Sector Thematic

D2C - changing landscape not fully factored in

Sector Thematic

FMCG

SECTOR THEMATIC

FMCG In comparison to other sectors, the FMCG sector has historically been more resilient to external challenges, leading to strong earnings (12.5% CAGR) and valuation rerating (2x) in the last two decades. Earnings traction was steady, driven by (1) share gains from regional/small players, (2) distribution expansion (particularly in rural areas), (3) consistent success with brand extensions, (4) high brand recall to drive premiumisation, and (5) outsourcing to help deploy funds to increase competitiveness. Top-tier mainstream companies have had a smooth ride, boosting investor confidence in earnings visibility. However, in the evolving competitive landscape, we remain sceptical about sustaining these drivers/assumptions. D2C/New age consumer brands are far more disruptive/ agile than traditional/regional competition. Established incumbents are no longer protected by entry barriers (distribution and brand), resulting in a level playing field and category fragmentation - a structural trend. While these new age companies presently account for only 3% of total revenue, given targeted white spaces their share could reach 8-10% in the next few years, which can potentially slice off 100-200bps of growth for incumbents. For new age brands with critical scale in terms of income levels, ease of distribution, and funding, a flywheel effect is in motion. While the majority of these individual brands will likely not scale beyond a certain point, a long tail of brands will emerge.

Varun Lohchab

[email protected]

+91-22-6171-7334

Naveen Trivedi

[email protected]

+91-22-6171-7324

Saras Singh

[email protected]

+91-22-6171-7336

10 March 2022 FMCG Thematic

FMCG

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters

D2C – changing landscape not fully factored in

In comparison to other sectors, the FMCG sector has historically been more

resilient to external challenges, leading to strong earnings (12.5% CAGR) and

valuation rerating (2x) in the last two decades. Earnings traction was steady,

driven by (1) share gains from regional/small players, (2) distribution expansion

(particularly in rural areas), (3) consistent success with brand extensions, (4) high

brand recall to drive premiumisation, and (5) outsourcing to help deploy funds to

increase competitiveness. Top-tier mainstream companies have had a smooth ride,

boosting investor confidence in earnings visibility. However, in the evolving

competitive landscape, we remain sceptical about sustaining these

drivers/assumptions. D2C/New age consumer brands are far more disruptive/

agile than traditional/regional competition. Established incumbents are no longer

protected by entry barriers (distribution and brand), resulting in a level playing

field and category fragmentation - a structural trend. While these new age

companies presently account for only 3% of total revenue, given targeted white

spaces their share could reach 8-10% in the next few years, which can potentially

slice off 100-200bps of growth for incumbents. For new age brands with critical

scale in terms of income levels, ease of distribution, and funding, a flywheel

effect is in motion. While the majority of these individual brands will likely not

scale beyond a certain point, a long tail of brands will emerge.

We have seen how the market punishes when long term growth assumptions

change. ITC, Emami, Colgate, Bajaj Consumer, Jyothy Laboratories were

penalised (>30% derating) in last few years. It reflects the fact that valuation

multiples are quite dynamic, and one must stay ahead of the curve to predict these

shifts. We have been underweight on the sector since early 2020; the sector has

underperformed in the last two years, with mild de-rating in progress.

Despite the correction, we do not see room for any valuation upsides; rather, we

expect more valuation risks in the next few years. We cut our multiples for

companies under our coverage (link) and maintain REDUCE for HUL, NESTLE,

BRITANNIA and EMAMI. We rate ITC as a BUY and maintain ADD on DABUR,

MARICO, GCPL, and COLGATE.

D2C – disruption or opportunity? We interacted with various D2C companies,

investors, and listed established players along with pricing/product analysis to

understand the change in the competitive landscape and future trends. Some D2C

players are disrupting categories (particularly BPC), but at an aggregate level, they

are expanding the market (particularly in F&R). We believe D2C companies have the

right-to-win in BPC, and established incumbents need to step up their game to

sustain market shares.

Our long-term thesis (1) We continue to believe that category leaders will be unable

to sustain high market shares, which will be impacted by competition from niche

offline/D2C players. Category leaders in India hold a high market share (in some

cases, >50%), in contrast to developed countries, where competition is more level

playing. (2) Relevant product, pricing, and communication will continue support

D2C/new age brands for customer acquisition. (3) Alternate channels (MT+ ecomm)

will continue to gain share, despite a significant increase in the last two years. India’s

share could be larger than that of developed countries, given the vast differences in

consumer buying experiences between GT and alternate channels. (4) Margin

expansion for most companies will be muted, as many have already hit the wall. A

large part of cost control has already been captured. Companies must prioritise

growth above margins. (5) Over the last five years, many consumer discretionary

companies have expanded/gone public, providing a variety of options to investors in

the consumption space. In comparison to history, changing assumptions will cause

the valuation metric to shift relatively quickly.

Company CMP (INR) Reco.

HUL 1,998 REDUCE

ITC 229 BUY

Nestle 17,146 REDUCE

Britannia 3,124 REDUCE

Dabur 528 ADD

GCPL 702 ADD

Marico 493 ADD

Colgate 1,449 ADD

Emami 471 REDUCE

FMCG Universe: Earnings vs. Valuation

(Ex-ITC)

Sector (Ex-ITC) P/E (12-month rolling

forward)

Varun Lohchab

[email protected]

+91-22-6171-7334

Naveen Trivedi

[email protected]

+91-22-6171-7324

Saras Singh

[email protected]

+91-22-6171-7326

Page | 2

FMCG: D2C Disruption

Focus Charts

Exhibit 1: India retail market Exhibit 2: India e-retail market penetration

Source: Bain and Company report, HSIE Research Source: Bain and Company report, HSIE Research

Exhibit 3: India internet penetration Exhibit 4: US vs. India category leader market share

Source: TRAI, Industry, HSIE Research Source: HSIE Research

Exhibit 5: Share of D2C revenue is small in the total pie

but has huge potential to grow

Exhibit 6: D2C potential impact (%) on domestic

revenue

Source: HSIE Research Source: HSIE Research

4% 4% 5%8%

10%13%

15%18%

23%26%

32%37%

47%50%

60%

0%

10%

20%

30%

40%

50%

60%

70%

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

690 780 815 850

810

1,250

-

275

550

825

1,100

1,375

FY

17

FY

18

FY

19

FY

20

FY

21

FY

26

(P

)

8-9%

CAGR

($bn)

2330

38

130

0%

5%

10%

15%

20%

25%

30%

0

50

100

150

FY

19

FY

20

FY

21

FY

26

(P

)

