pricesthough could ease as supplies from
Kerala CBOT hit market.
LLP prices at record high levels,BJCOR management though
indicated that price would correctdownwards as we move along CY14.
Continuous decline of demand andincreasing supply from mint users to leadto prices surging in the next 12 months
Vegetable oil prices are expected toslightly increase on palm oil price rise,Rupee stabilisation to cushion the impact
15
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
Copra price have doubled, but price rise has been limited
Source: Bloomberg, Company filings, Spark Capital Research
Price increases have always been lower than copra price rise, indicatinglimited pricing power
Source: Bloomberg, Company filings, Spark Capital Research
Vegetable oil prices have increased ~15% each year in the past 3 years
Source: Bloomberg, Company filings, Spark Capital Research
Price increases in Amla hair oil have been limited
Source: Bloomberg, Company filings, Spark Capital Research
34 4052
64 67 60 5447 41 41 41 46 45
53
74
20 2124
27 27 27 27 27 27 27 27 2625
23
27
0
5
10
15
20
25
30
0
10
20
30
40
50
60
70
80
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
ParachutePrice/100ml
CopraPrice/KG
Copra price 100ml Parachute Coconut Oil price
-40%
-20%
0%
20%
40%
60%
80%
100%
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
Copra price increase 100ml Parachute Coconut Oil price increase
50 51 58 64 62 68 70 80 80 85 80 80 72 71 76
36 36 36 36 36 36 36
38 38 38 38 38 38
40 40
34
35
36
37
38
39
40
41
0
10
20
30
40
50
60
70
80
90
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
D
aburamlaprice/100ml
Veget
ableoilpriceRs/Kg
Vegetable oil price 100ml Dabur Amla Oil
-20%
-10%
0%
10%
20%
30%
40%
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
Vegetable oil price growth 100ml Dabur Amla Oil price growth
#2 Sourcing/Pricing power Pricing power remains weak in CHO
16
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
Bajaj Almond drop light hair oil prices have increased in line with LLP price
Source: Bloomberg, Company filings, Spark Capital Research
Price increases have overall been in line with cost increase
Source: Bloomberg, Company filings, Spark Capital Research
Soft menthe oil prices providing the necessary price cushion
Source: Bloomberg, Company filings, Spark Capital Research
Price increases have been constant and steady over time period
Source: Bloomberg, Company filings, Spark Capital Research
-20%
-10%
0%
10%
20%
30%40%
50%
60%
70%
80%
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
LLPO price increase 100ml Bajaj Corp Almond Oil Price Increase
5765 66
7586 86 83 81 80 81 79 74 74 75 76
42 42 42 42
4246 46 46 46
50 5055 55 55 55
0
10
20
30
40
50
60
0
10
20
30
40
5060
70
80
90
100
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
BajajAlmondOilp
rice/100ml
LLPOP
rice
/kg
LLPO price 100ml Baja j Corp Almond Oil Price
772957
48 48 48 50 50 50 5055 55 55 55
60 60 60 60
0
10
20
30
40
50
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0
500
1,000
1,500
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NavratnaOil/100ml
Menthaoilprice/Kg
Mentha Oil price 100ml Emami Navratna Cool hair oil price
-40%
-20%
0%
20%
40%
60%
80%
100%
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
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1QFY13
2QFY13
3QFY13
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2QFY14
3QFY14
Mentha Oil price Increase 100ml Emami Navratna Cool hair oil price increase
#2 Sourcing/Pricing power LHO pricing power though unabated
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23 20 33 22
100
395
470 485
44
103
123 121
0
100
200
300
400
500
600
Coconut Oil Amla Oil Cooling Oil Light Hair Oil
Rs/100ml
Range=Rs.
463
Range=Rs.
77 R
ange=Rs.3
75
Range=Rs.4
37
#2 Sourcing/Pricing power - Pricing ranges of various categories
Light hair oil category exhibitthe widest pricing range as
base ingredient of the
offerings differ widely, themost popular among them
though is the almondoffering. Bajaj Almond is the
market leader in thecategory with ~59% share
Seasonal cooling oil, giventheir complimentary natureare priced higher than thetraditional variants. Market
leader Emami Navratna ispriced at the lower end.Despite the presence ofseveral regional players,
salon based usage enablespremium pricing.
Prices in the amla oilsegment remain on thelower end given their
constant attempt to lurecoconut oil consumers,Therapeutic Amla oil pricesthough on the higher end
given their additionalayurvedic benefits. Market
Leader Dabur Amla operatesat the lower end of the
pricing pyramid.
Given the hugeunorganised market,
pricing remainsunder pressure in thecoconut oil segment,
despite beingconstantly exposedto vagaries of copra.
Though marketleader commands~56% share in thebranded market,
Parachute has beenjudicious in its price
increases. LowerLUPs to convert fromunorganised market
keeps the entrypricing low.
