pg 32. attack of the clones!! pg 35. interview: mr. ranga...

1ST - 28TH Feb 2015 . Vol 2 Issue 2 . For Private Circulation Only

pg 32. Attack of the Clones!!

pg 35. INTERVIEW: Mr. Ranga Iyer, Former MD Wyeth

pg 38. DISCUSSION: Dr. Goel, Chief Secretary, Agri Maharashtra

3GROUND VIEW GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 2

VOL 2 . ISSUE 2 . 1ST - 28TH FEB 2015

Vineet Bhatnagar- Managing Director and CEO

EDITORIAL BOARD:Naveen Kulkarni, Manish Agarwalla, Kinshuk Bharti Tiwari

COVER & MAGAZINE DESIGN Chaitanya Modak, www.inhousedesign.co.in

FOR EDITORIAL QUERIES:PhillipCapital (India) Private LimitedNo. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400 013

RESEARCH Automobiles Dhawal Doshi, Priya Ranjan

Banking, NBFCs Manish Agarwalla, Pradeep Agrawal, Paresh Jain

Consumer, Media, Telecom Naveen Kulkarni, Jubil Jain, Manoj Behera

Cement Vaibhav Agarwal

Economics Anjali Verma

Engineering, Capital Goods Ankur Sharma, Hrishikesh Bhagat

Infrastructure & IT Services Vibhor Singhal, Deepan Kapadia

Metals Dhawal Doshi, Ankit Gor

Mid-caps Vikram Suryavanshi

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Pharmaceuticals Surya Patra, Mehul Sheth

Retail, Real Estate Abhishek Ranganathan

Portfolio Strategy Anindya Bhowmik

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4. COVER STORY: Well beaten, ready to rise

Ground View assesses the strength and weak-nesses of global and Indian food services brands

32. Attack of the Clones!!

35. INTERVIEW: Mr. Ranga IyerHealthcare Consultant, Former MD of Wyeth

38. DISCUSSION: Dr. Sudhir GoelChief Additional Secretary, Agriculture, Maharashtra

40. Indian Economy – Trend indicators

42. ICC Cricket World Cup 2015 Schedule

44. PhillipCapital Coverage Universe: Valuation Summary

LETTER FROM THE MANAGING DIRECTORThe Indian food services industry has undergone a

remarkable transformation in the last 10 years and it is

one of the fastest growing industries. Rising affluence

of the middle class, changing lifestyles and increased

global exposure have contributed to the rapid growth

of the industry. Most of the global food service majors

have established their presence in India and are looking

to scale up their operations.

Competition has clearly intensified and the last 2 years

have been particularly harsh marked by persistent high

food inflation and decline in same store sales. This how-

ever has not deterred the global majors from investing

and they have continued to remain very aggressive by

opening new stores or launching new brands hoping for

a turnaround.

With moderating inflation, decline in crude prices and

a likely pick up in consumption growth, good times for

the food services industry are round the corner. Our

cover story on the Indian food services industry penned

by analysts Naveen Kulkarni and Jubil Jain explores the

strengths and weaknesses of major global brands & their

recipe for success.

Decline in crude prices is a boon to customers but the

FMCG industry sees significant rise in competitive activ-

ity. Categories sensitive to market share like Detergents

are hit particularly hard in a deflationary scenario. Our

short essay on the imminent revival of the small scale

detergents industry assesses the impact on detergent

majors and the strategy of largest FMCG Company,

Hindustan Unilever.

Also read in this issue freewheeling discussions with Mr.

Ranga Iyer, former managing director of Wyeth as he

highlights the emerging trends in the Indian Pharmaceu-

tical industry and with Dr. Sudhir Goel, Chief Additional

Secretary, Agriculture, Maharashtra as he shares his

views on farm economics and progress on GM crops.

Best Wishes

Vineet

CONTENTS


Dinner rush at various QSRs


COVER STORY

In January, one more global fast food chain, the Florida-headquartered Burger King, set up

shop in Mumbai, having entered India late last year. That means more choice for consumers

and more competition for suppliers. Over the past few years organized players added more than

2,000 restaurants and the industry has built up huge capacity and is looking forward to achhe

din (good times). The organised restaurant industry, one of the fastest growing in India, has

captured the imagination of global companies, investors and industrialists. The industry is

expected to continue its rapid growth with increasing economic prosperity. “Competition helps to

grow the market and the entry of more players indicates the market potential,” says Mr. Ravi

Gupta, CFO of Jubilant Foodworks.

However, not every enterprise may flourish, as the organized restaurant industry is marked

by fast changing consumer preferences and one of the highest mortality rates. Some business

models and formats will grow faster than others but some will languish, eating into the pockets

of investors and promoters. “Well beaten, ready to rise”, is an in-depth study of the nuances of

the Indian restaurant business. It aims to clarify the strengths and weaknesses in emerging

business models.

BY NAVEEN KULKARNI & JUBIL JAIN

pg. 6 Entrée The rise and rise of the food services industry_____________________________________________________

pg.8 First course All you want to eat from the West_____________________________________________________

pg.24 Second course Home food is best_____________________________________________________

pg.29 Dessert Good times round the corner_____________________________________________________


Over the past few years the food

services industry, especially in the

organized sector, has grown rapidly

mainly due to a surge in the middle

and upper class populations and the number of

double-income couples. The industry growth is

expected to continue, in keeping with the growth

of the Indian economy. A comparison of India

The rise and rise of the food services industry

E N T R É E

Outlet counts: India vs China

and China with respect to the number of outlets

of the top five fast-food chains shows the poten-

tial of Indian markets.

According to an Indian retail and FMCG manage-

ment consultancy, Technopak, the Indian food

services industry is a US$48 bn industry, 70% un-

organized and 30% organized. Technopak expects

the market to grow to US$78 bn by 2018, a CAGR

of 10%, with the organized sector accounting

for 39% of the market. The organized market is

expected to post 16% CAGR and the unorganized

market is expected to post 7.3% CAGR.

New categories have emerged and each category

has a well established international and domestic

chain competing fiercely for the consumer’s share

of wallet. The Quick Service Restaurant (QSR) and

Casual Dining Restaurant (CDR) segments account

for over 70% of the share of the organized market.

The organised Food Services market is expected

to post 18% CAGR over the next few years but the

growth could be even higher as more chains enter

and discover innovative ways to fulfill customer

needs.

Indian QSR market


Categories Prominent restaurant chains

Frozen dessert (including ice-cream and yoghurt) Haagen Dazs, Naturals, McDonalds, Swirl, Yogurt Bay

Cafés Café Coffee Day, Starbucks, Barista, Tea Leaf & Coffee Bean, Costa Coffee, Mad Over Donuts

QSR (quick service restaurants) KFC, McDonalds, Subway, Faasos, Box8, Dunkin Donuts & more, Dominos, Pizza Hut, Taco Bell

CDR/FDR or Casual/fine dining restaurants Mainland China, Sigree Global Grill, Barbeque Nation, Spaghetti Kitchen, Moshe’s, Nando’s Chicken

PBCL (pubs, bars, clubs, lounges) Jugheads, Pop Tate’s, Hoppipola

QSR formats

Size of chain fast foods market

Mr. Amit Jatia, Vice Chairman of Westlife De-

velopment Limited, franchisee of McDonald’s,

on Indian QSR industry.

“The vast Indian middle-class is pressurized by

professional commitments, daily commutes, and

domestic chores which has resulted in increasing

frequency of eating out across urban India. How-

ever, the average frequency of about 8-9 times a

month in metros like Mumbai is just half of some

ASEAN benchmarks of 17-18 times a month. Ris-

ing number of Indians are becoming increasingly

particular about food hygiene. So even as India’s

Informal Eating Out (IEO) market is projected to

grow at 11% during 2014, reaching ~USD 107 bil-

lion, its QSR component, where we are present, is

expected to grow the fastest to ~USD 17 billion at

a CAGR of 11-14%. India has significant headroom

available when compared globally. India’s QSR

segment is only ~16% of the overall IEO market

whereas the corresponding proportion is higher in

countries like China (24%), Hong Kong (21%) and

Singapore (19%). Moreover, the branded compo-

nent of India’s QSR market is a mere 1% aggre-

gating around 1800 odd stores, which pales in

comparison to a demographically similar country

like China with 7000 units shared between just two

international QSR brands.”

Source: Technopak Advisors report


All you want to eat from the West

F I R S T C O U R S E

If gluttony is a sin then Indian gastronomes

are probably among the biggest transgres-

sors. Indian gastronomes have been partying

non-stop over the past few years, celebrating

either the launch of a brand, restaurant or cate-

gory almost every week. The success of fast-food

brands like Domino’s pizza, McDonald’s burgers

and Yum! Brands’ fare has brought in a slew of

players not just in the quick service restaurant

(QSR) space but also in the fine dining category.

Major global brands like Starbucks, Dunkin Do-

nuts, Costa Coffee, Burger King and others have

forayed in the QSR category and Michelin Star

restaurants like Yauatcha have opened outlets in

India, giving foodies a wide choice of culinary de-

lights and experiences. The following table lists

the global details of various fast-food companies

that operate in India.

These global brands are compelling success

stories and have proven business models. Besides,

they are global majors, committing serious capital

and are willing to tide over tough times. However,

a brand’s success in one country need not neces-

sarily spell its success elsewhere—each country

is a different market, with different consumer

preferences and unique habits. Consequently, the

learning curve for brands is generally lengthy and

crucial to achieve scalability. Despite the entry of several new

players, the advantage lies with older players and their ability

to build a scalable proposition.

Revenue (USDmn)

M. cap. (USDmn)

Outlets Products

Yum! Brands 13,084 31,770 40,000+ Pizzas, burgers, Mexican fast food

Domino’s pizza 1,802 5,590 10,000+ Pizzas

McDonalds 28,105 90,340 35,000+ Burgers

Starbucks 16,447 60,520 21,000+ Coffee

Top global food chains


New cooks on the block

Western fast food (WFF) is the fastest growing

category of the QSR segment in India. Two large

segments of WFF industry are burgers and pizzas. In

the US, the burger market is estimated to be twice

the size of the pizza market, which is the next largest

Indian organised QSR market (Rs bn)

The King is here!!

“We will have burgers that no one in India has ever

had before,” says Rajeev Varman, CEO of Burger

King’s India operations. Burger King is an iconic

global brand and its association with burgers is as

strong as that of McDonald. The initial reaction to

Burger King seems to be enthusiastic. Delectable

menus, a value-for-money proposition, colourful

brand imagery and innovative marketing strategy

have characterized Burger King’s entry in India. The

first outlet opened in Saket, New Delhi on Novem-

ber 9, 2014, and according to the company 1,200

people pre-ordered its signature Whopper burger

on e-bay

Burger King is a late entrant in the QSR space but

it had been contemplating an Indian entry for quite

some time. The delay is attributed to it not being

able to find the right franchise partner in India. Part-

nering Sameer Sain’s Everstone Capital, which has

significant experience in the QSR space, Burger King

category. Given its role as the

quintessential American meal,

burgers have also proved to

be the most portable concept

globally, with an estimated

global market size of over

$135 bn. However in India,

the markets for burgers and

pizzas are roughly equal in size

of Rs 30 bn each. This might

well indicate an under-pene-

trated burger market with great

potential—we may get a better

idea as the market evolves.

Still, the two categories have

attracted many new players

who continue to invest in them.

Burger King restaurant


finally entered India. Scaling up a restaurant business

requires a robust supply chain and back-end support

but product acceptability comes first and it is the

foremost ingredient for success. Reviews on Zomato

are encouraging with particular emphasis on the size

of its Whopper burger and value-for-money propo-

sition.