E-retail market ($ bn)

Penetration (%)

Penetration (%) - Ex Groccery

To

oth

pa

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Piz

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Sk

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Cle

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Inst

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No

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La

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US India

Incumbents

, 97%

D2C, 3%

38%34%

30% 30%27%

21% 21%

15%

10%

EM

AM

I

HU

L

DA

BU

R

GC

PL

CO

LG

AT

E

MA

RIC

O

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ITC

(F

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BR

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NN

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Page | 3


Content

Is D2C temporary or structural? .........................................................................................4

- E-retail penetration to further improve

- “Jio effect”

- D2C and e-retail are global trends, fired in pandemic

- India was always short of consumer brands, D2C adding options for

consumers

- Success of naturals/ayurvedic products was the first real indicator of change

- Institutional funding aiding wings to fly long

- Inspiring background of D2C companies’ founders

D2C: Key success factors ................................................................................................... 12

- Unique product proposition

- Support from rapid development of the ecosystem

- A new age of customer interactions

D2C: Disruption or opportunity ..................................................................................... 14

- Feedback - mainstream, D2C companies and investors

- Potential impact (%) on domestic revenue of mainstream companies

What is correct valuation premium, as assumptions alter? ......................................... 16

- Will changing business assumption impact valuation premium?

- Valuation Summary

- Change in Estimate, Target Multiple, TP and Rating

Competitive landscape change in BPC and F&R ......................................................... 21

- Cosmetics

- Skin Care

- Hair Oil

- Shampoo

- Personal Wash

- Feminine Hygiene

- Men's Grooming

- Coffee

- Milk & Milk Products

- Nutrition – Supplements

- Food/Staple

- Tea

- Meat & Meat Substitute

D2C companies profile ...................................................................................................... 36

- Mamaearth

- SUGAR Cosmetics

- The Good Glamm Group

- WOW

- Bombay Shaving Company

- Pee Safe

- Licious

- Country Delight

- Vahdam Teas

- OZiva

- True Elements

- Sleepy Owl

Page | 4


Is D2C temporary or structural?

Consumption patterns for many consumer categories have changed as a result of

the pandemic, and certain trends seem to be more lasting. During this time, many

consumers have discovered the ease of shopping online. It has not only added new

active consumers in the space but also increased the frequency of transactions.

Many consumption trends that emerged during the pandemic were unable to

sustain their momentum once the lockdown was lifted. It happened for a variety of

reasons, and it was expected as well. During COVID-19’s initial wave, demand for

packaged food, healthcare, and hygiene products was unprecedented. The trend

eventually petered out, and most categories witnessed mean reversion. Hence, the

question arises: is D2C also temporary? In our opinion, the trend has many

structural drivers; therefore, the speed of success may taper down compared to

FY21/FY22, but it will remain strong in the long run.

E-retail penetration to further improve

The Indian retail market is estimated to be worth over USD 800bn, making it the

fourth largest in the world. Still, it is expected to grow at an 8-9% CAGR over the next

five years. India has the second-largest number of internet users (~700-800mn), while

e-commerce users account for only 140-150mn, or ~20% of all internet users (most

developed countries have ~70%). Over the next five years, the e-retail market is

expected to gain penetration and grow at >25% CAGR. E-retail penetration has

improved from 3% FY19 to 5% in FY21, but it is predicted to reach 10% in the next

five years.

Exhibit 7: India retail market Exhibit 8: India e-retail market

penetration

Exhibit 9: E-retail shines in FY21

Source: Bain and Company report, HSIE Research

690 780 815 850

810

1,250

-

275

550

825

1,100

1,375

FY

17

FY

18

FY

19

FY

20

FY

21

FY

26

(P

)

8-9%

CAGR

($bn)

2330

38

130

0%

10%

20%

30%

0

50

100

150

FY

19

FY

20

FY

21

FY

26

(P

)

E-retail market ($ bn)

Penetration (%)

Penetration (%) - Ex Groccery

-5%

25%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Retail Market Gr. (%) E-retail Market Gr (%)

Page | 5


“Jio Effect”

India’s digital ecosystem is becoming favorable for D2C brands. Rising affluence

towards e-retail business was already in favour, as internet users started seeing a

massive jump after 2016, dubbed the “Jio Effect”. Since 2015 (when JIO was

introduced), data tariffs have been lowered dramatically, and India is now the

world's cheapest data country. It was especially beneficial in underpenetrated

countries like India, where penetration has increased dramatically.

Exhibit 10: Internet users in India –

The Jio Effect

Exhibit 11: India internet

penetration

Exhibit 12: India average data tariff

fall

Source: TRAI, Industry

Exhibit 13: Digital ecosystems

India Digital Funnel Growth (%)

FY21

User base (mn)

FY21 FY26

Internet users 5% 625-675 850-900

Chatting and social media 15% 400-450 725-775

Video content 25% 350-400 600-650

Service transactors 18% 200-250 500-550

Product transactors 32% 140 350-400

Source: Bain and Company report

D2C and e-retail are global trends, fired in pandemic

E-retail penetration expansion and the success of D2C are two global trends that

exploded during the pandemic. Despite a robust show in the last two years, the

Indian e-retail market and D2C are still in their infancy. With a large number of

internet users, rising affluence, and the increasing ease of using buying platforms,

India will continue to boost e-retail and D2C brands.

Exhibit 14: E-retail to outgrow MT in

India

Exhibit 15: Number of D2C Brands in

India

Exhibit 16: Global E-retail

penetration - % of retail


0

20

40

60

80

100

120

140

FY

17

FY

20

FY

21

FY

26

P

MT e-Retail($bn)

30-40K

70-80K

200-250K

20

18

20

20

20

25

(P

)

27%

22%

15%

7%

3%

30%28%

20%

12%

5%

0%

5%

10%

15%

20%

25%

30%

35%

Ch

ina

So

uth

-

Ko

rea

US

Au

stra

lia

Ind

ia

2018 2020

0

50

100

150

200

250

300

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

(INR/GB)

4% 4% 5%8%

10%13%

15%18%

23%26%

32%37%

47%50%

60%

0%

10%

20%

30%

40%

50%

60%

70%

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

42 81 100 137 239

286 342

422 494

637 749

845

1,186

-

300

600

900

1,200

FY

07

FY

09

FY

10

FY

12

FY

13

FY

14

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

26

(P

)

(mn)

Page | 6


Exhibit 17: Nominal GDP ($ tn) Exhibit 18: Number of Internet users

(mn)

Exhibit 19: Number of e-retail

shoppers (mn)


India was always short of consumer brands, D2C adding options for consumers

In India, most consumer categories are dominated by a few brands, with the top five

companies in many categories accounting for majority of the market (anywhere from

60-80%). Many consumer brands hold >50% market share in various categories,

despite the fact that categories are quite matured and sizeable. Most developed

countries’ market shares are quite evenly distributed among various players, for a

large part of consumer categories, owing to low entry barriers.