Source: Indus try Data, Spark Capital Research
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
Ayurvedics
Extensions
Local
MNCs
Niche
Regional
SalonAspirational Quadrant (Pan IndiaAcceptance with Pricing power)
#3 Competitive Landscape Players vying to be on Aspirational quadrant
Pan IndiaRegional
Pricin
gscale
Premium
Sourc e: Indus try Data, Spark Capital Research
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Thematic NoteOn a Slippery Slope
#3 Competitive Landscape Regional brands and their aspirations
Trichup(West
India)
Founded: 1980
Group : VasuHealthcare
Products: Hair oils,herbal OTCofferings.
Chairman: Mr.V. B.Ukani
Managing Director:Mr. Haribhai Patel
InternationalMarkets: North
America, South
America Europe,South East Asia,Middle East, Asiaand Africa.
Hair oil launch: 1990
Hair care products:Shampoo, Oil,capsules andHenna.
Hair oil offerings:Anti dandruff, antihairfall, long &strong and hair
enhancer.
Head office:Vadodra.
CavinKare(SouthIndia)
Founded: 1983
Group : Cavin Kare Products: Personalcare products, foodand Dairy products.
Chairman & MD: Mr.C.K.Ranganathan
JMD: Mr. TD Mohan
Markets: Tamil Naduand Andhra Pradesh
Hair oil launch: 2008
Hair care products:
Shampoo, Oil andHenna.
Hair oil offerings:Coconut Hair oil at 4SKUs
Head office:Chennai
Manufacturinglocations: 8locations acrossIndia.
Other hair oils:
Meera did attempt toventure into otherhair oils in 2004 inNorth India, howeverfaced limitedsuccess.
KeoKarpin(EastIndia)
Founded: 1957
Group : Deysmedicals
Products: Hair oils,herbal OTCofferings.
Promoters: Mr. BNDey
Currentmanagement:Mr.Gautam Dey, Mr.Ranajit Dey, Mr.Subharthee Dey,Mr.Ushanath
Banarjee, Mr. AdityaBanerjee
Hair oil offerings:Keo Karpin almond,olive variants,massage oil and hairvitalizer.
Strengths: Firsteffective anti hair fallsolution, strongregional loyalty,Solid distributionnetwork,
Inexpensive Presence in: Sixteenbranches located inall major capitalcities.
VVDGold(So
uthIndia)
Founded: 1942
Group : VVD & Sons Products: Hair oils,edible oils, foodpreparation andspices.
Promoters: Mr. V.V.Danushkodi
Currentmanagement:Mr.Niranjan andMr.Kabilan
International
Markets: Malaysia,Singapore andmiddle east.
Distribution: 650distributors and retailoutlets
Presence in: TamilNadu, AndhraPradesh, Karnataka,Kerala, Orissa,Chattisgarh,Maharashtra,Madhya Pradhesh,Bihar, Jharkhand,West Bengal and
Assam
Going forward:Expansion into North& West
Himgange(Ea
stIndia)
Founded: 1984
Group : G. K.Burman Herbal(India) PrivateLimited
Products: HimgangeAyurvedic hair oils
Promoters:Mr.Gautam KumarBurman
Currentmanagement:Mr.Neeraj KumarBurman and Mr.
Vikram KumarBurman
Hair oil launch: 1987
Marketshare - ~30%in the cooling hairoil.
Dominance: UttarPradesh, Bihar,Madhya Pradeshand Chhattisgarh
Manufacturing plant:Haridwar.
Going forward:Launch in south,Launch of Kerlinacoconut oil.
Sourc e: Company Data, Spark Capital Research
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
#3 Competitive Landscape MNCs renewed interest in Hair Oil category
MNC variants in India
Source: Industry , Spark Capital Research
1993
Hindustan Unilever take control of brand Nihar when it acquired TOMCOfrom TATAs.
2000
Hindustan Unilever extends All clear brand into Oils under Anti dandruff
proposition.
2006
Hindustan Unilever sells brand Nihar to Marico for a consideration ofRs.2.16bn (~1.8x sales, 10x EBITDA)
2008 Hindustan Unilever extends Clininc Plus brand into Oils
2011 LOreal launches Garnier Ultra Doux - Extracts of Almond and Coconut
2012
Hindustan Unilever launches Dove Elixir, a premium hair oil proposition in3 variants.
2013 Hindustan Unilever introduces Clinic Plus Vita An almond variant.
2014
LOreal launches 6 Oil Nourish, Combination offering of Shampoo,Conditioner and Hair oil.
Paul Polman, CEO UnileverWe will continue to sell non-core, underperforming brands
and buy attractive bolt-onbrands when possible
We want to attack the marketwith brand new technologies
and products in all categories.We are not interested in
making small improvements toexisting products LOreal
MNC variants in India
Source: Industry , Spark Capital Research
Company Varaints Proposition
LOreal Paris 6
Oil Nourish LOreal 1
Shampoo, Conditioner and 6 Oil Nourish
Oil.