The burger market is hungry for more and the addi-

tion of new player will only grow the market. Pre-or-

dering burgers on e-bay is indicative of the potential

of the market. Burger King seems to have started off

on the right note but scaling up of the business will

require acumen and improvement in market condi-

tions would be helpful

Dunk the donuts and try the burgers

Dunkin Donuts is one of the most successful bev-

erages and confectionary companies in the world.

It competes with Starbucks and has 11,000+

outlets against Starbucks’ 21,000-plus outlets

Review of Burger King on online food review website Zomato

Dunkin Donuts & More, Khar, Mumbai

The flagship product of Dunkin Donuts & More - Naughty Lucy Burger


worldwide. However, the Indian story is turning out

to be very different. “We want to be known for our

burgers” says Mr Ravi Gupta. Dunkin entered India

in 2012 with a master franchise agreement with

Jubilant Foodworks. The donut-eating culture can,

at best, be described as nascent and positioning on

a wider product offering, which can ride on the elab-

orate supply chain of Dominos seems like a winning

strategy for Jubilant Foodworks. However, Dunkin’s

branding and product positioning is confusing as the

The variety of Donuts is large mainstay offering over the long term will be burgers

and not beverages and donuts.

Baked burgers a half-baked proposition

Dunkin’s burgers are baked and can be considered

premium to those of KFC and McDonald because of

their size and ingredients. Pricing is higher but the

offering is not very clear. Indians have developed a

habit of eating burgers with French fries and colas.

Dunkin serves cola but does not have the numerous

combination offers of McDonald or KFC and it does

not serve French fries but offers hash browns. “We

do not have a fryer in the kitchen and our burgers

are much healthier than the KFCs of the world” says

the restaurant manager of a leading Dunkin outlet.

Baked products are healthier than fried products but

few consumers know about the healthier offering

because Dunkin has not advertised the proposition.

“People generally do not sacrifice taste for health in

India, it just doesn’t work” says Saugata Gupta, CEO

of Marico. Indians love fried foods and will continue

to throng to KFC and McDonald for their fried burg-

ers. This value proposition, even though seemingly

superior, is half baked. Consumer eating habits are

difficult to change and adaptation is generally the

right strategy. Interestingly, Dunkin’s donuts have

not been widely appreciated and many prefer Mad

Over Donuts. This further confounds the proposi-

tion as the perceived flagship products, donuts and

coffee, have limited appeal but the ancillary offering

(burgers) is great.

The following table shows the difference in pricing of

various products from fast-food chains

Chain Entry price Price of a premium burger

McDonalds Rs25 for veg./Rs 40 for non-veg. Rs127 for veg./Rs 137 for non-veg.

KFC Rs29 for veg. /Rs 40 for non-veg. Rs65 for veg./Rs79 for non-veg.

Burger King Rs35 for veg./ Rs49 for non-veg. Rs109 for veg./Rs169 for non-veg.

Dunkin Donuts Rs65 for veg./Rs89 for non-veg. Rs145 for veg./Rs195 for non-veg.

Comparison of burger prices across top chains

“We want to be known for our burgers” says Mr Ravi Gupta.


No Duck soup

Jubilant Foodworks has ambitious plans for its

Dunkin franchise. Jubilant will open 70 Dunkin out-

lets over the next three years, taking the total count

to 120 outlets. Dunkin is not profitable as the busi-

ness is in the nascent stage but achieving long-term

profitability depends on driving the core values of

the brand and evolving according to local consumer

needs. The learning curve involved is still significant

as Dunkin will have to move out of its comfort zone

of beverages and confectionery to dining options.

Competition in the category is very high and contin-

ues to intensify. However, Jubilant has developed a

robust supply-chain model, owing to the success of

Dominos, which will help the company to compete

with the best.

Mr. Ajay Kaul, CEO of Jubilant foodworks says,

“Dunkin is at a different level of evolution compared

to Dominos for us and it is not fair to compare the

store sales growth of Dunkin and Dominos.” Dunkin’s

loss for fiscal year ending March 2015 will be about

Rs300 mn for its fifty outlets and the management

guidance indicates a breakeven time frame of six

years since inception—by 2018, with 120 stores.

Profitability is likely to be protracted for the chain

and will be margin dilutive for Jubilant Foodworks

over the long term as Dunkin’s profitability is unlikely

to match the store economics of Dominos.

Starbucks—bucking the trend?

“We have a loyal customer base of people who have

frequented Starbucks in other countries,” says the

store manager of an outlet in a swanky south Mum-

bai mall. Starbucks is not just an iconic brand but it is

also a cult brand. A darling of the investor communi-

ty, Starbucks is the most successful QSR chain after

McDonalds in terms of shareholder value creation

and profitability. Its success is attributed to the geni-


us of its founder Howard Shultz. Its track record

of product innovation, creating new store

formats and creating new market trends is

unparalleled. Starbucks entered India in 2012

through a 50:50 joint venture agreement with

Tata Global Beverages. Since the first outlet in

Mumbai opened in October 2012, the venture

has expanded rapidly, to 61 outlets, in just two

years. Starbucks has captured the imagination

of people in India and they rate the products

and outlet ambience highly.

It operates in the premium range with pricing

at about a 50% premium to the largest home-

grown network, Café Coffee Day. However,

premium comes at a price. Most of the stores

are in premium locations and presently the

store formats are rather large—2,500 square

feet. The operating timings for the stores are

longer than most QSRs. This means steep operating

costs. The biggest challenge for Starbucks will be

scaling up its premium proposition. Initial launch

can be funded by equity but scaling up a restaurant

business has to be achieved by ploughing back cash

flows of profitable outlets.


Economics of selling beverages

“Selling beverages is not very profitable,” says Mr.

Ravi Gupta, as India, unlike the US and other devel-

oped markets, does not have a ‘morning market’.

Mr Vishal Gupta, CFO of Costa Coffee, says it is

common for people in the US and other developed

markets to take their “daily fix of caffeine” as early

as six in the morning. “We are very focused on site

selection and our motto is the experience to cus-

tomers,” he says. In the beverage business the value

proposition is not just the beverage but the experi-

ence and ambience for customers, which make the

catchment area critical.

Costa Coffee a leading UK-based beverage chain,

with 2,800 outlets globally, entered India nine years

ago and has 120 outlets in India. It will add 15-20

outlets every year for next few years. It has about 25

outlets at various airports, which are very profitable

because airports have longer working hours with a

significant morning market, as early as five in the

morning. On an aggregate basis, Costa is profitable;

and this has been achieved by focusing on careful

site selection. It even bucked the trend of a decline

in same-store sales growth in a slowing economic

environment due to its consistent product quality

and adept site selection. Costa’s stores usually meas-

ure 800-1,000 square feet; besides it has kiosks. As

a rule of thumb, in the beverage business, which

is split 70:30 between beverages and foods, large

stores with revenue of Rs35,000 a day and kiosks

with revenue of about Rs15,000 a day are profitable.

Customers hungry for more

Moshe’s, an up-market indigenous brand, competes

with the likes of Costa and Starbucks. Its kiosks gen-

erate revenue of Rs15,000 a day but the larger stores

generate on average about Rs50,000 a day in malls.

Moshe’s operates in the fast casual dining space and

prides itself on its quality of food and its wide range

of beverages. Fast casual dining is an upcoming

Old Scotch and old wine—the smoothest!

Players who entered the Indian market in the 1990s

enjoy the advantage of consumer understanding

across India. They have well established brands

and their site selection and store openings are the

smoothest. They have also developed significant

online tools, which help them drive efficiency and

scale. The big boys of the QSR business are Dom-

inos Pizza, McDonalds, KFC and Pizza Hut. The

smallest of the global brands, Dominos, is the best

Chain Stores Cuisine

Café Coffee Day 1,530 Coffee

Dominos 830 Pizza

Subway 476 Sandwiches

Pizza Hut 367 Pizza

KFC 361 Burgers

McDonalds 350 Burgers

The top five QSR chains in India

global category that has captured the imagination of

people around the world for their innovative brand-

ing and quality of fresh food.

Starbucks’ store size and ambitious plans mean it will

have to offer more and better dining options. It will

consider opening smaller, 1,000 square foot stores in

small cities; however, in small cities footfalls are low-

er than in metro cities. To manage profitability and

scale up its offering Starbucks will have to introduce

kiosks as well. Its menu, though sumptuous, will

evolve to adapt to the Indian palate. Starbucks is an

evolving model with initial focus on product off-take

and establishing brand saliency. However, achieving

profitability and scale are the two biggest challenges

for Starbucks, which are not very easy to overcome

in the short term. Nonetheless, it has started off on a

promising note—profitability, even though protract-

ed, will be achieved over the long term and a pick-

up in the Indian economy will help.

“Selling beverages is not very profitable,” says Mr. Ravi Gupta, CFO of Jubilant Foodworks


established and most profitable QSR brand in India

mainly due to its visionary franchise, Jubilant Food-

works.

Dominos—still hot and fresh

Dominos has 844 outlets and adds about 150 outlets

each year. It has the most differentiated positioning

in the market as it operates in the home-delivery

segment as well as the restaurant category. Reve-

nues are split 50:50 between home delivery (takea-

way included) and dine-in. This ratio is slowly titling

in favour of dine-in as Dominos penetrates tier-2

and tier-3 cities, which do not have a home-delivery

market. Dominos is the most profitable QSR busi-

ness model in India in terms of profit margins and

payback period. The turnaround time for achieving

store profitability is also the quickest and it has con-

sistently innovated to keep consumers engaged.

Format Six years ago Now

Dining 35% 50%

Delivery 65% 50%

Share of revenue for Dominos

City Covers

Mumbai 16-20

Delhi 25-30

Bangalore 30-35

Tier-2 & tier-3 cities 50-60

Average number of covers in an outlet

Interestingly, even in an up-market mall like High

Street Phoenix in Lower Parel, Mumbai, where cus-

tomers have several options, Dominos clocks high

Latest addition to offering of Dominos - Regular Cheese Burst Pizza


footfalls, which is indicative of the strength of the

brand. “Overall competitive activity has increased,”

says Mr Ravi Gupta. “Pizza Hut has major expansion

plans and wants to reach to 500 outlets by the end

of CY2015. The opening of a competing store in the

same catchment area is not good in the short term

but in the long term it helps to expand the market—

one brand alone cannot expand the market. When a

customer sees more brands, he or she gets excited,

trials increase, lifestyles change. This helps to make

the customer go out more often, which leads to

expansion of market”.

Although Dominos’ same-store sales growth has de-

clined due to the economic slowdown, other mature

formats have seen a sharper decline.

Dominos is still the best QSR business model in India

and it can double the number of its outlets in India

by 2020 without impacting its profitability. Dominos

will be one of the biggest beneficiaries of economic

revival and it will see a sharp growth in profitability

and margins, driven by operating leverage.

Same store sales growth

Yum India Yum China McDonald India

Jubilant

MQFY13 -3.0% -20.0% 7.2% 7.7%

JQFY14 7.0% -20.0% 0.5% 6.3%

SQFY14 -1.0% -11.0% -5.5% 6.6%

DQFY14 -4.0% -4.0% -9.8% -2.6%

MQFY14 -1.0% 9.0% -10.5% -3.4%

JQFY15 -2.0% 15.0% -9.0% -2.4%

SQFY15 -4.0% -14.0% -7.9% -5.3%

Historical SSSG profile

FY2014 Restaurants Revenue (mn) Revenue per store

Westlife 184 7,403 40.2

Dominos 700 16,977 24.3

Dunkins 26 255 9.8

Yum India (company owned)

191 6540 34.2

Revenue per store (Rs mn)

McDonalds—India is still lovin’ it but the global experience is waning

McDonald entered India in 1996 through two master

franchise agreements, Hardcastle Restaurants,

licensed to operate in West and South India and

Connaught Plaza Restaurants for North and East

India. It opened its first restaurant in Bandra, Mum-

bai and currently has 350 outlets and with annual

system sales of about Rs14 bn. McDonald’s has most

successfully adapted its menu to the Indian palate

and delivers products and experience that straddle

the consumer pyramid.