Over the last two decades, most of India’s top traditional companies have enjoyed a

successful journey by (1) gaining market share from weak regional players, (2)

investing heavily in marketing campaigns for customer acquisition, (3) diversifying

top brands into other categories, given faster success in newer categories, (4)

expanding distribution reach, and (5) outsourcing manufacturing to free up funds

funding for more relevant projects.

There were many entry barriers that the top traditional brands enjoyed as well, like:

(1) large networks of trade partners; (2) logistic capabilities for backend and frontend;

(3) funds to consistently drive brand recall and remain on top of consumer mind; (4)

ready third-party suppliers networks for outsourcing; and (5) R&D capabilities.

However, in the last a few years, many of these entry barriers are disappearing. With

funds becoming widely available, many educated/experienced people are venturing

out and becoming successful. The infrastructure to drive businesses has also become

more accessible with various third-party options coming to the fore. From

manufacturing to logistics to customer reach, everything is easily available at

effective costs. This allows new entrants/D2C to focus more on core drivers like

product innovation, customer acquisition, and customer frequency.

We believe many companies will eventually lose market shares, particularly in the

relevant and sizeable categories. Business environment is becoming more

conducive and providing a level-playing field to everyone. Many consumer

categories over the next decade will see a large number of new entrants.

-

6.0

12.0

18.0

24.0

US

Ch

ina

Jap

an

Ger

ma

ny

UK

Ind

ia 0%

20%

40%

60%

80%

0

200

400

600

800

Ch

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US

Ind

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Jap

an

Bra

zil

E-retail shoppers % of Internet Users

0

200

400

600

800

1000

Ch

ina

Ind

ia US

Bra

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Ind

on

esia

Page | 7


Exhibit 20: US vs. India category leader market share

Source: Unilever, Industry, HSIE Research

Success of naturals/ayurvedic products was the first real indicator of change

We believe consumers buying naturals/ayurvedic products instead of dominant

mainstream brands has been one of the most unexpected consumer trends of the last

decade. The success of naturals/ayurvedic products was initially assumed to be

temporary and many mainstream brands avoided entering the space. But, later, after

seeing a consistent shift in demand for these products, most mainstream brands

entered/and accelerated production in the naturals/ayurvedic space.

Consumer’s shifting preferences to naturals/ayurvedic products is an indicator that

they are ready to experiment with new products, going beyond the top established

brands. The success of this trend has been primarily witnessed in oral care, hair care,

and healthy supplements categories.

We believe this D2C trend will disrupt the wide consumer basket, both for consumer

non-discretionary and consumer discretionary categories. Within FMCG, BPC and

F&R both are seeing entry of various new brands. The ayurvedic/natural trend was

largely started by Patanjali and Dabur, but this D2C trend is no longer limited to any

category or players. A variety of brands is gaining momentum in this and, at an

aggregate level, is proving to give competition to mainstream brands.

To

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Page | 8


Institutional funding aiding wings to fly long

D2C companies are well-backed by various types of institutional funding, which are

helping them grow tremendously. This institutional funding has a certain type of

framework and it is proving essential comfort in the initial phases of success.

We have seen various promoters/businesses invest in such proposals to indirectly

participate in India’s large consumer market. We believe such investments will

continue to grow as most D2C companies are driven by qualified professionals.

Exhibit 21: M&A history for consumer companies in India since 2015

Acquirer/

investor Brand Acquired

Valuation

(Mn $)

%

Acquired Key rationale/details Year

Acquisition of traditional brands/co

ITC Savlon, Shower to Shower 100.0 Acquired the assets from J&J to enter the antiseptic soap and talc space 2015

Emami Kesh King 259 100.0 Acquired a high margin business to enhance its hair care portfolio 2015

Marico Bellezimo Professionale

Products

3.4 45.0 A 10cr strategic investment to enter the fast growing salon space, the

company exited the investment in 2018 for $246,000 2015

HUL Indulekha, Vayodha 49.4 100.0 Premium brand with strong credentials around Ayurveda to complement

its existing portfolio and strengthen its presence in the Hair Care category 2015

ITC Charmis The acquisition was positioned to help scale ITC's presence in BPC

Raymond

Consumer Care

Kamasutra 6.0 50.0 Raymond bought out its JV partner's stake in order to scale up its

consumer products business and take its key brand Kamasutra globally 2017

Lotte Havmor Ice Cream 150.4 100.0 Lotte’s entry into the India ice-cream market 2017

HUL Aditya Milk 100.0 The acquisition will complement HUL's existing portfolio in the ice cream

and frozen dessert 2018

Emami Brillare Science 34.7 This investment gives Emami presence in the professional personal care

segment such as high-end salons 2018

Haldiram CBTL, Gelato 100.0 2019

Emami Crème 21 100.0 The acquisition to boost and complement Emami’s international business

& portfolio particularly in MENA, SAARC and Russian markets 2019

HUL Vwash 100.0 The acquisition of VWash gives HUL an entry into the underpenetrated

and rapidly growing female intimate hygiene segment 2020

Zydus Wellness Complan, Glucon D,

Nycil and Sampriti Ghee

635.1 100.0 The acquisition fit in terms of brands in the fast growing categories of food,

nutrition and skin care as well as complementary distribution capabilities. 2018

HUL Horlicks 415.3 100.0 This gives HUL a strong portfolio in the nutrition business. This was a part

of the Unilever and GSK global deal 2020

ITC Sunrise Foods 285.1 100.0 This acquisition helps ITC scale up its Spices business and expand its

footprint across the country 2020

KKR Fogg 648.0 2021

Acquisition of D2C brands/co

Marico Beardo

45.0 The acquisition gives Marico presence in the men’s grooming segment 2017

Emami The Man Company

33.1

The Man Co provides a complete product portfolio for men by offering

head-to-toe range of grooming products. Emami wanted to be present in

this space

2017

Colgate Bombay Shaving Co

The investment gives BSC synergies for expanding offline distribution and

the experience from Colgate 2018

Marico Just Herbs 16.7 60.0 The acquisition gives Marico an opportunity to have a meaningful play in