Dove ElixirHindustanUnilever
3
(1) Rose & Almond Oil (hairfall rescue)(2) Hibiscus & Argan Oil (nourishedshine) and(3) Lavender & Olive Oil (dryness care)
Garnier UltraDoux
LOreal 1 Extracts of Almond and Coconut
Clinic PlusHindustanUnilever
2 Clinic Plus and Clinic Plus Vita Oil
All ClearHindustanUnilever
1 Anti Dandruff proposition
Pricing matrix
Source: Industry , Spark Capital Research
Bajaj CorpAlmond Oil
ParachuteAdvansed hair oil
Dabur AlmondHair Oil
LOreal Paris 6 Oil Nourish 2.6 4.2 2.6
Dove Elixir 2.7 4.4 2.7Garnier Ultra Doux 0.4 1.0 0.4
Clinic Plus -0.2 0.1 -0.2
All Clear 0.1 0.6 0.1
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Thematic NoteOn a Slippery Slope
SOUTH INDIA
Beauty-conscious urban
consumers aged between 18
and 32 are the most active
consumer group.
Higher dual income families to leadto premium offerings as VAHO
gaining momentum.
Traditional values though keep them
slightly restrained.
#4 South India - South remains the tough nut to crack for LHO
CoconutBased Oil
(Inc. Others)72%
Cooling HairOil
12%
Amla Hair Oil13%
Light Hair Oil3%
Breakup of the south India hair oil market
Source: Industry data , Spark Capital Research
Coconut is just more than oil in South India.
Source: Industry data , Spark Capital Research
Cheaper prices and wideavailability
Humid conditions
Wide perception that
heavy hair oil is better
Strong purchaseinfluencers in family
Emotional attachment
towards coconut
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Thematic NoteOn a Slippery Slope
#4 South India - South is converting but on its own pace...
South India
Socio Demographic Profile (Cl ick fo r addi t ional data)
Conversion of potential to demand
Complimentary Replacement
User Profile
JWT 18.3 (Cl ick fo raddi t ional data)
Light Hair Oi l
Categories that havemanaged to crack south
Amla hair oil andCoconut Oil
Cooling oil andCoconut Oil
Light hair oil andCoconut Oil
Amla hair oil andCoconut Oil
Cooling oil andCoconut Oil
Light hair oil andCoconut Oil
Despite tropical nature air care productshave higher acceptance. Personal
categories as Anti ageing creams, mouthwash, depilatories too have higher per
capita spend in south
Marketing to south the way it likesholds the key whether the light hair
oil space cracks the coconut.
Socio demographic profile of south comfortably aligns with identified lighthair user profile, we understand that though there is high apprehension
towards first time usage. We also see that availability of light hair oilproducts in the rural markets in south remains abysmal.
Conversion to LHO isinevitable in South India
given the favourable
1.Socio demographic profile
2.Higher disposable income
3.Increasing propensity to
spend towards personalcare in south India
4.Increasing consumerneeds for better looks
Conversionthough might
be slower thanROI due to
1.Strong affiliation towardscoconut oil
2.Solid purchase influencers
3.Wide perception that LHOis not healthy
4.Tropical and Humidclimate may not requirepost wash oil as in ROI.
Source: Indus try Data, Spark Capital Research
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
I use hair oil becauseWhatsapp focus group study
To lookbetter
Otherwise,my hairwould
become dryand fall off
I need togrow my
hair back
It retainsmoisture
andpreventsdryness
It is anessential
nutrient tokeep my
hairhealthy and
strong
It's
nutritiousfor hairthetextureimproves
To improvethe
effectivenessof shampoo
Hates hairoils and usesthem rarelywhile styling
hair
As it makesthe hair feel
lighter and is aremedy forhair fall
Dunno Why, buthave been using itsince childhood
It isgreat formassage
As it is keepshead cool and
because motheradvises on a daily
basis
As itreducesheat andincreases
hair growth
User feelshair oil hastremendousbenefits to
maintain thelength andhealth of
hair
Keeps hairsmooth andmaintainstexture
To preventdryness andgreying of
hair
It is of utmostimportance as werequire water tosurvive same goes
with hairs it requiresNourishment!
As oil helps yomaintain healthyhair growth and
calms one's mind
#4 Whatsapp - Focus group study Combing views
Source: Spark Capital Research
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Sector Outlook Cautious
pp y p
Hair oil usage pattern Scuttlebutt (Channel check) Notes
Gender Based Age BasedRegion Based
UsageObservations
Conversion
observations
Threats No threat from serums
Across users, most noted that serums andconditioners as complementary offeringsand can never replace hair oils.