This has been the strength of the brand globally as it

attracts people from all classes. McDonald’s revenue

per store is Rs40 mn, the highest in India among

established QSR chains. McDonald has consistently

innovated in India with its menu and has added

major brand extensions.

n McDelivery. The company’s delivery model was

launched in 2004 to cater to the home delivery

market in metro cities. The model competes with

Dominos for the consumer’s share of wallet in the

home-delivery space. McDonald has consistently

invested in online capabilities to aggressively

build this model.

n McCafe. McCafe is a brand extension launched

in 2013 to capitalise on the fast growing trend of

beverages and coffee consumption. The product

pricing is competitive and similar to that of Café

Coffee Day’s. This is a store-in-store format and

it plans to open 300 McCafe stores over the next

five years. A McCafe requires investment ofRs3

mn and it rides on the infrastructure of a Mc-

Donald’s outlet, which supposedly quickens the


pay-back period.

n Dessert kiosks. Another extension to compete

with an upcoming trend of ice-cream parlours.

The per capita consumption of ice cream in India

is significantly lower than similar developing

economies like Indonesia, which leaves scope for

penetration.

n 24 X 7. McDonald’s also started 24 X 7 outlets in

key locations like airports and railway stations to

cater to the burgeoning market.

McDonald’s strategy has been to compete in as

many categories as possible like breakfast, bev-


erage, dining and confectionery—all with a val-

ue-for-money proposition. Globally the company op-

erates on a franchise model, earning royalty income,

but increasing product lines helps revenue growth.

Consequently, the company has one of the highest

revenues per store. However, a franchisee must

buy new equipment, increase inventory, train staff

and make other such investments, which increases

the payback period and shrinks return ratios. Even

though McDonald’s has made significant additions

to its product line through brand extensions and

product introductions, including premium burgers,

the decline in same-store sales growth has been

alarming—higher than both Yum! Brands and Dom-

inos. The base effect and the economic slowdown

are main reasons, but a cursory look at McDonald’s

global business outlook is not very encouraging.

Whether the impact of a changing global strategy

will dent the India business is debatable but there is

little doubt that McDonald’s faces an arduous task of

revamping its global strategy.

A lot on one’s plate

Recently McDonald’s made significant changes in its

top management with CEO Don Thomson announc-

ing his retirement from March 1, to be succeeded

by Steve Easterbrook, senior executive vice presi-

dent and chief brand officer. McDonald’s has been

losing market share to fast casual dining outlets like

Chipotle, Shake Shack, Nandos and even to Burger

King. Even though McDonald’s per store revenue

is almost twice that of Burger King in the US, the

consistent decline in SSSG is alarming. In the recent-

ly announced results for 2014 on January 23, the

behemoth reported a decline in comparable sales

(SSS) of 2% in constant currency terms, reflecting

negative guest traffic in all major segments. Burger

King reported a SSSG of 3.6% in America in Q3

2014 against McDonald’s decline of 3.3% by focus-

ing on a simpler menu and effective market commu-

nication. Some experts say McDonald’s should stop

replicating its competitors and stick to the basics

but McDonald’s is experimenting with enhanced

customization to compete more effectively with fresh

competition. McDonald’s is rolling “Create Your

Taste” burgers, where customers can choose their

buns with a choice of 20 premium ingredients in up

to 2,000 outlets in the US. It is also experimenting

with a simple menu in some parts of the US. Mr.

Thompson admits that reviving the company will

take time. Forging the right strategy for such large

scale business for growth in the wake of slowing

global economic growth and fast changing consum-

er trends is a time staking proposition and may not

have quick-fix solutions in the near term.


Shake Shack, a fast casual dining restaurant chain, is

the new darling of investors. Shake Shack listed on

NYSE on January 30 and the share price more than

doubled from the initial offer price of US$21 per share

to a high of US$52. The current market capitalization of

Shake Shack, US$1.65 bn with 63 restaurants, is equiv-

alent to India’s Jubilant Foodworks with 888 outlets.

Shake Shack is a play on the fast emerging category of

fast casual dining, which has captured the imagination

of consumers and investors.

In developed economies the penetration of top fast

food chains has reached saturation level—there is a

definite shift of consumer inclinations away from fast

food chains to fast casual chains. Fast casual restaurants

offer limited table service compared to fine dining

restaurants but provide higher quality food with fewer

processed or frozen ingredients than fast-food restau-

rants. As fast casual restaurants occupy the sweet spot

between the two saturated categories of fast food and

fine dining, they attract customers trading up from fast

food for healthier offerings and also customers trading

down from fine dining for quicker and cheaper but

equally healthy food offerings. According to market-re-

search firm Mintel, the American fast-casual chain

outlets grew by 10.5% in 2014 against fast-food chains,

which grew by a mere 6.1%. Some of the emerging

players in the fast chain industry include Shake Shack,

Nando’s Chicken Restaurants and Chipotle Mexican

Grill.

Shake Shack is an upcoming global fast casual chain,

headquartered in New York, which serves premium

quality hamburgers, salads, hot dogs and other Ameri-

can meals. The USP of the chain is its product offering,

which comprises 100% all-natural, hormone-free and

antibiotic-free beef, chicken and dairy products and

potato fries free of artificial trans fat. Apart from a very

healthy food offering, Shake Shack offers a localised

menu and distinctive interiors for each outlet, which

makes a customer feel a distinctive personal touch

compared to the standardized services of fast-food

Sizzling—fast casual dining


chains. Its average store performance of US$4 mn is

more than twice that of McDonald’s average store perfor-

mance in the US. Its popularity is such that in the summer

at its original location, the wait in line for service can

stretch to over an hour, especially on weekends, when

the weather is pleasant. A webcam on the restaurant’s

web page shows the current line in real time.

During the three fiscal years ended December 25, 2013,

Shake Shack grew from seven Shacks in two states to 40

Shacks in six states, Washington, D.C. and eight coun-

tries, representing a 79% CAGR. Total revenue grew from

$19.5 mn to $82.5 mn, a 62% CAGR and net income

grew from $0.2 mn to $5.4 mn.

With most of the burger-restaurant segment comprising

quick-service restaurants, fast casual chains like Shake

Shack are well placed to take market share, as there is a

high probability that consumers will continue to trade up

to higher quality offerings given an increasing consumer

focus on responsible sourcing, ingredients and prepara-

tion. Additionally, consumers will continue to move away

from the added-time commitment and cost of traditional

casual dining.

The restaurant was founded in 1987 in the Johan-

nesburg mining suburb of Rosettenville when Portu-

gal-born audio engineer Fernando Duarte took his

entrepreneur friend Robert Brozin to a Portuguese

takeaway outlet, Chickenland, for a meal. After trying

the chicken—cooked in peri peri, a chilli sauce that

originated in Mozambique—they bought the restaurant

for about 80,000 South African Rand (equivalent to

about £25,000 at the time). They renamed the restau-

rant Nando’s, after Duarte. Two years later, the restau-

rant had four outlets—three in Johannesburg and one

in Portugal. By 2013, Nando’s had about 1,000 branch-

es in 35 countries. It has three outlets in India and is

highly rated on food-review websites.

The USP of the chain, besides the special spices it uses,

is health. The chain considers not just flavour and taste

as important but also the health aspect of the supply

chain. It sources chickens locally and makes sure they

are delivered fresh, never frozen. The chicken is then

marinated for 24 hours, in a marinade that contains no

preservatives, colourants or artificial flavours. Before

cooking them, the chickens are trimmed of excess fat

and then flame-grilled, which further reduces the fat

content.

The strategic shift of preference from fast food to

healthier fast casual food is not restricted to developed

markets. Even in the under-penetrated market of India,

fast casual chains like Nando’s Chicken, California Pizza

Kitchen and Moshe’s have set up a niche for themselves

and their market continues to expand.

Nando’s Chicken


Moshes—India’s answer to Shake ShackMoshes was started was started by Chef Moshe Shek, an en-

trepreneur and visionary. It received seed funding from venture

capital fund New Silk Route and has expanded to 14 outlets in

Mumbai and Pune. The chain prides itself on its quality of food

based on freshness and natural ingredients. Moshe’s positioning

seems similar to Shake Shack’s and it is among the fast growing

chains in India in the fast casual dining category.

YUM (my) brands

Yum is the most aggressive western fast-food chain

in India. It has ambitious plans for its restaurants in

India—it has scaled up its two major brands, Pizza

Hut and KFC. It also launched Taco Bell recently and

the initial response was encouraging. Its brands have

been successful in China and it has been seeking to

replicate the success story in India.

Yum’s store expansion has accelerated over the past

few years and it has stepped up expansion of Pizza

Hut and KFC. Pizza Hut competes with Dominos

in the home delivery and fast casual dining space.

The high store expansion strategy of KFC and Pizza

Hut seems to be successful—KFC is considered a

substitute for McDonald’s and its unique products

have found wide acceptance in India. Similarly, Pizza

Hut has found success as a pizza dine-in and delivery

option. The new venture, Taco Bell, looks promising

and may offer fresh legs for growth.

KFC 361

Pizza Hut 367

Taco Bell 7

Total 735

Outlet count of chains owned by Yum! brands


Home food is best

S E C O N D C O U R S E

For a long time, the market was dom-

inated by international chains like

McDonald’s, KFC and Dominos. A few

Indian chains, like Café Coffee Day and

Barista, competed successfully against the glob-

al players. But over the past few years several

Indian chains are not only competing success-

fully against global chains but also expanding

rapidly. Some of these chains are Box8, Faasos,

Maarosh, Jumbo King and Goli.

Global players have been active and aggressive

but Indian players have been no less—they have

successfully launched restaurant chains in the QSR

and fine dining spaces. They compete aggressive-

ly across categories and many firms have attracted

private equity and venture-capital funding. The

most interesting home grown restaurant chains are

Café Coffee Day, Barista, Speciality Restaurants

and Faasos.

Chain Founder Head quar-ters

Stores Cuisine Year funded Funding Investors

Faasos Jaydeep Bar-man/Kallol Banerjee

Pune 75 currently, will reach about 150 by 2016

Wraps 2004 US$10 mn Sequoia

Box8 Anshul Gup-ta/Amit Raj

Mumbai 16 Indian & Mexican

2013 Undisclosed Mu Sigma’s Dhiraj Rajaram, Indian Angels Network

Maroosh Ketan Kadam Mumbai 14 currently, will have 50 outlets by 2015 and 300-400 by 2018

Lebanese fare March 2014 43% stake acquired for Rs500 mn

Ronnie Screwvala

Barista Coffee Amit Judge New Delhi 198 currently, 750 by 2019

Coffee & sandwiches

December 2014

100% stake for Rs1 bn

Carnation Hospitality

Funding details of top Indian QSR chains

Indian chains have evoked a lot of interest in Ven-

ture funds. The table below captures the funding

details for some top domestic chains.

Anjan Chatterjee a passionate foodie with a

background in advertising and branding started

Speciality Restaurants in 1992 with “Only Fish”

restaurant serving foods containing the nostal-

gic flavours of Kolkata, in Mumbai. The 40 by 40

square foot crowded dining place drew gourmets

and food critics alike with the unique flavours of

Kolkata. Mr. Chatterjee quickly realized the dearth

Speciality Restaurants—Kolkata… and more


of specialty cuisines and started two brands, Oh!