Ayurveda-led beauty categories 2021

Reckitt Benckiser Bombay Shaving Co

RB led the INR 450mn fundraise 2021

Marico Beardo

55.0 The company acquired the remaining 55% stake in 2020 2020

Tata Consumer Soulfull 21.3 100.0

The acquisition will help TATA Consumer expand its product portfolio

into the fast-growing ‘on-the-table’ and ‘on-the-go’ categories and to

participate in newer consumption occasions

2021

Emami The Man Company

12.9 Added 12.87% for INR 500mn which takes the total holding to 45.96% 2021

Good Glamm

Group The Moms Co 67.2 100.0

The acquisition will help Moms Co expands its offline presence and

integrate data and other offerings by the groups 2021

Good Glamm

Group Organic Harvest 33.3 51.0 This acquisition will improve the group's presence in the organic BPC 2021

ITC Mother Sparsh

8.7 The acquisition is in line the company's ITC Next strategy to build a future-

ready organisation with a digital first culture 2021

Mamaearth BBLUNT 17.7 100.0 With the acquisition, BBLUNT's hair care and styling products business

will be completely owned and managed by Honasa Consumer 2022

Page | 9


Exhibit 22: Institution profile and investments

Name Investor Profile Location Fund Size Indian D2C Companies

A91 Partners Invest in consumer, pharmaceutical, healthcare, financial service

and technology sectors.

Mumbai $901M Sugar Cosmetics

Amazon Amazon's venture capital fund. Seattle, U.S. MyGlamm, Molekule, Tonal and

Scout.

Amicus India

Capital

It is backed by marquee investors including global institutions,

large family offices, entrepreneurs and business leaders.

Bangalore $79 million mCaffeine and Wonderchef

Ascent Capital Ascent Capital has provided growth capital to more than 100

outstanding entrepreneurs building game-changing companies

across multiple sectors

Bangalore over $1 billion BigBasket, MyGlamm and Fresh to

home

Bessemer

Venture

It's known for its investments in LinkedIn, Blue Apron and many

others, with a current portfolio that includes PagerDuty, Shippo,

Electric and DocuSign.

California, U.S, $9 Billion BigBasket, Swiggy, Urban

Company, Pharm Easy and

MyGlamm.

Brand Capital Brand Capital, the strategic investment arm of The Times Group,

leverages brand-led growth and value creation via unique and

pioneering investment models and programs.

California, U.S, $4 Billion Country Delight, The Right Moo

and Nik Baker's

Burman Family

Holdings

Promoters of Dabur India. New Delhi Invested > US

$500mn

Taco Bell, Mulino and Stur.

Chiratae

Ventures

IDG Ventures India, is a technology venture capital firm focused on

growth-stage startups in the Indian market.

Bangalore $950 million Myntra, Lenskart and FirstCry

ChrysCapital ChrysCapital has been pioneers in the investment arena – early

trend spotters in BPOs (Spectramind) and NBFCs (Shriram

Transport); founding investors in a bank (Yes Bank).

New Delhi $4 billion WOW and First Cry

DSG Consumer

Partners

They partner with early-stage founders from idea to concept to help

build the next generation of world-class consumer brands in India &

Southeast Asia.

Singapore $200 million Sleepy Owl, IndiaLends,

SaladStop, Goa Brewing Company

and The Mom's Co.

Faering Capital The firm was founded in 2009 by Aditya Parekh and Sameer Shroff. Mumbai $350 million Nykaa, Plum and Prataap Snacks.

Falcon Edge Alpha Wave was founded and is led by Rick Gerson, Navroz

Udwadia and Ryan Khoury, originally named Falcon Edge Capital.

It is supported by a team of experienced investment professionals.

New York $15 billion Lenskart, Swiggy, Dream11,

Policybazaar and Cred

India Quotient

Fund

India Quotient is a new type of early stage investor. They fund

companies building disruptive businesses aimed at Indian

consumers

Bangalore $184.7M Sugar Cosmetics, GIVA, Frsh,

Giva and Coolberg.

Lightbox

Ventures

The firm is focused on early-stage consumer technology businesses. Mumbai $398.4M Bombay Shirt Company, Melorra,

Rebel Foods and Parabo.

Matrix Partners The firm invests in seed and early-stage companies in the United

States and India, particularly in the software, communications,

semiconductors, data storage, Internet or wireless sectors.

USA $4 billion &ME, Chumbak, Country Delight,

DaMENSCH, Mosaic Wellness,

Oziva, Open Secret and The

Whole Truth.

RP-Sanjiv

Goenka VC

Established in 2018, RPSG Capital Ventures is an early-stage

consumer VC fund focused on investing in the D2C ecosystem,

including food & beverage, personal care, and lifestyle goods.

Gurugram Glowfit, Born Good, Bartisans,

Curry it, SkinKraft, Vedix and

Glowfit.

Sequoia Capital The firm mainly focuses on the technology industry. Sequoia

manages investment funds, including funds specific to India and

southeast Asia, Israel, and China, in addition to the US.

USA $38 billion Cafe Coffee Day, Awfis and Paras.

Sharrp Ventures In the unlisted space, they invest in early stage and growth stage

companies. Their preference is for companies that have already

demonstrated some level of business traction.

Mumbai HealthKart, mamaearth, Nykaa, m

caffine and Smytten.

Sixth Sense

Ventures

Sixth Sense Ventures is India’s first domestic consumer-centric

venture fund, founded by Nikhil Vora (Ex-Managing Director of

IDFC Securities).

Mumbai $85.3 Million Bombay Shaving Company,

fitternity, Vahdam Teas and

Veeba.

Stellaris Venture Stellaris Venture Partners is an early-stage venture capital firm. It

invests in tech and tech-enabled consumer and enterprise startups

in India.

Bangalore $225 million Mamaearth, Whatfix, mFine,

Slintel, Propelld, Loadshare and

Signzy.

Stride Ventures Stride Ventures provides comprehensive credit solutions to new-age

businesses in India.

New Delhi $222.4 M Sugar Cosmetics, Homelane and

MyGlamm.

Page | 10


Name Investor Profile Location Fund Size Indian D2C Companies

Titan Capital Their portfolio includes 150+ companies in India and the US across

consumer internet, D2C brands, SaaS, AI and Computer Vision.

Gurugram $10 Billion Razorpay, Mamaearth and

UrbanClap.

TPG TPG Capital, previously known as Texas Pacific Group, is an

American investment company. The private equity firm is focused

on leveraged buyouts and growth capital.

California $109 billion Firstcry, Lenskart, Campus and

Dodla Dairy.

Trifecta Capital

Advisors LLP

Venture debt is a form of specialty debt financing provided to

companies that are not serviced by traditional lenders like Banks.