No threat from serums Though ROI did acknowledge the clash
between conditioner and LHO offerings,they believe the usage reasons differ.
Emerging threat from serumsFew users above 25 years did acknowledge intrying out serums and conditioners asreplacement
Male:
Main reasons for usage were to keep scalphealthy and to prevent early hair fall.
The usage pattern was generally limited to3-4 times a week and the usage pattern hasremained constant.
Female: Nourishment and silky look were the key
reasons women used hair oils. Several users did note that the usage of
hair oil has reduced in the past 5 years dueto lifestyle changes
South India:
Parachute was the most popular brandfollowed by Dabur Amla.
Healthy hair, scalp cooling and traditionalhabit were the reasons attributed for usage.Several users pointed to being conditionedto use hair oil since childhood.
Rest Of India: Hair oils are used to Moisturise, maintain
texture and help in strengthening the hair Parachute and Bajaj Almond were the most
preferred among the users
Less than 25 years old:
Parent influence on brand choice and usagepatterns of hair oils was evident
Nourishment to prevent hair fall, stylingneeds and hair strength were noted as keyreasons for hair oil patronage.
More than 25 years old: Need to maintain scalp and relaxation were
attributed pointed towards usage. Usage was also significantly higher in this
group as they believed it also protects fromharmful chemicals in shampoos.
Male: Conversions were generally tepid, however
key reasons pointed out for shift by fewwere down to non-stickiness.
Female: Most pointed out that they have not shifted
hair oils though usage pattern has changed. Niche needs and non-greasy looks were
key reasons pointed out by those who haveshifted to LHO
South India: Users in south exhibited strong propensity
to change to superior offerings. Though no certain reasons could be
attributed, niche needs proposition wasprominent..
Rest Of India: Preference for non-sticky proposition was
widely visible, Non greasy and No smellseems too have led to LHO growth.
Less than 25 years old: Either due to parental influence or not being
economically dependent, only a few hadnoted changing brands in the past 5 years.
More than 25 years old: Move towards premium offering clearly
visible as specific hair needs emerge. Higher disposable income also contributes
to this up-gradation. Increasing need to lookyounger drives niche offerings.
#4 Whatsapp - Focus group study Combing views
Source: Spark Capital Research
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Sector Outlook Cautious
pp y p
Bajaj corp fortunes are heavily aligned towards hair oil
Source: Company filings, Spark Capital Research
Contribution of various hair oil categories to revenues*
*Value added hair oil =(Amla hair oil + light hair oil+ cooling hair oil+ other hair oil) Source:
Company filings, Spark Capital Research
Presence in complementing/substitute categories
Source: Company filings, Spark Capital Research
Majorly catering to the Indian diaspora
Source: Company filings, Spark Capital Research
Shampoo Conditioner SerumsStyling
AgentsHair color
Marico - - Livon Setwet Livon
DaburDaburVatika,Dabur
- - - -
Bajaj Corp - - - - -
Emami - - - - -
#5 Impact - How are each player positioned to drip the hair oil market
25%
99%
15%
44%
0% 20% 40% 60% 80% 100%
Emami
Bajaj Corp
Dabur
Marico
1%
1%
19%
62%
77%
97%
4%
99%
2%
38%
0% 20% 40% 60% 80% 100%
Emami
Bajaj Corp
Dabur
Marico
Coconut hair oi l Amla hair oil Light hair oi l Cooling hair oi l Value Added Hair Oi l
26
11%
1%
30%
24%
0% 5% 10% 15% 20% 25% 30% 35%
Emami
Bajaj Corp
Dabur
Marico
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Sector Outlook Cautious#5 Impact - How the categories stack up against each other in positioning
Playing to one strengths has been the key until now
Marico
Dabur
BajajCorp
Emami
Coconut Hair Oil Amla Hair Oil Light Hair Oil Cooling Hair Oil Other Hair Oil
Source: Spark Capital Research
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Sector Outlook Cautious#5 Impact - Economic Moat Index Qualitative Index
Marico Dabur Bajaj Corp Emami
% of unorganized
Exposure tocommodity RM
LUP
RegionalCompetition
MNC Competition
Th
reats
Opportunities
Category penetration
opportunity
Brand loyalty
Pricing power
Market Leadership
Portfolio acrosshair oil categories
RANK 3 3 21
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Sector Outlook Cautious
Dabur
Impact from Amla to be limited: With Dabur Amla hair oil contributing to ~12% of revenues, we believe the impactof conversion would be minimal on Dabur.