Calcutta and Mainland China, in 1994. Mainland

China and Oh! Calcutta operate in the fine dining

Format Count Cities

Mainland China 53 25 cities in India and one in Dhaka, Bangladesh

Oh! Calcutta 9 Mumbai, Kolkata, Delhi, Pune, Bengaluru, Hyderabad and one in Dhaka, Bangladesh

Sigree/ Sigree – Global Grill 14 Pune, Chennai, Kolkata Mumbai, Hyderabad and Bengaluru

Haka 2 Kolkata

Machaan 4 Kolkata, Guwahati, Nashik, Surat & Howrah

Flame & Grill 4 Hyderabad, Nashik, Aurangabad and Kolkata

Others 7 Kolkata

Sweet Bengal Confectionary 17 Mumbai

Sum 110

Speciality restaurants - formats & outlet counts

Mainland China, Saki Naka

space, which is growing briskly, especially in the

specialty-cuisine segment.

Today the company has 112 outlets in various

formats, The flagship brand is Mainland China, with

53 outlets. The Other brands, Oh! Calcutta, Sigree

Global Grill, Café Mezzuna, Sweet Bengal and other

brands are significantly smaller than the flagship

brand but some are gaining ground. The chain plans

to go global soon, expanding to the Middle East,

Africa, the UK and elsewhere.


Oh Calcutta, Tardeo, Mumbai

Sigree Global Grill, Powai

Fine dining not so fine for the moment

Speciality restaurants had a successful IPO in 2012

but the stock performance over the years has not

been inspiring due to the economic slowdown and

high inflation, which severely dented its profitability.

Speciality operates mainly in the fine dining space,

which has some unique factors differentiating it from

QSR space. Fine dining is marked by customization,

emphasis on table service and frequent changes to

the menu. Inventory includes alcoholic beverages

and a wide variety of ingredients. Economic cycles

impact fine dining more than the QSR category

because of higher operating leverage and lower

volumes. Huge fixed costs are incurred in the fine

dining format for rent, air conditioning, manpower,

replenishment of quality food even in slack times,

resulting in protracted breakeven time-frames and

slower payback.

Cutting the fat

It’s no secret that in the restaurant business oper-

ational efficiency is the single most critical aspect

for maintaining long-term profitability. Speciality

is making the required changes to its supply chain

and business model to reduce costs per store to

enhance long-term profitability. It has reduced

the kitchen area from an average of 2,000 square

feet to 800 square feet by making key changes

like procurement of desserts from a centralized

commissary, renting cheaper godowns in for res-

taurants in up-market areas for food storage and

focusing on efficiency based on footfalls. These

factors result in significant savings on rentals and

energy costs.

Biggest leverage on achhe din

Operating leverage for Speciality is quite high for

volume improvement. During stressed times, busi-

ness tends to be strong only on weekends while

on weekdays, especially lunch hours, it is dull. In

delivery-based models, staff costs can be man-

aged by juggling between temporary and perma-

nent staff, based on dull and peak periods as the

skill involved in delivery is limited. But fine dining

restaurants must maintain their staff count as table service is

a critical element of the service. This bloats the cost structure

for fine dining but also offers the biggest opportunity when

corporate activity recovers—lunch hours pick up and both

volume and average ticket size rise. In 2007-08, the average

daily cover-turns for Mainland China were 1.7-1.8, which

has now dropped its dropped to 1.4-1.5; margins hovered

at 30% and now have dropped to below 20%. Although the

peak is quite far away, improved cover-turns will lead to huge

operating leverage.

“The improvement in corporate activity over the next few quarters will lead to a revival of fine dining. Southern markets like Bangalore have started performing better but most are still significantly below their peak operating performance”. Says Mr. Rajesh Mohta, CFO - Speciality


Faasos is a fledgling Indian QSR chain that serves

wraps and rolls with an Indian twist. It also serves rice

and other snacks. Faasos (Fanatic Activism Against

Substandard Occidental S**t) was founded in 2003

by Jaydeep Barman, an IIM Lucknow alumnus, and

Kallol Banerjee, inspired by kathi rolls served in

Faasos—really fast!gory (CDR) and not necessarily in the QSR space.

Eighty percent of its revenues are generated from

takeaways and delivery. Delivery time is about 24

minutes, which is quicker than most fast-food chains.

With this interesting proposition, it has bucked the

market trend of slowdown in same-store sales with

growth of 28% and 35% in Q2FY15 and Q3FY15

respectively. It has set an ambitious target of same-

store sales growth of 50% in FY2016 and plans to

become profitable over the next six months. The

chain generates per store revenue of Rs9 mn a year.

Kolkata. Today Faasos has 85

outlets in six metros in India

and plans to grow aggressive-

ly, by the end of 2015, to 150

outlets.

Faasos’ proposition is taste with

value for money. Interestingly,

Faasos competes in the meal

replacement casual dining cate-

“The improvement in corporate activity over the next few quarters will lead to a revival of fine dining. Southern markets like Bangalore have started performing better but most are still significantly below their peak operating performance”. Says Mr. Rajesh Mohta, CFO - Speciality


Faasos has an amazingly quick breakeven of one

month and a payback period of only 12-15 months,

significantly lower than McDonald’s and Dominos.

It is consistently investing in social media and has

developed mobile applications for ordering. It is

in IT systems for supply chain, which will make the

business model leaner. Faasos’ management has

the mindset of global restaurant chains and have

secured funding from Sequoia, a venture capital and

private-equity investor. Faasos is a promising compa-

ny poised for long-term growth.

Mad Over Donuts (MOD) was started by Indian-or-

igin entrepreneur, Lokesh Bharwani, in Singapore.

Mr. Bharwani realized that though Donuts are very

popular in the US & are consumed as breakfast or as

anytime snacks, this category is almost non-existent

in India. Due to the huge opportunity available in

India, Mr. Bharwani shifted base to India and opened

the first MOD outlet in India in 2008. Today MOD

has 50 outlets in India, out of which 23 are in Mum-

bai. It serves donuts and coffee.

Reviews of MOD are consistently positive and many

prefer MOD to Dunkin Donuts. MOD store locations

are strategic and the company generates average

revenue of Rs30,000 a day. MOD competes aggres-

sively with Dunkin and the recently launched inter-

national chain, Krispy Kreme. MOD is another Indian

chain with a promising future.

Mad Over Donuts


Good times round the corner

D E S S E R T

The economic slowdown has hit the

Indian restaurant industry hard, with the

past one year being especially harsh.

Even though the industry has grown,

store profitability has been severely dented.

Relentless food inflation, rising rentals and labour

costs have impacted store-level profitability. This

however, has not had a significant impact on

store-opening rates, which have accelerated for

some companies like Jubilant Foodworks.

The profitability of major players has been im-

pacted severely by the downturn but it can largely

be surmised that the worst is over. One of the

greatest windfalls at the start of CY2015 is the

simultaneous fall of inflation, crude oil prices and

interest rates. The increased disposable income

due to such a scenario will highly benefit the food

services industry.

The decline in crude oil prices is a major factor

that will boost disposable income. The turna-

round of same-store sales depends on the rise in

disposable income and growth in real income. A

pick-up in industrial and economic activity will be

a big boost to the rise in real income as wages will

rise and may not necessarily be accompanied by a

rise in inflation. A major reason for the stagnation

of fine dining over the past few quarters has been

the fall in corporate activity leading to a slack

business on week days. Mr. Rajesh Mohta, CFO

of Speciality Restaurants, believes, “The improve-

ment in corporate activity over the next few quar-

ters will lead to a revival of fine dining. Southern

markets like Bangalore have started performing

better but most are still significantly below their

peak operating performance”.

Consumer Con-fidence Index

Dec 13 Mar 14 Jun 14 Sep 14 Dec 14

Current Situation Index

90.7 99.9 100.4 105 105.5

Future Expecta-tion Index

100.3 114.9 122.9 123.2 122.2

Consumer confidence is seeing a revival

Consumer Inflation

Crude (USD/barrel)


Brandy and cigars

The lead economic indicators are turning in favour of

discretionary consumption. Eating out and ordering

will start picking up over the next two quarters. The

base is favorable for most chains as they were im-

pacted by a double-dip in same-store sales. Margins

have largely bottomed out and an uptick in margins

is expected in the forthcoming quarters. The restau-

rant industry is in a unique position to benefit from

pick-up in consumption, leading to revenue traction.

This along with a decline in inflation will help to

manage the cost structure better. The benefits are

expected to translate into significant improvement in

margins but the improvement is likely to be protract-

ed.

All discretionary categories will benefit with the

uptick in consumption but categories with pent-up

demand are generally the first to benefit—these

primarily include consumer durables. After consumer

durables, small ticket consumer discretionary cat-

egories including personal-care products, savories

and confectionery benefit. The eating-out industry

generally benefits a little later in the cycle as there is

no pent-up demand and allocation takes place with

a lag after a rise in disposable income. However,

some categories see faster pick-up than others. QSR

generally sees a faster pick-up in consumption than

fine dining. Besides, the best entrenched brands

generally rise earlier in the cycle.

In chronological order, our brand picks among listed

plays are as follows:

Jubilant Foodworks and Dominos: With 844

restaurants and adding more than 150 outlets a

year, Dominos is the best established QSR brand in

India. Its unique positioning and disproportionate

market share will help to attract a significant share of

incremental growth. Good times benefit all players

DQ 13 MQ 14 JQ 14 SQ 14

CII Business Confidence Index 54.9 49.9 53.7 57.4

Increase in corporate activity

Source: CII website

and smaller players sometimes see disproportionate

gains. Dunkin, however, needs to improve its brand

communication. Dunkin’s turnaround is likely to be

protracted and the management guidance indicates

a six-year breakeven period.

Westlife Development and McDonald’s: McDon-

ald’s in India has experienced a double dip in same-

store sales growth due to the slowdown in economic

growth. McDonald’s margin compression has also

been quite severe. But with an improvement in same

store sales, McDonald’s may see significant improve-

ment in margins. McDonald’s has also added new

product lines and brand extensions, which are yet to

deliver to their potential. All these factors indicate

that McDonald’s may be a significant beneficiary of

the uptick in the economic cycle. However, major

Jubilant Foodworks and Dominos


changes in global strategy may entail significant

investment for franchises, which is a significant risk.

Starbucks: With 61 stores and mega store sizes,

breakeven will be a challenge. The company is

unlikely to break even before 150 stores or at least

three years. However, Starbucks has established

itself as a quality beverage brand. It will have to

enhance its offerings to engage more customers

and take a higher share of their wallets. This is a

time-consuming process. The medium term will be

financially challenging but the company holds out

promise.

Speciality Restaurants: Although later in the cycle,

Speciality may see the biggest delta as it not only

benefits from consumer spending but also from pick-

up in corporate activity. Fine dining has huge latent

capacity, which will start getting used with a pick-up

in consumer activity. With a pick-up in corporate

activity not just capacity utilisation improves but

spending per cover also picks up. Speciality will see

the most significant improvement in margins over

the next three years due to operating leverage.

Speciality Restaurants

Westlife Development and McDonalds’s


Low commodity prices and low inflation spell

good times for many, but large detergent mul-

tinationals such as Hindustan Unilever and P&G

are not necessarily celebrating. That’s because

the “copy-cats” are busy. Ground View takes a

look at the clones at work…

“My motto is to help customer save money. On

every kilo of loose Ariel a customer saves Rs90. He

saves Rs40 on loose Rin and Rs30 on loose Wheel.

The customer saves money and keeps returning

to my outlet because he thinks I understand his

needs better,” says Mr. Irfan Khan, proprietor of

a kirana (grocery) store in Lower Parel, downtown

Mumbai. Mr. Khan refers to unpacked products as

“loose”, which has become colloquial in Mumbai.