The financing is usually structured as a combination of a loan along

with limited equity investment rights (warrants).

Gurugram $100 M Box8, PaperBoat, FabAlley, Plum

and Zivame.

Unilever

Ventures

Unilever Ventures invests in entrepreneurs who think big and build

companies that will change the way we live and work. They look for

tomorrow’s world-beaters in Consumer and Enterprise Technology.

London $863.4M Beauty Bakerie, Plum, Blow Ltd,

Bybi, Curlsmith, Frank body,

gallinee, Kopari and LXMI

WestBridge

Capital

WestBridge Capital is an experienced investment firm focusing

primarily on investments in India.

Mumbai $5.6 billion Cafe Coffee Day, Relaxo and

Kajaria

Wipro Wipro Ventures bridges the gap between emerging startups and

enterprise customers. Established in 2015 as the strategic

investment arm of Wipro Limited.

Bangalore $250 million MyGlamm, Happily Unmarried

Inspiring background of D2C companies’ founders

The founders of D2C companies are well-educated with work experience in reputed

companies. Apart from the benefits in funding, the availability of resources (supply

chain, outsourcing, third party distribution, etc.) and the strong background of

founders are also important in the success of D2C companies. The strategic thinking

to deal with established mainstream companies is essential, vis-à-vis the historical

competition from family-led old generation system. Most founders are capable

CEO candidates for mainstream companies; thereby, these D2C companies are

ahead of many mainstream companies on various counts.

Exhibit 23: Background of D2C companies founders Name Position Education Past Work-Ex Bio/Details

mamaearth

Varun Alagh CEO & Co-

founder

B.E - Electrical., PGDBM

(XLRI Jamshedpur)

HUL, Diageo, Coca-Cola Mr. Alagh has held various brand manager roles across major

MNC companies prior to starting mamaearth

Ghazal Alagh Co-founder BCA NIIT, dietexpert.com Besides mamaearth, Mrs. Alagh has also found dietexpert.in

to provide diet plans online

SUGAR

Vineeta Singh CEO & Co-

founder

MBA IIM Ahmedabad,

B.Tech IIT Madras

Quetzal Online, FAB BAG Prior to starting SUGAR, Mrs. Singh started FAB BAG, a

beauty/grooming subscription company

Kaushik

Mukherjee

COO & Co-

founder

MBA IIM Ahmedabad,

B.E. Pillani

Oracle, BigSlick, McKinsey,

FAB BAG

Mr. Mukherjee has worked with McKinsey prior to starting

SUGAR. He has also founded companies like FAB BAG and

BigSlick Infotech

MYGLAMM

Darpan Sanghvi CEO &

Founder

B.E. (MIT), MBA

(ESADE Business

School)

Baazee.com, Celanese Mr. Sanghvi started his career at Baazee.com, and had

worked across companies like Celanese Chemicals and was

the MD at Sanghvi Brands, for which he is a promoter

WOW Skin Science

Manish B.

Chowdhary

Co-founder

The founders were all digital marketers prior to starting Wow Karan Chowdhary Co-founder BBM Marketing Digital marketers

Ashwin Sokke Co-founder

Arvind Sokke Co-founder

Page | 11


Name Position Education Past Work-Ex Bio/Details

Bombay Shaving Company

Shantanu

Deshpande

CEO & Co-founder MBA (IIM Lucknow) McKinsey & Co Mr. Deshpande has worked with McKinsey prior to finding

BSC. He acts as an external advisor to McKinsey along with

his role as CEO at BSC

Rohit Jaiswal Head of products

and Co-founder

B.Tech, MBA (IIM

Udaipur)

Crompton Greaves, UAE

Exchange, Emel Group

Prior to starting BSC, Mr. Jaiswal held marketing and sales

and distribution roles at companies lie Crompton Greaves

(consumer products) and Emel Group

Deepu Panicker Co-founder M.Tech (IIT Bombay) McKinsey & Co,

FREECULTR, Times Internet

Mr. Munot has left Bombay Shaving Co and is now into

product development at Times Internet

Raunak Munot Co-founder B.Tech, MS Audi of America, Group M,

Trove

Mr. Munot has left Bombay Shaving Co and founder Trove

Experiences

PEE SAFE

Vikas Bagaria CEO & Co-founder B.E., MCA Electronics V R Forklift Marketing,

SafetyKart.com, SRV Damage

Prevention

Besides finding PeeSafe Mr. and Mrs. Bagaria have worked

across multiple companies including SRV Damage

protection, which is focused on reducing transit damage

caused to any goods during storage, handling & shipping. Srijana Bagaria Co-founder Bachelors Political

Science

SRV Damage Prevention

Licious

Vivek Gupta Co-founder CA Tavent Technologies, Helion

ventures, MobiCom America

Mr. Gupta has over 11 years of experience working in finance

at Tavant Technologies and Helion Ventures. He has also

served on the board of MobiCom America as a non executive

director

Abhay Hanjura Co-founder B.Sc Infosys, Google, Bajaj Allianz Mt Hanjura has worked in the insurance sector for about 7

years prior to finding Licious

Country Delight

Chakradhar

Gade

Co-founder CFA, FRM, PGDM (IIM

Indore)

Infosys, Indxx Capital Mgmt An alumni of IIM Indore, Mr.Gade had worked with Infosys

and Indxx Capital management prior to starting country

delight

Nitin Kaushal Co-founder PGDM (IIM Indore) HSBC Mt Kaushal has worked at HSBC prior to finding Country

delight

Vahdam Teas

Bala Sarda CEO & Co-founder BBS b10 media, Youth 360 Mr. Sarda had founded multiple companies prior to starting

Vahdam. He is also an angel investor with investments in

companies like GIVA, Flatheads etc.

OZIVA

Aarti Gill CEO & Co-founder B.Tech (IIT Rourkee),

MBA (Insead)

Capital One, FitCircle Prior to finding Oziva, Mrs. Gill had founded FitCircle a chat

based health and fitness platform

Mihir Gadani Co-founder B.Sc., M.Tech Molecule, FitCircle Besides finding Oziva, Mr. Gadani is also the co-Founder of

FitCircle. He holds M.Tech. in Bioinformatics

True Elements

Puru Gupta CEO & Co-founder B.E., MBA (FMS) Cognizant, ITC, CII, P&G,

Healthy World and Kartnowa

Technologies

Mr. Gupta has worked in various industries in different

capacities, including as a product manager at P&G. He has

also co-founded Healthy world.in

Sreejith

Moolayil

COO & Co-

founder

LLB, MLL & LW, MBA Tata Motors, Cognizant,

Healthy World and Fitard

Mr. Moolayil had worked across multiple companies in HR

before co-founding Healthy World and True Elements

SLEEPY OWL

Ajai Singh

Thandi

Co-founder Bachelors – Economics

(USE & LSE)

J.P Morgan Mr. Thandi had worked at J.P Morgan in the investment

banking team before co-founding Sleepy Owl.