Key Domestic categories: Management believes that dwindling inflation would assist in driving the otherwisesubdued urban consumption. Given the transformed focus towards urban, Dabur has announced Project Core aninitiative to increase the number of chemist touch-points in urban market. Management targets to reach to ~125000chemists from current ~75000 chemists in the next one year. We believe this init iative would not only assist inexpanding urban footprint but also enable to drive consistent growth and premiumization in Healthcare and OTCportfolio which should augur well for customer profile diversification and margin improvement. Margins to gradually
expand to 17%-18% on increasing premiumization, improving gross margins and lower A&P spends. Namaste and MENA to lead growth: Though political instability could continue to affect performance in Bangladesh
and Egypt, growth in international geographies to be led by increased expansion in Africa and Middle east countries.
View & Valuations: Change in geographical and product mix coupled with expansion in international geographies toassist growth momentum. we though are on a reduce stance with a TP of Rs.165, because of demanding valuationsand volatile macro headwinds.
Bajaj Corp
Market Attractiveness: Light hair oil remains the fastest growing hair oil segment. Structural shift from heavycoconut based hair oils to light hair oils is gaining momentum. This category is estimated grow in excess of ~15%CAGR of the next 3 years (in value terms)
Low competitive intensity: BJCORs nearest competitor is just ~16% market share and is showing minimal signs ofaggression, whatsoever. Hence we believe there is almost no threat to BJCOR's leadership status.
Strong Market leadership: BJCORsADHO remains the unassailable leader in the light hair oils category, strengthof the brand can be gauged by its negative working capital cycle, premium positioning and strong pricing.
Multiple initiatives to diversify single brand risk: 1.Launch of a cooling hair oil brand Kailash Parbat last year,2.Expansion into Bangladesh. 3. Acquisition of Nomarks, anti-marks cream from Ozone Ayurvedics. 4. BJCOR,armed with a cash surplus of Rs.~4bn, continues to scout for ideal brand / product for acquisition.
Views & Valuation: We remain buoyant as valuation comfort in comparison to peers, leadership in its flagship brand,strong pricing power and increasing benefits from geographic (Bangladesh & UAE)/ Product (Kailash Parbat /Nomarks) diversification makes BJCOR better placed among stocks in coverage. We have a target Price of Rs.243
Bajaj Corp
TP 253
CMP 213
Recommendation BUY
Returns (%) 1m 3m 12m
BJCOR 6% -2% -2%
Sensex 5% 4% 18%
BSE FMCG 7% 6% 18%
Financials FY14e FY15e FY16e
Sales 6,811 7,878 9,274
EBITDA 1,866 2,051 2,375
PAT 1,758 1,883 2,193
EPS 11.9 12.8 14.9
P/E 14.6 13.6 11.7
ROE 34.8% 34.7% 37.7%
Dabur
TP 165
CMP 174
Recommendation REDUCE
Returns (%) 1m 3m 12m
Dabur 3% 3% 32%
Sensex 5% 4% 18%
BSE FMCG 7% 6% 18%
Financials FY14e FY15e FY16e
Sales 71,174 83,116 95,572
EBITDA 11,783 14,355 16,521
PAT 9,014 11,089 12,964
EPS 5.2 6.4 7.4
P/E 33.6 27.3 23.4ROE 37.8% 37.3% 35.4%
Financials in mn, except EPS,P/E.ROE
#5 Impact - Hair oil contribution and its potential impact
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Sector Outlook Cautious
Marico
Parachute remains the key: Increasing rural focus remains the key driver for Parachute sales, however recent pricehikes to combat increasing copra prices could keep volumes muted. Value added hair oil volumes seem to beaffected due to unfavourable mix however MRCOs increasing focus should assist in near term growth.
Urban natured categories to remain impacted: Saffola sales is expected to be better in near term, however giventhe discretionary nature of the brand, macro pressures could impact volumes. Skin care & personal productssegments should continue to gain share and maintain strong growth momentum.
International operations to be a mixed bag: Bangladesh business continues to be impacted by unstable politicalclimate while macro economic pressures in South Africa and South East Asia (inflation) should keep growth under
check. MENA and Egypt growth though should begin to see revival in near term.
Copra prices on the rise: Copra prices that were benign throughout last year have increased ~78% y-o-y thisquarter. Costs of other raw materials as Safflower and Rice bran though remain soft, selective price increasescoupled with lower operating costs should see EBITDA margins sustaining at ~14%-15%
Views & Valuations: Given the increasing macro headwinds in driving volume growth and current high valuationswe maintain negative stance on MRCO with a reduce rating and a TP of Rs.214 (25x FY15E)
Marico
TP 214
CMP 202
Recommendation REDUCE
Returns (%) 1m 3m 12m
MARICO -3% -7% -3%
Sensex 5% 4% 18%
BSE FMCG 7% 6% 18%
Financials FY14e FY15e FY16e
Sales 47,572 53,195 61,439
EBITDA 7,142 8,018 9,552
PAT 4,796 5,511 6,498
EPS7.4 8.5 10.1
P/E 27.1 23.6 20.0
ROE 22.3% 22.1% 22.5%
#5 Impact - Hair oil contribution and its potential impact
Emami
Navratna Cooling Oil: Navratna cooling oil contributes to ~25% of HMN revenues, The brand continues to gaintraction on expansion and LUPs. Given the subdued mentha oil prices and superior pricing power, we see marginsfrom Navratna too improving in near term.