“See, these products are not made by Unilever

or P&G but they are of equally good quality and

much cheaper,” he says. “To convince a customer

about the quality, we sell them as loose Surf and

loose Rin. Unsatisfied customers even return the

products and collect a refund.”

The Indian market has numerous “copy-cat” prod-

ucts of leading consumer brands, which claim to

be as good as the established brands. Makers of

such products offer retailers higher margins, and

a value-for-money proposition to price-conscious

(though not necessarily quality-conscious) custom-

ers. “Copy-cat” products abound in categories

such as detergents, which are not ingested. Trials

of such “copy-cats” increase when there is a sig-

nificant difference in retail prices of branded and

unbranded products. This generally happens when

input costs are low. The primary ingredient for

detergents is LAB, which is a derivative of crude.

LAB prices have dipped by over 40% through the

past five months.

Loose Wheel Loose Rin Loose Ariel

On every kilo of loose Ariel a customer saves Rs90. He saves Rs40 on loose Rin and Rs30 on loose Wheel. says Mr. Irfan Khan, proprietor of a kirana (grocery) store in Lower Parel


Price of LAB in Rs/kg (primary ingredient in detergents)

Low crude prices—a double-edged sword

Low crude prices are like a double-edged sword

that can increase gross margins across categories

but a reactive approach to market can devastate

the market share of sensitive categories. Detergent

is one such category, marked by low gross margins

of about 30% and profitability is highly sensitive to

market share.

Large companies have high overhead costs, manage

large inventories and adhere to government norms

but they have the advantage of established brands,

significant buying efficiencies and scale, which help

them to manage the inflationary cycle very well. On

the other hand, small detergent manufacturers have

limited overhead costs, work on a cash basis and

have limited inventory. However, they have problems

of working capital, scale and low brand awareness,

which force them out of business during periods of

high inflation.

During periods of low input costs, smaller players

become very active as working capital needs decline

and gross margins increase. They impact the market

share of large players during such periods. During

the last deflationary cycle of 2009-10, Hindustan

Unilever reacted to market pretty late and had to

pay heavily to regain the lost market share. This

impacted the conglomerate’s profitability over the

ensuing two years.

This time it’s a bit different

In the industrial towns of Ulhasnagar and Amber-

nath, near Mumbai, many large manufacturers make

LAB, the primary raw material for detergents. Conse-

quently, many small-scale detergent makers operate

in that area. These manufacturers cater mainly to the

Maharashtra market, which comprises about 10% of

India’s detergent market of about Rs150 bn.

But the market dynamics have changed significantly

over the past few years. “Rising labour costs and

volatile commodity costs have resulted in many

small-scale companies shutting down,” says Mr.

Ramesh Saini, a soap wholesaler and manufacturer

in Ulhasnagar. Mr. Saini also makes cakes of washing

soap. “I used to manufacture such cakes of soap

every day a few years ago but now there is hardly

any demand—I manufacture only once a week. The

market has is largely ruled by branded products

now,” he says. The detergents market has changed

significantly over the past few years with consumers

turning increasingly brand conscious. Even con-

sumers who buy clones are aware of the benefits

of branded products and buy clones only as near

substitutes to brands.

Mr. Ram Kadam, a resident of Diva in Thane, who On every kilo of loose Ariel a customer saves Rs90. He saves Rs40 on loose Rin and Rs30 on loose Wheel. says Mr. Irfan Khan, proprietor of a kirana (grocery) store in Lower Parel


buys unpacked detergent powder in Lower Parel, refers to

the products as “loose Rin”. He knows that he is not buying

the real thing but is conscious of the benefits of branded

products and buys this product only from a trusted Lower

Parel outlet in spite of his residence being 30 kms away. “I

have been using these detergent powders for a long time

and I am very happy with the quality,” he says. “They are

cheaper than branded products and offer good value. I used

to live in Lower Parel and since I am very happy with the

quality of the product I have not switched to other products

from other shops.”

A more consolidated market

The detergent market today is far more consolidated than

it was a few years ago. The market for cakes of soap, made

from vegetable oil, has declined by 90% in regions close

to urban centers. Labour costs and other overheads have

increased significantly for all players and achieving profitabili-

ty without scale and reach has become difficult, especially for

small players.

This however does not mean the market will not be compet-

itive in future. It only means that increased competition will

be protracted. Big players cannot afford to take the market

for granted and assume supernormal profits will be served up

on a platter. Large players will have to think long-term and

use the opportunity to focus on offering value to consumers.

Let us upgrade

“Nirma cannot cut prices, the product is sold at rock bottom

prices—there is no scope to cut prices,” says a Nirma dis-

tributor in Ghoti, a small town near Nashik, where, like many

other towns, consumers are getting more and more inclined

to buy only branded products. “HUL is the only player to cut

prices and the product quality is very good,” he says as he

cuts and weighs a cake of soap for a customer. Interestingly,

HUL cut prices of its premium brand, Rin, more than that on

its mass-market brand, Wheel. HUL does not make much

money from Wheel but it’s a scale play that helps to straddle

the consumer pyramid and offer distribution reach, which is

not possible with a pure premium portfolio, constrained by

market size.

HUL cut prices by about 10% last month, which includes a

combination of price cuts and higher grammage, mainly in

the premium segment (Rin). This has shrunk the gap between

the products of HUL and others, and is expected to drive

HUL’s volumes in the premium segment. Interestingly, in the

same segment, Tide has not cut prices.

Hindustan Unilever’s long-term focus

Nirma and other branded players have not yet become ac-

tive and hence HUL, having acted proactively, is expected to

gain market share in the detergents segment. Nevertheless,

it is likely that with lower crude oil prices, local players will re-

turn and other domestic players will cut prices—the market is

bound to become more competitive. However, as consumers

upgrade to branded and superior products, they would not

want to down-trade quickly. The tendency of consumers is to

up-trade and brands offer revenue stickiness, which is most

important in a category like detergents. HUL’s aggressive

strategy will help it to gain market share and offer long-term

revenue visibility. The short-term sacrifice of margins and

profitability will go a long way in convincing consumers about

HUL’s value focus.

(Despite low competitive intensity at present, a few recently launched un-branded products like Keten, Jaya and Arly have hit the markets in Mumbai and Nashik districts.)


Mr. Ranga Iyer, Healthcare Consultant, Former MD of Wyeth

Remedy for growth

BY SURYA PATRA

The domestic pharmaceutical industry is set to clock 12-15% growth each year over the next 4-5 years. Oncology drugs, vaccines, immunolo-gy and nephrology are true specialty plays for long-term value growth.


Mr. Ranga Iyer, former managing director of Wyeth,

talked with Ground View about the emerging trends in

the Indian pharmaceutical industry and policy changes

affecting it.

How do you see domestic policy changes impacting the

Indian pharmaceutical industry in the near future?

Before commenting on policy changes, I want to draw your

attention to the fact that the Indian pharmaceutical industry

has not yet reached a level at which it can address all India’s

healthcare needs. On the other hand, a large portion of

the Indian population needs primary/secondary healthcare.

Against a backdrop of such large unmet needs, the Indian

pharmaceutical policy framework is not very strict. In my

view, the government is trying to draw a balance between

prevailing huge unmet healthcare needs, affordability and

survival of the industry. Compare the current form of drug

pricing control order (DPCO) with older ones—you will find

that only 25-30% of drugs are under price control, and that

too, market-based pricing. This is a significant, positive shift

from the initial DPCO, which controlled the prices of 80% of

drugs, and that too, on cost-based pricing. So, I don’t think

the current pricing policy would be a growth hindrance to the

domestic pharmaceutical sector. I believe Indian formulations

are well set to deliver steady annual growth of 12-15% over

the next 4-5 years.

How do you read the stance of the Indian government

on drug pricing, restrictions on clinical trials, anticipated

stimulus to domestic API manufacturers and the likely

introduction of a healthcare policy?

India lost out in API manufacturing a long time ago, as gov-

ernment policies in the past did not help the industry. In fact,

the government’s API cost-based formulation pricing policy,

benchmarking Chinese API costs in fixing formulation pricing,

almost killed the domestic API industry. However, export

opportunities in advanced markets supported the industry.

The positive change on the API front is that the government

has moved away from a cost- based formulation pricing

policy to a market-based pricing policy and APIs are com-

pletely de-controlled. Additionally, the anticipated API policy

will strengthen the domestic pharmaceutical industry through

greater backward integration. I believe this will promote

healthy competition in domestic APIs and substitute Chinese

imports to a large extent and offer huge scope for business.

The government’s motive behind the introduction of a new

healthcare policy is to strengthen India’s healthcare infrastruc-

ture and provide affordable healthcare to all. I believe this

is a stimulant for the domestic pharmaceutical and hospital

sectors in India.

However, it is unfortunate to have restrictive clinical-trial pol-

icies for Indian pharmaceutical companies as they will not be

able to leverage the Indian cost advantage and naïve patient

population in grabbing a share of the huge global clinical-tri-

al opportunity.

India’s pro-generic approach and loose patent protection

have restricted the presence of MNCs in India though

they continue to be leaders in certain segments. How

do you see the MNC business shaping up in India in the

medium term? What would support its growth?

The share of patented products in the domestic market is

just 2-3% and the share of patented products in the MNC

portfolio is 20-25%. The fact of the matter is, MNCs are not

in India for patented drugs; rather they want to establish

their market presence in the region of 1.21 billion people

and to participate in the steady 12-15% annual growth of the

domestic formulations market. While patented drug launches

are long-term growth drivers, branded generics are the main-

stay for MNCs and that will continue to drive healthy growth

for MNCs in the foreseeable future. Besides, their strategic

inorganic moves would consolidate their position in future.

Steady economic progress, rising affordability and

increasing awareness of healthcare maintained steady

growth for the Indian pharmaceutical market in the past.

Where do you see the domestic formulations market

headed and what factors will drive it?

Favourable macro-economic factors such as like steady eco-

nomic progress, increasing per capita income, rising aware-

ness of healthcare, improved life expectancy (from 62 years

to 69 years in the last decade), will drive steady growth of the

domestic formulations market. While rising incomes open up

huge business scope for the wellness segment, increased life

expectancy opens up large business scope in the geriatric

segment. Similarly, drug launches will support the growth of

the domestic market. The introduction of new optional vac-

cines such as pneumococcal, typhoid, hepatitis, flu and HPV

vaccines (compared with only the rotavirus vaccine in the

past) has significantly expanded the vaccines market.


Generic exports to the US have been the strongest

support for profitable growth of Indian pharma; but

enhanced regulatory scrutiny and delayed drug approvals

have become concern areas. What is the future of Indian

pharmaceuticals in the US?

As far as regulatory scrutiny is concerned, I don’t think it’s an

intentional crackdown by the US FDA on Indian pharmaceuti-

cal companies. Until recently, the FDA could not inspect most

of India’s manufacturing plants as it did not have the resourc-

es or manpower. New legislation, GDUFA, strengthened the

FDA financially. Incidentally, India is the leading supplier of

generics to the US, supplying about 40% and 10% of the US’

API and generics requirements, respectively.

The sudden increase in inspections of plants and simultane-

ous negative observations has certainly bothered the Indian

pharmaceutical industry, but going ahead, I believe the

Indian pharmaceutical industry will retain its dominance in US

generics, led by its proven chemistry skills, the largest basket

of generic (DMFs and ANDAs) fillings and cost advantage.

Complex generics, specialty products and biosimilars are

believed to be the future of the pharmaceutical industry.

Where do you place the Indian pharmaceutical industry

in these opportunities and which Indian peers have the

capability to capitalize on the opportunities?