Arman Sood Co-founder BA.LLB Embibe Mr. Sood started an ecommerce start up, eShack, after which

he was working as a marketing and communications

evangelist.

Ashwajeet

Singh

Co-founder LL.B

Source: Linked-in, Industry, HSIE Research

Page | 12


D2C: Key success factors

While the above macro drivers and ecosystem were the seeds of D2C channel’s

growth, the channel’s growth was further facilitated and accelerated by various

effective D2C companies’ initiatives. These companies disrupted the traditional

business model, and their out-of-the-box approach gave them the x-factor in

customer acquisition in categories that were heavily backed by well-established

brands. Although there will be a variety of success factors, we believe the

following aspects are the most pertinent (also highlighted by D2C founders).

Unique product proposition

Filling in the white gaps with relevant product innovation

D2C brands provide a sheer variety of products across BPC and F&R space. This

benefits the customers with the increase in choice.

D2C brands in the F&R space are more inclined to the naturals-based health food

space, where established brands have a limited presence, thus giving rise to a

new space.

In categories like coffee, D2C brands have given rise to the more premium coffee

space with drip coffee and whole bean coffee offerings.

While F&R is not limited to the creation of new sub-categories, BPC categories

like feminine hygiene and men’s grooming are being popularized by D2C

brands.

Going the natural way

The brands in the BPC space have introduced innovative products in categories

like cosmetics, hair care, personal wash, and cream space. These products are

more focused on naturals and are plant based, with many having accreditations

from global and Indian standard bodies.

Ingredient-based products by D2C brands (onion hair care) have seen large

consumer adoption.

Some D2C brands are investing heavily in R&D to develop innovative products

with high saliency.

Categories like packaged food products, beverages, tea, etc., are seeing a rise of

health-oriented products. Priced at a premium, the products are made of natural

ingredients and are focused on either promoting healthy living, or solving health

problems.

Individualisation and customisation

D2C brands have been collecting and using customer data to develop new

products for a more targeted audience.

According to industrial participants, given the ease and desirable speed of

launches, D2C brands are able to conduct test launches conveniently with a more

effective consumer feedback loop.

Brands like True Elements offer hyper customisation where individual customers

can curate their snacks/muesli.

Page | 13


Support from rapid development of the ecosystem

Streamlined logistics supports D2C

The boom of D2C brands was supported by development of logistic partners

enabling the industry to deliver 100mn parcels (across sectors) in FY21. Industry

participants expect this to reach 600mn by FY26.

Logistics partners continue to invest in technology and high quality

infrastructure to meet demand.

Logistic partners not only help D2C brands to deliver products at a speedy rate

pan India, but also aid in better inventory management.

A speedy delivery is a key customer satisfaction metric for D2C brands.

Trust in online payment, a key enabler

Adoption of online payment has been a key enabler for the growth of D2C

brands.

Online ecommerce transactions were historically heavily dependent on cash on

delivery (COD), rather than online payments.

Cash on delivery (COD) transactions have reduced from 60-70% five years back

to less than 30% currently.

The rise in adoption of online payments has been enabled by seamless and secure

transactions by customers through trusted payment gateways.

Changes in shopping habits a key positive

Return to origin (RTO) is 13-14x higher for COD vs. online payments.

RTOs impact D2C brands’ margins and lead to inventory overheads.

With consumers gaining trust in the payment systems, COD transactions are

gradually reducing.

A new age of customer interactions

Using new-age media for reaching customers

D2C brands are adopting social media to enhance their presence.

Regional strategy is old, consumer segmentation is the future.

Brands like SUGAR Cosmetics have leveraged the social media platforms to

educate women on makeup, which has helped it build its community.

Influencer marketing and social media help in generation hype towards a brand.

Nykaa has been one of the first brands in India to leverage this space and grow.

New platforms being developed to support reach

The influx of social media marketing gave rise to an Indian social commerce

platform, Trell. The platform targets the mass audience with consumer content in

vernacular languages.

Trell helps brands excel in tier-2 cities and beyond.

Tech enabled social media presence

D2C brands are using platforms like GupShup that facilitate WhatsApp

commerce.

The platform helps brands acquire new customers and leads, communicate

offers, enter transactions and make payments, improve website/app conversions,

and facilitate customer care and order updates.

Page | 14


D2C: Disruption or opportunity

The rise of the new age brands has helped develop categories of the future. Further, it

also casts doubts on key assumptions held by mainstream companies, like continued

market share gains by market leaders. Over the past few years, D2C brands have not

only eliminated entry barriers like distribution but have also created a loyal customer

base that continues to grow.

D2C brands in BPC are focused on providing a wide variety of products, filling gaps

in existing offerings. This poses a risk to mainstream brands, which have been slow

to innovate and launch new products. With some traditional companies seeing

potential in D2C brands, there have been a few acquisitions and strategic investments

in this space. Some brands, however, see the valuation for new brands elevated.

Besides acquisitions, there are opportunities for mainstream brands, which are

especially evident in the F&R space. The new-age brands have focused offerings

on health and natural-based products platforms. This has led to creation of new

sub-categories, in which established brands can enter organically. Following the

success of the D2C brands, companies like Dabur have entered the seeds and dried

fruits space (Dabur has done so through its Real brand).

Exhibit 24: Feedback - mainstream, D2C companies and investors

D2C Companies Investors into D2C Mainstream Companies

Scalability - Scalability after a threshold size

will require an offline presence;

hence, companies are investing

in the offline channel.

- Brands are entering new

categories to increase their

addressable market sizes.

- The timeline for a company to

reach a revenue threshold of

INR 1bn has shrunk

significantly.

- The ways forward is to look at

offline presence.

- Many D2C companies will

become sizeable over the next

five years.

- Despite initial success by some

D2C companies, at an

aggregate level many

companies/brands will

disappear

- Some companies are seeing it

as an inorganic opportunity

(like Marico, ITC, etc) while

some companies believe to

operate at their own level (like

HUL)

Channel - Omnichannel is what most D2C

companies are looking at.

- Some brands expect 60% of its

revenues from offline channels,

from 40% currently.

- Omnichannel will be prevalent

for D2C brands.

- Brands in their initial stages will

be present in the online space

only.