Low penetration in the key categories: Emami has built strong brands around categories that have minimalpenetration and have immense potential to become large. Diversifying into new unexplored categories backed bystrong celebrity endorsements have enabled HMN to maintain market leadership in these categories despitecompetitive intensity inching up. We believe HMN would be the key beneficiary as these niche categories expand tobecome larger propositions.
Brand Extensions: HMN currently has 4 power brands in Navratna, Boroplus, Zandu and Fair & Handsome. Withthese brands having become household names, we believe brand extension opportunities into complementingcategories presents an exciting growth opportunity.
Views & Valuation: Penetration potential in the key categories, brand extensions of the power brands and growthopportunity in the Zandu portfolio, keeps us excited on Ayurvedically hedged Emami. We initiate coverage with aBUY rating and a Target Price Of Rs. 502 (16% upside to CMP, ~21x FY16E EPS)
Emami
TP 434
CMP 502
Recommendation BUY
Returns (%) 1m 3m 12m
Emami -7% -10% 11%
Sensex 5% 4% 18%
BSE FMCG 7% 6% 18%
Financials FY14e FY15e FY16e
Sales 18,738 21,781 25,294
EBITDA 4,417 5,215 6,132
PAT 3,899 4,679 5,422
EPS 17.4 20.6 23.9
P/E 25.0 21.1 18.2
ROE 43.5% 40.4% 37.0%
Financials in mn, except EPS,P/E.ROE
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Sector Outlook Cautious
Strong market leadership across the four categories.
Source: Company filings, Spark Capital Research
Category Marico Dabur Bajaj Corp Emami
FY13-16E Revenue CAGR 10% 16% 15% 14%
Gross Margin (FY14E) 50.0% 52.3% 58.8% 61.4%
A&P/ Sales (FY14E) 13.0% 14.3% 14.5% 15.2%
Number of retail outlets reached 4.0 mn 5.8 mn 2.6 mn 4.0 mn
EBITDA Margin (FY14E) 15.0% 16.6% 27.3% 23.6%
PAT Margin (FY14E) 10.3% 12.7% 25.8% 20.8%
ROE 22.3% 37.8% 34.8% 43.5%
ROCE 17.8% 26.6% 35.6% 39.0%
Working Capital Days 48 35 -1 27
Debt/Equity 0.3 0.4 - 0.1
FCF Yield 3.3% 3.1% 3.9% 4.3%
Dividend Yield 1.2% 1.3% 3.2% 1.4%
FY13-16E EPS CAGR 20.4% 19.1% 9.4% 19.3%
#5 Impact - Economic Moat Index Quantitative Index
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Sector Outlook Cautious
Appendix
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Sector Outlook CautiousWhat women want? Hair care remains a focus area
Among products used to feel more attractive, hair care remains prominent
Source: Dove global beauty trends, spark capital research
21% of people surveyed wanted to change hair care appearance
Source: Dove global beauty trends, spark capital research
Developing countries had a higher emphasis in changing their hair looks
Source: Dove global beauty trends, spark capital research
Americans were in favour of hair care being integral part to attractiveness
Source: Dove global beauty trends, spark capital research
4% 5%
11% 12% 12%14%
21% 24%
33%
45%
10% 11%12% 13%
17%
21% 22%
31%34% 34%
36%
0%
5%
10%
15%
20%
25%
30%
35%
40%
9%
21%
46%
67%
68%
70%70%
74%
75%
82%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Skin-lightening products
Skin-tanning products
Nail care products
Hair coloring
Make-up/color cosmetics
Body moisturizerFacial care products
Perfume
Hari Care product
Deodorant
65% 66% 67% 67% 67%74%
82% 84% 85%86%
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Thematic NoteOn a Slippery Slope
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Sector Outlook Cautious
Australasia
Market Size: $~1bn
CY10-13 growth: 11.8%
Leading Brand:Schwarzkopf (Henkel)13.8%Per capita usage: $41
HC/BPC : 16.1%
Latin America
Market Size: $~16bn
CY10-13 growth: 11.5%
Leading Brand: Sunsilk(Unilever) 10.9%Per capita usage: $26.7
HC/BPC : 20.6%
North America
Market Size: $~12bnCY10-13 growth: 2.6%
Leading Brand: Pantene(P&G) 8.1%Per capita usage: $35
HC/BPC : 15.4%
Western Europe
Market Size: $~15bnCY10-13 growth: 2.6%
Leading Brand: LOreal Paris (LOreal) 15.5%
Per capita usage: $31.6HC/BPC : 17.3%
Asia
Market Size: $~20bn
CY10-13 growth: 8.4%
Leading Brand: Pantene
(P&G) 7.3%Per capita usage: $5.3
HC/BPC : 17.4%
Source: Industry data, Bloomberg and Spark Capital research
Africa & Middle East
Market Size: $~4bn
CY10-13 growth: 9.5%
Leading Brand:Pantene (P&G) 6.6%
Per capita usage: $3.1
HC/BPC : 17.5%
Eastern Europe
Market Size: $~5bn
CY10-13 growth: 3.6%
Leading Brand: Schwarzkopf (Henkel) 17.8%
Per capita usage: $14.7
HC/BPC : 17.5%
Global hair care trends
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Return to Page 3
Thematic NoteOn a Slippery Slope
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Sector Outlook CautiousRise of the oils - G loba lly
The naturaltrend
The trend for morenatural ingredientshas been strong inhair care, with mostof MNCs launchingranges usingnatural or nature-inspiredingredients.