Biosimilars are certainly the future of global pharmaceuticals,

but success by an individual player would be subject to the

successful completion of the required clinical trials. This re-

quirement of clinical trials for biosimilar-drug approval poses

a key challenge to Indian players. However, alliances by Indi-

an players with global players with larger financial/technical

capability, like Merck-Dr Reddy and Mylan-Biocon, may take

India’s biosimilar prospects forward.

Complex generic and specialty drugs are the buzzwords of

the industry at the moment but I believe oncology drugs,

vaccines, immunology and nephrology drugs are specialty

products in the true sense. Players with capability in these

segments would have steady long-term growth. On the other

hand, segments like women’s healthcare, paediatric drugs,

vaccines for paediatrics/geriatrics, wellness drugs and derma

products are preferred plays of the moment in terms of sus-

tained profitability.

How do you see the vaccine market in India and its

growth over next few years? What would drive growth?

The Indian vaccine market is worth about Rs15 billion and

has been clocking steady double-digit growth annually.

Although the awareness of vaccines in India has recently im-

proved, vaccines in India are in the nascent stage. I believe a

change in perception from “cure” to “prevention” of disease

and introduction of new optional vaccines will drive rapid

growth for the vaccine market in India. For the moment,

government-sponsored vaccines dominate drugs in this

space. Going ahead, the launch of new optional vaccines like

pneumococcal, typhoid, hepatitis, flu and HPV vaccines will

drive rapid growth in the segment.

Sometimes uncertainty regarding emerging markets ne-

gates their relatively high growth potential. What is your

assessment of these markets?

Emerging markets like Latin America, Africa, Southeast Asia

and East Europe are characterised by huge unmet healthcare

needs, similar to those in India. Hence, there is sustainable

long-term growth visibility in these markets. However, the key

question is, who gets that growth and where. These are mar-

kets of branded formulations with steady growth but limited

entry barriers. Hence, competition with global innovators,

global generic players and local peers is always stiff in these

markets. So, only a differential strategy and product basket

can ensure market share and growth.

What is the outlook for the Indian pharmaceutical indus-

try and which are its preferred long-term players?

According to me, the Indian pharmaceutical industry, led by

key macro-economic factors, is well set to deliver steady an-

nual growth of 12-15% over the next 4-5 years. I see signifi-

cant consolidation in the industry in the near to medium term

as numerous MNCs are trying to establish their presence in

India and competition is intensifying. On the export front,

India’s dominant dossier filing across the world and cost ad-

vantage would ensure healthy near-term export growth. But

the specialty products or new drugs from innovative research

will drive value growth for the Indian pharmaceutical industry

in the medium term.


Dr. SUDHIR GOEL, a Chief Additional

Secretary, Agriculture, Maharashtra

Maharashtra’s farmers in Vidarbha continue to wallow in distress—farmer suicides continue unabated. Dr Sud-hir Goel, IAS, 1982 cadre, is Chief Additional Secretary, Agriculture, Maharashtra, who has been doing a lot of relief work with farmers in the region and elsewhere. Born in June 1955, Dr Goel has varied experience in a gamut of government departments including energy, urban development and agriculture. Dr Goel shared with Ground View his perceptions on farmer distress, farm economics, cotton seed price hikes and progress in research on genetically modified (GM) food crops.

on private sector participation as critical to alleviating farm distress

BY GAURI ANAND

Every other day we read about farmer suicides.

How severe is farm distress?

Farmers in India are distressed mainly because they

are not organized. About 83% of the land holdings

in India are marginal or small—out of about 120 mn

farmers, some 100 mn are small or marginal (with

less than five hectares of land holdings), and they are

unorganized. Almost 35% of the tractors sold in

Maharashtra are confiscated by banks and rela-

tively small and marginal farmers are at the mer-

cy of the monsoons and middlemen. Wastage of

perishables like fruits and vegetables is an estimated

18-40%, which hurts producers and consumers.

This leads to low returns for growers and volatility

in availability and prices for consumers. Having said

that, only 35% of farmer suicides have been authen-

ticated to be due to farm distress.

Is organized retail a structural solution to this

problem?

The fragmented agricultural marketing value chain

and the large number of intermediaries is leading

to wastage, low returns for producers and higher

prices for consumers. Organized retail (though only

3% of the retail market) is doubling its share every

three years or so and is likely to play an increasingly

important role in influencing the nature of agricultur-

al markets in the coming decade. A game changer

on the horizon is the proposed national food security


legislation, which will require the sourcing of huge

volumes of food from domestic producers. Tra-

ditional production and supply arrangements are

unlikely to prove adequate in meeting challenges

posed by these two major developments. Ma-

harashtra has issued 160 licences (the highest in

India) that enable companies to directly procure

from farmer groups, bypassing middlemen. The

pace of farmer engagements is improving, but it

is not encouraging. A Tata Chemicals-Rallis India

joint venture has immense opportunity on offer in

branded retailing of pulses, much like Amul (Amul

earned revenues of Rs180 bn in FY14—a six-year

CAGR of 23%). About a 59% increase in milk-pro-

curement price led to 46% growth in our milk

procurement, driving growth. Dr Goel is spear-

heading many Private-Public engagements and

states about 51 corporate groups have partnered

in such initiatives the names include Rallis, HUL,

Jain Irrigation, ADM Foods, Nuziveedu and Kaveri

Seeds (among others).

What about farm economics—is availability of

labour a cause for concern?

The implementation of NREGA (National Ru-

ral Employment Guarantee Scheme—a central

government scheme that guarantees 100-day

employment in a year to every household) un-

doubtedly has led to a shortage of agricultural

labour and about 15% CAGR in the wage bill over

FY08-14. Agriculture GDP is heavily weighted in

favour of high-value produce (horticulture, animal

husbandry, dairy, poultry and fish products)—as

much as 75% of the value of agricultural GDP is

contributed by such produce mainly because they

are not as labour intensive as other produce. Thus

a creative and collaborative effort can result in

unleashing the immense potential that Indian agri-

culture can offer and farm input suppliers can play

a role here. The benefit of higher MSP is negated

by a rise in input costs—consequently, farm profits

have not advanced over the past four consecutive

years.

Aren’t low agricultural productivity and poor

farm mechanization other issues?

Indian yields are low but productivity has im-

proved immensely over the past decade. Among

other things, the use of hybrid varieties, better

irrigation, balanced nutrient application and the

right mix of pesticide sprays have brought about

this improvement. Farmers must be empowered to

use high-end equipment, which is missing today.

The government has approved only genetically

modified (GM) cotton crops, which has led to

about a 30% jump in cotton yields. Maharashtra

has very recently cleared field trials of five GM

crops—brinjal, maize, rice, chickpea and cotton.

But it is the prerogative of the central government

to approve or disapprove of the use of GM crops,

based on trial results.

Finally, what are your thoughts on revision in

cotton seed prices?

Hybrid seed prices in India are market-deter-

mined and there are no controls. As for BT cotton

– Maharashtra, AP (undivided) and Gujarat have

introduced a Seed Act to control and approve

the upper limit for BT cotton seed retail prices.

Given the increase in production costs (primarily

labour) and handling charges, the seed industry is

demanding a revision in cotton seed prices (last

revised in FY11) and a view on this is overdue.

Maharashtra, being a seed consuming state and

not a producing state, is not incentivized to raise

cotton-seed prices. However, if higher seed prices

are approved in Gujarat or Andhra Pradesh the

supply of hybrid seeds to Maharashtra may be in-

terrupted, thus there exists an indirect compulsion

to raise prices—this is what we infer.


Indian Economy – Trend Indicators

Monthly Economic Indicators

Quarterly Economic Indicators

Growth Rates (%) Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15

IIP 0.1 1.1 -2.0 -0.5 3.7 5.6 4.3 0.9 0.5 2.8 -4.2 3.8 1.7 -

PMI 50.7 51.4 52.5 51.3 51.3 51.4 51.5 53.0 52.4 51.0 51.6 53.3 54.5 52.9

Core sector 4.0 1.6 4.5 2.5 4.2 2.3 7.3 2.7 5.8 1.9 6.3 6.7 2.4 -

WPI 6.4 5.1 5.0 6.0 5.5 6.2 5.7 5.4 3.9 2.4 1.7 0.0 0.1 -

CPI 9.9 8.8 8.0 8.3 8.6 8.3 7.5 8.0 7.7 6.5 5.5 4.4 5.0 -

Money Supply 14.9 14.5 14.5 13.5 13.9 13.2 12.2 12.7 13.0 12.7 12.0 11.4 10.2 11.5

Deposit 15.8 15.7 15.9 14.6 15.1 13.8 12.2 12.7 13.2 13.0 12.4 11.7 10.2 11.5

Credit 14.5 14.7 14.4 14.3 14.1 12.8 13.1 13.1 10.6 9.4 10.8 10.7 10.6 10.4

Exports 3.7 3.8 -3.7 -3.2 5.3 12.4 10.2 7.3 2.4 2.7 -5.0 7.3 -3.8 -

Imports -15.0 -18.1 -17.1 -2.1 -15.0 -11.4 8.3 4.3 2.1 26.0 3.6 26.8 -4.8 -

Trade deficit (USD Bn) -10.2 -9.9 -8.1 -10.5 -10.1 -11.2 -11.8 -12.2 -10.8 -14.2 -13.4 -16.9 -9.4 -

Net FDI (USD Bn) 1.9 0.4 -0.1 2.1 2.0 4.8 2.4 3.6 2.5 2.9 2.8 1.9 - -

FII (USD Bn) 2.9 2.6 1.5 5.4 -0.1 7.7 4.8 5.4 2.1 2.4 1.7 4.8 - -

ECB (USD Bn) 4.6 1.8 4.3 3.6 3.2 1.5 1.9 3.7 0.5 3.2 2.8 3.5 - -

NRI Deposits (USD Bn) 1.0 0.7 0.7 2.5 1.4 1.1 0.0 2.3 2.5 -0.8 -0.8 -0.8 -0.8 -0.8

Dollar-Rupee 61.9 62.1 62.2 61.0 60.4 59.3 60.2 60.1 60.9 61.8 61.4 62.0 63.0 61.9

FOREX Reserves (USD Bn) 295.7 292.2 294.4 303.7 309.9 312.4 315.8 320.6 318.6 314.2 315.9 316.3 319.7 327.9

Balance of Payment (USD Bn) Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15Exports 72.6 74.2 84.8 73.9 81.2 79.8 83.7 81.7 85.3Imports 120.4 132.6 130.4 124.4 114.5 112.9 114.3 116.4 123.8Trade deficit (47.8) (58.4) (45.6) (50.5) (33.3) (33.2) (30.7) (34.6) (38.6)Net Invisibles 26.7 26.6 27.5 28.7 28.1 29.1 29.3 26.8 28.5CAD (21.1) (31.8) (18.2) (21.8) (5.2) (4.1) (1.3) (7.9) (10.1)CAD (% of GDP) 5.1 6.5 3.5 4.9 1.2 0.8 0.3 1.7 2.1Capital Account 20.7 31.5 20.5 20.6 (4.8) 23.8 9.2 19.8 18.7BoP (0.2) 0.8 2.7 (0.3) (10.4) 19.1 7.1 11.2 6.9

GDP and its Components (YoY, %) OLD NEW OLD NEW OLD NEW OLD NEW NEWQ2FY14 Q2FY14 Q3FY14 Q3FY14 Q1FY15 Q1FY15 Q2FY15 Q2FY15 Q3FY15