- GT will continue to be a

dominant channel in India.

- Pure play ecommerce has been

driven by the ongoing

disruption, so omnichannel is

more sustainable.

Exit strategy - Single brand D2C players may

look at being acquired.

- Brands that have expanded into

a house of brands, have good

scope for going public.

- With recent IPOs in the

startups, the ecosystem is

developing.

- A few large mainstream

players have already invested

in D2C brands.

- At high valuations, the

acquisition targets are not

attractive.

The way

forward

- Brands are investing heavily in

developing new products

(R&D) and expanding offline.

- Investors will continue to invest

in innovative D2C companies,

targeting untapped categories

- D2C brands with me-too

products are not attractive.

- Companies are working

towards premiumising the

highly-penetrated categories

and developing new

categories.

Page | 15


Exhibit 25: Potential impact (%) on domestic revenue of mainstream companies

Companies BPC F&R Others Total

So

ap

Sk

in C

are

Co

lor

Co

smet

ics

Ora

l C

are

Sh

amp

oo

Deo

do

ran

t

Hai

r O

il

Jam

Sau

ce

So

up

No

od

les

Tea

Co

ffee

Ice

Cre

ams

HF

D

Bis

cuit

s &

Bak

ery

Wh

eat

Flo

ur

Sn

ack

s

Dai

ry

Ch

oco

late

Juic

es

Ed

ible

Oil

Lau

nd

ry

Ho

me

Car

e

Hea

lth

Su

pp

lem

ent/

OT

C

Oth

ers

HUL 4 9 3 1 5 1 0 0 0 0 1 1 1 0 4 0 0 0 0 0 0 0 1 2 0 0 34

ITC (FMCG) 2 1 0 0 3 1 0 0 0 0 1 0 0 0 0 3 1 2 0 0 1 0 0 0 0 1 15

NESTLE 0 0 0 0 0 0 0 0 1 0 13 0 3 0 0 0 0 0 2 1 0 0 0 0 0 1 21

DABUR 0 5 0 5 2 0 4 0 0 0 0 0 0 0 0 0 0 0 0 0 4 0 0 2 9 0 30

BRITANNIA 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 10 0 0 0 0 0 0 0 0 0 0 10

GCPL 8 1 10 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 11 0 1 30

MARICO 0 0 0 0 0 0 14 0 0 0 0 0 0 0 5 0 0 0 0 0 0 3 0 0 0 1 21

COLGATE 0 1 0 24 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 27

EMAMI 0 16 2 0 1 1 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 9 0 38

Source: HSIE Research

Exhibit 26: D2C potential impact (%) on domestic revenue


Exhibit 27: While D2C only makes ~3% of the FMCG pie, it has huge potential to

grow


38%34%

30% 30%27%

21% 21%

15%

10%

EM

AM

I

HU

L

DA

BU

R

GC

PL

CO

LG

AT

E

MA

RIC

O

NE

ST

LE

ITC

(F

MC

G)

BR

ITA

NN

IA

Page | 16


What is correct valuation premium, as assumptions alter?

FMCG companies have undergone substantial valuation rerating in the last 10-15

years, owing to sustained growth outperformance (compared to GDP/other sectors)

and the belief that outperformance would sustain. These companies have also

established growth visibility by consistently gaining market share and creating entry

barriers for new players. Customer stickiness and consistent upgradation provided

several levers to drive operating margin. Most companies have seen EBITDA margins

expand at around >500bps over the last decade.

However, the question is that, after seeing changes in those assumptions that drove

valuations, how much valuation premium is justified. The following key assumptions

are now undergoing changes.

Assumption 1: Market leaders will continue to gain market share

Top mainstream top brands have gained massive market shares, largely from

regional brands in the last two decades.

Regional players focused on being present in the mass segment only.

Consumers were upgrading, so buying top brands was natural.

D2C competition is up-down, unlike regional brands.

D2C is well-funded and well-managed.

Market share gain assumption will remain in check over the next decade.

Assumption 2: Distribution and supply chain provide a competitive edge

Supply chain capabilities and network of trade partners were the key entry

barriers for new entrants.

Now, supply chain is easily available for a new entrant.

Alternative distribution channels are proving to be level-playing fields.

Distribution, which was once a competitive edge for mainstream brands (and an

entry barrier for others) is gradually becoming less relevant with an increase in

alternative sales channels.

Assumption 3: Consumers will not experiment in BPC

Top brands were positioned like the best-in-class for product quality.

BPC was under-penetrated, with consumers trusting top brands only.

D2C launched out-of-the-box products with global packaging.

Now BPC seems to be the most exposed category from D2C brands.

Assumption 4: Food is a safe haven for top brands

Quality product with consistency was the right-to-win for most mainstream

brands.

Trust was the key driver.

D2C companies are focusing on product differentiation through health benefits.

D2C companies are creating new F&R categories.

Assumption 5: Premiumisation only for market leaders

Mainstream brands have seen huge benefits of premiumisation, as all of

consumer upgradation benefits have been accrued by top available brands.

D2C brands are at a premium to market leaders for most categories.

Now competition for mainstream brands is coming from up-down.

Page | 17


Assumption 6: Margin trajectory will sustain

Most mainstream companies have seen massive margin expansion over the last

decade.

With changing competitive landscape, sustaining margins at such high levels will

not be easy for mainstream listed companies.

Assumption 7: FMCG will continue to see GDP multiplier >1x

Most FMCG companies have seen a GDP multiplier over the last many years.

Income growth, affordability, and aspirational drive resulted in sustained

multiplier benefits for top companies.

While now many leading companies are falling gradually to 1x of real-GDP

growth, large/sizable companies/categories (like HUL) are already at <1x.

Assumption 8: terminal growth +5

Most FMCG companies enjoyed the assumption of >5 terminal growth. A few companies are already growing at a rate that is close to the terminal

growth rate assumption. Mainstream companies are at the peak margin and have the best working capital

profile; further FCF growth will be limited and will be closer to revenue growth.

Exhibit 28: FMCG Universe : Revenue performance Exhibit 29: FMCG Universe : EBITDA performance

Source: Companies, HSIE Research Source: Companies, HSIE Research

Exhibit 30: FMCG Universe : Gross and EBITDA margin Exhibit 31: FMCG Universe : PAT performance

Source: Companies, HSIE Research Source: Companies, HSIE Research

0%

6%

12%

18%

24%

-

425

850

1,275

1,700

2,125

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22

E

Net Revenue YoY Growth (%)(INR bn)

-5%

0%

5%

10%

15%

20%

25%

30%

-

150

300

450

600

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22

E

EBITDA YoY Growth (%)(INR bn)

18%

20%

22%

24%

26%

28%

50%

52%

54%

56%

58%

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22

E

Gross Margin (%) EBITDA Margin (%) - RHS

-5%

0%

5%

10%

15%

20%

25%

-

80

160

240

320

400

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22

E

PAT YoY Growth (%) Avg (%)(INR bn)

Page | 18


Will changing business assumption impact valuation premium?