Giving rise to theuse of oils from flaxseed to grape seedoil, coconut oil andargan oil,
At Hometreatments
Hair oil were usedto nourish the hairand scalp deeply,keeping hairhealthy andprolonging the timeneeded betweenhair salon visits,thus saving money.
Proposition hadchanged fromcleansing tonourishment.
West MeetsEast
Companieslaunching productsthat weresuccessful in Asiainto Westerncountries
As western worldbegins to embraceproducts from east,prominentcategories as hairoils are witnessingglobal acceptance.
Key growth drivers of hair care globallly Popular brands across the globe
LOreal Offerings under Professionnal, Garnier and Kerastace brands
Moroccan oil Liz earle
Unilever offerings under Tressemme and Dove brandsP&Gs Pantene oiloffering
Sourc e: Indus try , Spark Capital ResearchSourc e: Indus try , Spark Capital Research
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S t O tl k C ti
Thematic NoteOn a Slippery Slope
H i il th l b Return to Page 5
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Sector Outlook CautiousHair oils across the globe
How hair oils fare in Europe
Officially becoming the fastestselling product in the multi-millionpound hair industry
Perception change was the keyto usage
Hair Oil replacing serums
Marketing terms used tosell hair oil1. Greasy hair bouncy2. Alternate to salon
treatment3. Protection against
damaging blow dries4. Sweet smelling5. Home dye conditioner
6. Multi tasking as hairstyling andconditioning.
Given the rising inflation,
more consumers are lookingto lessen the number of saloonvisits, however prefer keepingtheir hair glossy andnourished Mintel publications
One in five women nowregularly use a hair oil to doeverything from washing offhard-to-rinse product toconditioning frazzled hair andgiving a glossy finishLatest findings from LOreal
The key to the popularity ofthese products is that they areso versatile - whether your hair
is dry, flat, curly or fine, thereis an oil to suit Tracy Rogers,salon manager at Gina ConwayAveda in London
Celebrity Followers1. Scarlett Johansson2. Lady Gaga
3. Jessica Biel
Popular Brands1. LOreal Professionnel
2. LOreal Krastase3. Garnier Olia4. Aveda Beautifying
composition
Threats1. Premium priced2. Popular only in few
countries
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S t O tl k C ti
Thematic NoteOn a Slippery Slope
H i il th l b Return to Page 5
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Sector Outlook CautiousHair oils across the globe
How hair oils fare in US
Oils are increasinglybecoming a hair cum skincare proposition in US
Hair oil treatments usingargan based Moroccan oilmost popular
Popular perception against oil in US1. Greasy look2. Clogs pores
3. Does not absorb4. Heavy proposition
"We've been trained to think ofoil as heavy or thick or bad,Terry Darland, president ofChristian Dior Perfumes NorthAmerica
U.S. consumers seem more
comfortable with the idea of oilfor the hair than for the skin,because hot-oil hairtreatments have been on theU.S. market for yearsVirginia Peandro, manager ofskin-care product innovation forGarnier
"A lot of customers are feelingthis pull back to basics,"Maren Giuliano, global WholeBody coordinator for WholeFoods Market Inc.
Marketing Drab
Neutrogena foreverpromoting oil-free look,
dubbing oil as greasy
P&G renames oil of olaybrand as Olay
What is making hair oilclick?1. Anti ageing propositions
2. Natural care3. Noursihment4. Lighter proposition
Popular Brands1. LOreal Professionnel2. Moroccon Oil3. Garnier Fructis
Threats1. Usage is limited2. Multipurpose usage
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
Hair oils across the globe Return to Page 5
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Sector Outlook CautiousHair oils across the globe
How hair oils fare in other geographies
Africa: Breakage prone hair, thus hair care protection and use of hair care
products is common for African people. However off-late hair extensions becoming popular, saving
consumers the money and time spent in maintaining hair. LOreal Carson hair oil treatments and Dabur Vatika hair oil
variants are popular among the branded players. Huge unbranded and un-organised market though considering the
availability of various oils as Argan oil, Olive oil Castor oil, jojobaoil, avocado oil, virgin coconut oils.