Agriculture & allied activities 5 3.6 3.7 3.8 3.8 3.5 3.2 2 -0.4Industry 1.8 4.2 -0.9 5.5 4 6.5 1.2 5.5 4.6Mining & Quarrying 0 4.5 -1.2 4.2 2.1 5.1 1.9 2.4 2.9Manufacturing 1.3 3.8 -1.5 5.9 3.5 6.3 0.1 5.6 4.2Electricity, Gas & Water Supply 7.8 6.5 5 3.9 10.2 10.1 8.7 8.7 10.1Services 6.1 9.7 6.4 8.3 6.6 8.1 6.8 9.8 11.7Construction 4.4 3.5 0.6 3.8 4.8 5.1 4.6 7.2 1.7Trade, Hotel, Transport and Communications 3.6 11.9 2.9 12.4 2.8 9.4 3.8 8.7 7.2Finance, Insurance, Real Estate & Business Services 12.1 11.9 14.1 5.7 10.4 11.9 9.5 13.8 15.9Community, Social & Personal Services 3.6 6.9 5.7 9.1 9.1 1.9 9.6 6 20GDP at FC 5.2 7.5 4.6 6.6 5.7 7 5.3 7.8 7.5


Annual Economic Indicators and Forecasts Indicators Units FY6 FY7 FY8 FY9 FY10 FY11 FY12 FY13 FY14E FY15E

Real GDP growth % 9.5 9.6 9.3 6.7 8.6 8.9 6.7 4.5 4.7 5.5

Agriculture % 5.1 4.2 5.8 0.1 0.8 8.6 5 1.4 4.7 2.0

Industry % 8.5 12.9 9.2 4.1 10.2 8.3 6.7 0.9 (0.1) 3.0

Services % 11.1 10.1 10.3 9.4 10 9.2 7.1 6.2 6.0 6.9

Real GDP Rs Bn 32,531 35,644 38,966 41,587 45,161 49,185 52,475 54,821 57,418 60,576

Real GDP US$ Bn 733 787 967 908 953 1,079 1,096 1,008 950 993

Nominal GDP Rs Bn 36,925 42,937 49,864 56,301 64,778 77,841 90,097 101,133 113,551 125,424

Nominal GDP US$ Bn 832 948 1,237 1,229 1,367 1,707 1,881 1,859 1,878 2,056

Population Mn 1,106 1,122 1,138 1,154 1,170 1,186 1,202 1,219 1,236 1,254

Per Capita Income US$ 753 845 1,087 1,065 1,168 1,439 1,565 1,525 1,519 1,640

WPI (Average) % 4.5 6.6 4.7 8.1 3.8 9.6 8.7 7.4 6.0 3.0

CPI (Average) % 4.2 6.8 6.4 9 12.4 10.4 8.3 10.2 9.5 6.6

Money Supply % 15.5 20 22.1 20.5 19.2 16.2 15.8 13.6 13.5 12.0

CRR % 5 6 7.5 5 5.75 6 4.75 4.0 4.0 4.0

Repo rate % 6.5 7.5 7.75 5 5 6.75 8.5 7.5 8.0 8.0

Reverse repo rate % 5.5 6 6 3.5 3.5 5.75 7.5 6.5 7.0 7.0

Bank Deposit growth % 24 23.8 22.4 19.9 17.2 15.9 13.5 14.4 14.6 15.0

Bank Credit growth % 37 28.1 22.3 17.5 16.9 21.5 17.0 15.0 14.3 16.0

Centre Fiscal Deficit Rs Bn 1,464 1,426 1,437 3,370 4,140 3,736 5,160 5,209 5,245 5,136

Centre Fiscal Deficit % of GDP 4 3.3 2.9 6 6.4 4.8 5.7 5.2 4.8 4.1

Gross Central Govt Borrowings Rs Bn 1,310 1,460 1,681 2,730 4,510 4,370 5,098 5,580 5,639 5,970

Net Central Govt Borrowings Rs Bn 954 1,104 1,318 2,336 3,984 3,254 4,362 4,674 4,689 4,573

State Fiscal Deficit % of GDP 2.4 1.8 1.5 2.4 2.9 2.1 2.3 2.2 2.2 2.5

Consolidted Fiscal Deficit % of GDP 6.4 5.1 4.4 8.4 9.3 6.9 8.1 7.4 7.0 6.6

Exports US$ Bn 105.2 128.9 166.2 189.0 182.4 251.1 309.8 306.6 318.6 328.2

YoY Growth % 23.4 22.6 28.9 13.7 -3.5 37.6 23.4 -1.0 3.9 3.0

Imports US$ Bn 157.1 190.7 257.6 308.5 300.6 381.1 499.5 502.2 466.2 473.0

YoY Growth % 32.1 21.4 35.1 19.7 -2.5 26.7 31.1 0.5 -7.2 1.5

Trade Balance US$ Bn -51.9 -61.8 -91.5 -119.5 -118.2 -129.9 -189.8 -195.6 -147.6 -144.8

Net Invisibles US$ Bn 42.0 52.2 75.7 91.6 80.0 84.6 111.6 107.5 115.2 113.8

Current Account Deficit US$ Bn -9.9 -9.6 -15.7 -27.9 -38.2 -45.3 -78.2 -88.2 -32.4 -31.1

CAD (% of GDP) % -1.2 -1.0 -1.3 -2.3 -2.8 -2.6 -4.2 -4.7 -1.7 -1.5

Capital Account Balance US$ Bn 25.5 45.2 106.6 7.8 51.6 62.0 67.8 89.3 48.8 59.5

Dollar-Rupee (Average) 44.4 45.3 40.3 45.8 47.4 45.6 47.9 54.4 60.5 60.0

Source: RBI, CSO, CGA, Ministry of Agriculture, Ministry of commerce, Bloomberg, PhillipCapital India Research


ICC Circket World Cup 2015 Schedule

Date Match Details GMT IST Venue City

Feb 14 - Sat New Zealand vs Sri Lanka, 1st Match, Pool A 22:00 3:30 AM Hagley Oval Christchurch

Feb-13 (Feb 14)

Feb 14 - Sat Australia vs England, 2nd Match, Pool A 3:30 9:00 AM Melbourne Cricket Ground Melbourne

Feb 15 - Sun South Africa vs Zimbabwe, 3rd Match, Pool B 1:00 6:30 AM Seddon Park Hamilton

Feb 15 - Sun India vs Pakistan, 4th Match, Pool B 3:30 9:00 AM Adelaide Oval Adelaide

Feb 16 - Mon Ireland vs West Indies, 5th Match, Pool B 22:00 3:30 AM Saxton Oval Nelson

Feb-15 (Feb 16)

Feb 17 - Tue New Zealand vs Scotland, 6th Match, Pool A 22:00 3:30 AM University Oval Dunedin

Feb-16 (Feb 17)

Feb 18 - Wed Bangladesh vs Afghanistan, 7th Match, Pool A 3:30 9:00 AM Manuka Oval Canberra

Feb 19 - Thu United Arab Emirates vs Zimbabwe, 8th Match, Pool B 22:00 3:30 AM Saxton Oval Nelson

Feb-18 (Feb 19)

Feb 20 - Fri New Zealand vs England, 9th Match, Pool A 1:00 6:30 AM Westpac Stadium Wellington

Feb 21 - Sat Pakistan vs West Indies, 10th Match, Pool B 22:00 3:30 AM Hagley Oval Christchurch

Feb-20 (Feb 21)

Feb 21 - Sat Australia vs Bangladesh, 11th Match, Pool A 3:30 9:00 AM The Gabba Brisbane

Feb 22 - Sun Afghanistan vs Sri Lanka, 12th Match, Pool A 22:00 3:30 AM University Oval Dunedin

Feb-21 (Feb 22)

Feb 22 - Sun India vs South Africa, 13th Match, Pool B 3:30 9:00 AM Melbourne Cricket Ground Melbourne

Feb 23 - Mon England vs Scotland, 14th Match, Pool A 22:00 3:30 AM Hagley Oval Christchurch

Feb-22 (Feb 23)

Feb 24 - Tue West Indies vs Zimbabwe, 15th Match, Pool B 3:30 9:00 AM Manuka Oval Canberra

Feb 25 - Wed Ireland vs United Arab Emirates, 16th Match, Pool B 3:30 9:00 AM The Gabba Brisbane

Feb 26 - Thu Afghanistan vs Scotland, 17th Match, Pool A 22:00 3:30 AM University Oval Dunedin

Feb-25 (Feb 26)

Feb 26 - Thu Bangladesh vs Sri Lanka, 18th Match, Pool A 3:30 9:00 AM Melbourne Cricket Ground Melbourne

Feb 27 - Fri South Africa vs West Indies, 19th Match, Pool B 3:30 9:00 AM Sydney Cricket Ground Sydney

Feb 28 - Sat New Zealand vs Australia, 20th Match, Pool A 1:00 6:30 AM Eden Park Auckland

Feb 28 - Sat India vs United Arab Emirates, 21st Match, Pool B 6:30 12:00 PM W.A.C.A. Ground Perth

Mar 01 - Sun England vs Sri Lanka, 22nd Match, Pool A 22:00 3:30 AM Westpac Stadium Wellington

Feb-28 (Mar 1)

Mar 01 - Sun Pakistan vs Zimbabwe, 23rd Match, Pool B 3:30 9:00 AM The Gabba Brisbane

Mar 03 - Tue Ireland vs South Africa, 24th Match, Pool B 3:30 9:00 AM Manuka Oval Canberra

Mar 04 - Wed Pakistan vs United Arab Emirates, 25th Match, Pool B 1:00 6:30 AM McLean Park Napier

Mar 04 - Wed Australia vs Afghanistan, 26th Match, Pool A 6:30 12:00 PM W.A.C.A. Ground Perth

Mar 05 - Thu Bangladesh vs Scotland, 27th Match, Pool A 22:00 3:30 AM Saxton Oval Nelson


Date Match Details GMT IST Venue City

Mar-04 (Mar 5)

Mar 06 - Fri India vs West Indies, 28th Match, Pool B 6:30 12:00 PM W.A.C.A. Ground Perth

Mar 07 - Sat Pakistan vs South Africa, 29th Match, Pool B 1:00 6:30 AM Eden Park Auckland

Mar 07 - Sat Ireland vs Zimbabwe, 30th Match, Pool B 3:30 9:00 AM Bellerive Oval Hobart

Mar 08 - Sun New Zealand vs Afghanistan, 31st Match, Pool A 22:00 3:30 AM McLean Park Napier

Mar-07 (Mar 8)

Mar 08 - Sun Australia vs Sri Lanka, 32nd Match, Pool A 3:30 9:00 AM Sydney Cricket Ground Sydney

Mar 09 - Mon England vs Bangladesh, 33rd Match, Pool A 3:30 9:00 AM Adelaide Oval Adelaide

Mar 10 - Tue India vs Ireland, 34th Match, Pool B 1:00 6:30 AM Seddon Park Hamilton

Mar 11 - Wed Sri Lanka vs Scotland, 35th Match, Pool A 3:30 9:00 AM Bellerive Oval Hobart

Mar 12 - Thu South Africa vs United Arab Emirates, 36th Match, Pool B 1:00 6:30 AM Westpac Stadium Wellington

Mar 13 - Fri New Zealand vs Bangladesh, 37th Match, Pool A 1:00 6:30 AM Seddon Park Hamilton

Mar 13 - Fri Afghanistan vs England, 38th Match, Pool A 3:30 9:00 AM Sydney Cricket Ground Sydney

Mar 14 - Sat India vs Zimbabwe, 39th Match, Pool B 1:00 6:30 AM Eden Park Auckland

Mar 14 - Sat Australia vs Scotland, 40th Match, Pool A 3:30 9:00 AM Bellerive Oval Hobart

Mar 15 - Sun West Indies vs United Arab Emirates, 41st Match, Pool B 22:00 3:30 AM McLean Park Napier

Mar-14 (Mar 15)

Mar 15 - Sun Ireland vs Pakistan, 42nd Match, Pool B 3:30 9:00 AM Adelaide Oval Adelaide

Mar 18 - Wed TBC vs TBC, 1st Quarter-Final (A1 v B4) 3:30 9:00 AM Sydney Cricket Ground Sydney

Mar 19 - Thu TBC vs TBC, 2nd Quarter-Final (A2 v B3) 3:30 9:00 AM Melbourne Cricket Ground Melbourne

Mar 20 - Fri TBC vs TBC, 3rd Quarter-Final (A3 v B2) 3:30 9:00 AM Adelaide Oval Adelaide

Mar 21 - Sat TBC vs TBC, 4th Quarter-Final (A4 v B1) 1:00 6:30 AM Westpac Stadium Wellington

Mar 24 - Tue TBC vs TBC, 1st Semi-Final 1:00 6:30 AM Eden Park Auckland

Mar 26 - Thu TBC vs TBC, 2nd Semi-Final 3:30 9:00 AM Sydney Cricket Ground Sydney

Mar 29 - Sun TBC vs TBC, Final 3:30 9:00 AM Melbourne Cricket Ground Melbourne


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S (R

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Grow

th (%

) P

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(x)

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(%)

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e of

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15E

FY16

EFY

15E

FY16

EFY

15E

FY16

EFY

15E

FY16

EFY

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FY16

EFY

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43 6

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114.

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1.4

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30.8

30.9

31.2

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Bhar

at Fo

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Auto

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0 35

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6.1

26.6

30.6

24.2

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27,

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36,

353

135.

818

2.0

15.5

34.0

21.0

15.6

8.7

6.8

14.3

11.1

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43.7

45.6

49.7

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k Le

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177

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Mot

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5

18,2

06

198

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2

17,2

54

62.2

68.1

41.8

9.5

9.5

8.7

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4.3

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27.1

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17.4

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Mah

& M

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67.6

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3.6

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12.8

11.4

20.7

19.7

17.9

17.7

Mah

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Apol

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227

115

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Bhar

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282

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322

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8 3

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224

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17,

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8.8

11.8

8.6

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2.7

2.5

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9.5

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12.6

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a Ce

men

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57,

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7.3

99.1

58.8

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11.4

18.9

JK C

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9 4

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1

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2

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17

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3.9

39.8

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2.7

2.4

13.2

8.8

6.8

13.6

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ia B

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t Ltd

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ent

475

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585

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515

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2-2

12.2

21.8

1.3

1.2

20.7

10.4

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5.5

2.9

5.5

OCL I

ndia

Cem

ent

539

30,

641

22,

057

25,

843

3,5

36

4,8

66

1,3

59

2,3

95

23.9

42.1

26.4

76.3

22.6

12.8

2.4

2.1

9.6

6.3

10.9

16.7

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13.6

JK La

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i Cem

ent

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392

46,

150

22,

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31,

587

4,3

18

6,2

65

2,0

91

3,6

34

17.8

30.9

86.2

73.8

22.1

12.7

3.2

2.7

13.6

8.9

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13.9

Alst

om T&

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19,

432

21,

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1

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1-2

58.5

80.7

30.1

16.7

2.2

1.9

9.2

8.2

7.2

11.5

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7.4

Ultra

tech

Cem

ent

Cem

ent

3061

839

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2

55,4

18

342

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4

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3 7

1,08

5 2

2,52

7 4

0,32

9 82

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7.1

2.1

79.0

37.3

20.8

4.4

3.7

20.6

13.0

11.8

17.8

9.3

13.9

ABB

Indi

aCa

p Go

ods

1262

267

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7

8,35

2 8

7,93

1 4

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7

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2

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4

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12

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2.9

60.6

9.4

8.6

56.1

35.0

9.2

14.2

8.7

13.1

BHEL

Cap

Good

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8 6

79,2

09

303

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3

10,0

95

30,

716

35,

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23,

140

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9.5

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91.

815

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67.

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26.

3

Alst

om T&

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p Go

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494

126

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4

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6

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2

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3

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514

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38.

128

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Crom

pton

Gre

aves

Cap

Good

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2 1

01,2

82

145

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1

64,9

40

7,4

06

10,

645

3,4

78

6,3

46

5.5

10.1

42.4

82.4

29.1

16.0

2.6

2.4

14.2

10.0

9.0

14.8

6.7

10.3

Engi

neer

s Ind

iaCa

p Go

ods

217

72,

980

16,

684

15,

402

1,5

07

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67

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54

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9.1

10.9

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220

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92.

736

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Note

: For

ban

ks, E

BITD

A is

pre-

prov

ision

pro

fit

Phill

ipC

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l Ind

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over

age

Uni

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e: V

alua

tio

n Su

mm

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CMP

Mkt

Cap

Ne

t Sal

es (R

s mn)

EB

IDTA

(Rs

mn)

PAT (

Rs m

n)EP

S (R

s)

EPS

Grow

th (%

) P

/E (x

) P

/B (x

) EV

/EBI

TDA

(x)

ROE

(%)

ROCE

(%)

Nam

e of

com

pany

Sect

orRs

Rs m

nFY

15E

FY16

EFY

15E

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EFY

15E

FY16

EFY

15E

FY16

EFY

15E

FY16

EFY

15E

FY16

EFY

15E

FY16

EFY

15E

FY16

EFY

15E

FY16

EFY

15E

FY16

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KEC

Inte

rnat

iona

lCa

p Go

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86 2

2,07

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2.5

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314

1.4

33.9

14.0

1.7

1.5

8.7

6.6

4.9

10.8

7.3

9.1

Alst

om In

dia

Cap

Good

s68

1 4

5,80

9 2

1,62

6 2

4,56

6 1

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1

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1

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1

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26

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7.1

3.5

25.6

24.7

4.4

3.9

21.5

21.9

17.1

15.8

18.3

16.8

Lars

en &

Toub

roCa

p Go

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1684

1,5

63,8

11

618

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7

59,1

74

70,

154

86,

290

49,

713

63,

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53.4

68.3

0.9

27.9

31.5

24.7

4.2

3.7

22.9

18.4

13.2

15.1

11.3

12.7

Siem

ens

Cap

Good

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91 3

88,6

34

104

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1

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69

5,1

46

7,4

70

3,5

51

5,1

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10.0

14.4

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744

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9.4

76.0

8.9

8.4

73.3

48.8

8.1

11.0

6.3

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Cum

min

s Ind

iaCa

p Go

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903

250

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4

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8 5

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0 6

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8

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26

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67.

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Alst

om In

dia

Cap

Good

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62 4

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3 2

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3 2

9,76

5 2

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2

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1

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1

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54

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33.

816

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Ther

max

Cap

Good

s11

17 1

33,1

10

54,

550

57,

479

4,4

75

5,2

32

2,3

66

2,9

15

19.9

24.5

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23.2

56.3

45.7

6.2

5.7

30.4

25.6

11.0

12.5

8.7

9.8

Volta

sCa

p Go

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264

87,

337

472

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5

22,1

43

108

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1

17,8

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86,

469

97,

857

35.1

39.6

10.7

13.1

7.5

6.7

1.6

1.4

0.3

0.1

21.3

20.8

21.8

21.2

Cham

bal F

ertil

iser

sAg

ri In

puts

60 2

4,84

5 8

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3

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3

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78.

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67.

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41.

11.

06.

75.

814

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36.

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Coro

man

del F

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ers L

tdAg

ri In

puts

279

81,

169

104

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1

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91

8,6

90

11,

464

4,0

64

6,0

91

14.0

20.9

10.9

49.9

20.0

13.3

3.0

2.6

11.3

8.2

15.3

19.8

17.1

20.7

Tata

Che

mica

ls Lt

dAg

ri In

puts

463

117

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1

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01

181

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2

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1 2

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8

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28

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01.

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17.

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68.

3

Kave

ri Se

eds

Agri

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8 5

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8 1

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PI In

dust

ries

Agri

Inpu

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4 6

8,78

7 1

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8 2

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4

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2

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2

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17

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86.

119

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Ralli

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ri In

puts

227

44,

174

19,

074

22,

226

2,8

44

3,4

68

1,6

06

1,9

43

8.3

10.0

5.8

21.0

27.5

22.7

5.3

4.6

15.6

12.5

19.2

20.1

19.0

20.5

Unite

d Ph

osph

orus

Agri

Inpu

ts41

7 1

78,7

71

120

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1

33,0

58

23,

263

25,

008

11,

436

13,

401

26.7

31.3

12.7

17.2

15.6

13.3

3.0

2.7

8.5

7.7

19.8

20.5

16.9

16.7

Zuar

i Agr

oche

mica

lsAg

ri In

puts

251

10,

567

53,

769

57,

372

2,5

78

3,4

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155

1

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3.

724

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27.8

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268

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31.

213

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41.

911

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710

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Deep

ak Fe

rtilis

ers

Agri

Inpu

ts14

1 1

2,46

3 3

2,74

4 3

3,99

5 4

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5

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2

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2

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26

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44.

80.

80.

73.

73.

315

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Andh

ra B

ank

Finan

cials

251

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567

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51,

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43,

329

51,

285

8,4

61

13,

946

14.4

23.7

94.2

64.8

17.5

10.6

1.6

1.5

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414

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510

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Bank

of B

arod

a Fin

ancia

ls14

1 1

2,46

3 1

42,3

28

165

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1

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28

165

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5

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8 6

3,24

1 12

8.9

146.

822

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11.

00.

20.

1NM

15.0

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0.8

11.6

Bank

of I

ndia

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ancia

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51,

090

128

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1

50,8

00

128

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1

50,8

00

33,

779

42,

565

52.5

66.2

23.8

26.0

1.6

1.3

0.2

0.2

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50.

7

Cana

ra B

ank

Finan

cials

429

197

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1

08,9

73

125

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1

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73

125

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3

5,54

1 4

4,36

3 77

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64.

50.

70.

7NM

13.5

15.5

0.7

0.7

Corp

orat

ion

bank

Finan

cials

250

160

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4

0,28

3 4

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2 4

0,28

3 4

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9

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50

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94.

30.

40.

4NM

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9.0

0.4

0.6

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Ban

kFin

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9 1

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72

223

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2

74,3

92

223

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2

74,3

92

105

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1

30,4

51

220.

125

8.9

21.4

17.7

2.0

1.7

0.4

0.3

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00.

7

ICIC

I Ban

kFin

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ls33

6 1

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1

94,7

94

225

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1

94,7

94

225

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1

12,4

00

127

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97

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9.7

14.3

13.0

3.5

3.1

0.5

0.4

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8#N

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IOB

Finan

cials

1077

2,6

05,6

32

64,

783

73,

446

64,

783

73,

446

6,9

07

11,

896

4.9

8.5

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72.2

219.

112

7.2

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8.5

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67.

10.

22.

0


Note

: For

ban

ks, E

BITD

A is

pre-

prov

ision

pro

fitNo

te: F

or b

anks

, EBI

TDA

is pr

e-pr

ovisi

on p

rofit

Phill

ipC

apita

l Ind

ia C

over

age

Uni

vers

e: V

alua

tio

n Su

mm

ary

CMP

Mkt

Cap

Ne

t Sal

es (R

s mn)

EB

IDTA

(Rs

mn)

PAT (

Rs m

n)EP

S (R

s)

EPS

Grow

th (%

) P

/E (x

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Disclosures and Disclaimers

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Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own deter-mination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strate-gy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic or political factors. Past performance is not necessarily indicative of future performance or results.

Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current.

Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorized use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permit-ted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety.

Caution: Risk of loss in trading in can be substantial. You should carefully consider whether trading is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances.

For U.S. persons only: This research report is a product of Phillip-Capital (India) Pvt Ltd. which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.

This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities andExchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.

In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapi-tal (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo").Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer

PBGROUND VIEW GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 52

pg 32. attack of the clones!! pg 35. interview: mr. ranga...

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