Traditional market, where MNCs have found it difficult to breakinto traditional categories, similar to India.
GCC: Wide market for hair oils, given the large Indian Diaspora. Market
beyond the Indian diaspora remains miniscule. Dabur Amla hair oi l is the largest hair oil brand in the GCC and
commands more than 50 per cent of the market. Dabur VatikaHair Oil, another key Dabur brand, is the market leader in thevalue-added pure coconut hair oils category
Dabur is continuously though scouting to break open the middleeast consumer by launching variants as Olive Oil.
Latin America: Small hair oil market, the market dominated with hair care
offerings from Unilever, P&G and LOreal.
Given the high salon pattern in markets as Brazil, Salon styledserums and hair oils typically tend to do better.
However inflation led Latin American markets growth to slowdownin coming years.
Sourc e: Indus try , Spark Capital Research
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Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
Is there a market at all for LHO in south? Return to Page 23
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Sector Outlook CautiousIs there a market at all for LHO in south?
Light hair oil user profile
- Unisex
- 60% users aged between 15 and 39
- 2/3rd Urban
- Economic class SEC A1,A2,B1,B2
27.5%
26.5% 26.7%
South India ROI India
% of population aged between 18-32
1.00
0.930.94
South India ROI India
Sex Ratio
83.8
79.780.4
South India ROI India
Literacy
73.2
69.170.1
South India ROI India
% of number of nuclear families
9.5
4.86.0
South India ROI India
Mobile Ownership (%)
3.82
4.033.98
South India ROI India
Average household size
70.1
39.747.2
South India ROI India
Television Ownership (%)
58.9
59.1 59.1
South India ROI India
% of houses with more than 2 rooms
78754
54493 59966
South India ROI India
Average Per Capita Spend (Rs. pa)
41.2%
28.5% 31.2%
South India ROI India
Urban %
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Source: Census India, Spark Capital Research
Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
Where has it been going wrong? Return to Page 23
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Sector Outlook CautiousWhere has it been going wrong?
Proudly South
ExperimentationShattering the myth
New cool Social Change Humbly Speaking
Intellectual
superiority
Character vitalAdapting Traditions
Portraying southas world beaters,acknowledgingand rewarding
South'sexcellence inrelevant fields
Using south celebrity asnational brandambassadors does the
trick
The region iscrafting an
independent styleaesthetic. Creating a
wave that spansacross art, fashion &
entertainment
South is no morestereotyped asthe docile andquiet, socialawareness
questioning takesprominence
South has beenaverse to
exhibitionistculture, riches
and fame to co-exist withhumility.
South still seemsstrongly
associates itselfwith its
traditional habitsand customs
South Indiansthough likes theiradvertisements to
reflect a slice of life,aesthetic appeal,style quotient is
essential
One of the mostexperimenting
consumers,however sticking
to typicalapproach may failto strike a chord
It is clearly mind andbody when it comes
to south, brandstrying temptation
quotients have notbeen successful
Brands that haveassociated in
portrayingcharacters for its
identity have donewell in connecting
with consumer.Light hair oils syncingmodern practices withtraditional values have
stuck the chord.
Light hair oils positioningthemselves as lifestyle
options are beginning toattract better traction
Deodorant brands catchthe attention aplentygiven their traditional
style quotients
Wanting for a change mightgo well with light hair oils
given they attempt to break atraditional habit
Light hair oils could breakthe coconut jinx
challenging the southconsumer to experiment
Light hair oils positioningthemselves as alternate to
serums /styling agents couldidentify with south
Acknowledging the need forpost wash nourishment withstyling might do the trick for
light hair oils
Illustrating light hair oilusers with virtues of
confidence and courage.
40
g
Source:JWT, Spark Capital Research
Sector Outlook Cautious
Thematic NoteOn a Slippery Slope
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Sector Outlook Cautious
Spark Disclaimer
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Absolute Rating Interpretation
Buy Stock expected to provide positive returns of >15% over a 1-year horizon
Add Stock expected to provide positive returns of >5%
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Analyst Certification of Independence
The views expressed in this research report accurately reflect the analysts personal views about any and all of the subject securities or issuers; and no part of the researchanalysts compensations was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report.
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This research report prepared by Spark Capital Advisors (India) Private Limited is distributed in the United States to US Institutional Investors (as defined in Rule 15a-6 under the Securities
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Disclosure of interest statement Yes/No
Analyst ownership of the stock No
Group/directors ownership of the stock No
Broking relationship with the company covered NoInvestment banking relationship with the company covered No
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