Over the past many years, the FMCG sector has enjoyed consistent rerating, driven

by sustained earnings outperformance when compared to other sectors. The sector

has underperformed (>30% underperformance to NIFTY-50) over the last three years

(particularly after COVID) because valuations were at their peak and other sectors

have showed more resilient earnings.

The question is whether FMCG companies’ valuation will rebound (after

underperforming last year) or whether such valuations will remain stable in the

coming years as business assumptions change. We believe that the rising new-age

competition, along with being at peak margin will continue to keep valuations in

check for the major FMCG basket. Companies’ own initiatives to boost earnings will

continue to be monitored for valuation purposes. The agility to deal with a new

competitive landscape and the adaptability to change the traditional framework will

determine the winners in the category. We remain underweight on the sector and

prefer selective picks.

Exhibit 32: Valuation impact on change in assumptions

Implied Assumptions on Target P/E

Change in 1yr fwd

P/E (x) New Target P/E

(x) - FY24

FCF growth rate in

first 10 years

COE in first

10 years

Terminal

growth rate

COE in terminal

period RoE

Old Target P/E

(x) - FY24 Scenario I Scenario II

HUL 13.0% 9.5% 6.0% 9.0% 85% 55 51 44 45

ITC 10.0% 10.5% 3.0% 10.0% 30% 19 18 18 19

Nestle 12.5% 9.5% 6.0% 9.0% 150% 55 51 44 52

Dabur 14.5% 9.5% 6.0% 9.0% 28% 50 46 40 42

Britannia 10.0% 9.5% 6.0% 9.0% 45% 40 37 32 35

GCPL 14.5% 9.5% 6.0% 9.0% 20% 42 39 34 35

Marico 11.5% 9.5% 6.0% 9.0% 45% 45 42 36 42

Colgate 9.0% 9.5% 6.0% 9.0% 90% 40 37 32 35

Emami 9.0% 10.0% 5.0% 9.5% 35% 25 24 22 25

Scenario I: 100bps lower gowth in our 10 yr growth assumption

Scenario II: 100bps lower gowth in our terminal growth assumption

Exhibit 33: Sector P/E (12-month rolling forward) Exhibit 34: Sector (Ex-ITC) P/E (12-month rolling

forward)

Source: Companies, Bloomberg, HSIE Research Source: Companies, Bloomberg, HSIE Research

20

25

30

35

40

45

50

Mar-12 Mar-14 Mar-16 Mar-18 Mar-20 Mar-22

FMCG Sector P/E (x) 10 Years' Avg P/E (x)

5 Years' Avg P/E (x) 3 Years' Avg P/E (x)

Current P/E:

36x

20

30

40

50

60

70

Mar-12 Mar-14 Mar-16 Mar-18 Mar-20 Mar-22

FMCG Sector P/E (x) 10 Years' Avg P/E (x)

5 Years' Avg P/E (x) 3 Years' Avg P/E (x)

Current

P/E: 48x

Page | 19


Exhibit 35: FMCG Universe: earnings vs. valuation Exhibit 36: FMCG Universe: earnings vs. valuation

(Ex-ITC)


Exhibit 37: FMCG Universe: profit mix Exhibit 38: FMCG Universe: market cap mix


Exhibit 39: Stock return

Companies 1W (%) 1M (%) 3M (%) 6M (%) 12M (%) 3Yr (%) 5Yr (%)

HUL (7.0) (11.5) (14.6) (28.9) (9.1) 17.4 128.3

ITC 6.5 (0.4) (2.6) 7.8 10.3 (21.5) (13.0)

Nestle (3.9) (5.1) (11.1) (16.2) 1.4 69.8 179.6

Dabur (6.6) (6.8) (8.9) (17.3) 0.4 22.2 93.2

Britannia (7.9) (9.4) (13.8) (23.3) (8.8) 1.7 100.1

GCPL (6.7) (21.1) (24.3) (36.7) 3.2 (0.8) 30.4

UNSP (7.5) (4.5) (12.1) 8.2 47.1 46.3 84.8

Marico (3.9) (3.7) (7.0) (14.3) 22.8 47.2 76.0

Colgate 0.1 0.8 0.4 (16.5) (11.4) 15.8 53.2

Emami (4.7) (5.5) (11.0) (21.0) (1.5) 22.8 (5.6)

Jubilant (5.7) (15.1) (29.6) (34.2) (9.9) 101.2 402.0

Radico (0.4) (8.9) (22.8) (5.0) 50.4 121.0 591.2

Jyothy 3.0 0.1 (6.2) (20.8) (5.1) (25.1) (25.1)

Bajaj Corp (0.5) (9.1) (13.6) (36.0) (39.0) (53.6) (55.8)

Tata Consumer (1.7) (0.8) (10.1) (20.2) 14.3 261.9 410.0

NSE FMCG (2.5) (6.2) (9.7) (15.0) 3.8 15.2 54.4

Nifty 50 (1.6) (5.0) (6.7) (5.9) 8.3 48.1 82.9

0x

13x

26x

39x

52x

65x

0

5

10

15

20

25

30

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22

E

EPS Gr (%) P/E (x)

0x

13x

26x

39x

52x

65x

0

7

14

21

28

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22

E

EPS Gr (%) P/E (x)

ITC, 42%

HUVR, 24%

NEST, 6%

DABUR, 5%

GCPL, 5%

BRIT, 4%

UNSP, 3%

MRCO, 3%CLGT, 3%

HMN, 2%

JUBI, 1%

RDCK, 1%JYL, 0% BAJAJ CON,

1%

ITC, 20%

HUVR, 34%

NEST, 12%

DABUR, 7%

GCPL, 5%

BRIT, 5%

UNSP, 4%

MRCO, 5%

CLGT, 3%

HMN, 1%

JUBI, 3%

RDCK, 1%JYL, 0% BAJAJ CON,

0%

Page | 20


Exhibit 40: FMCG Universe: valuation trend

P/E (x) 1 Yr Fwd P/E (x) P/E Re-rating/De-rating

10 Yr 5 Yr 3 Yr Current 10 Yr 5 Yr 3 Yr

Bajaj Cons 20 21 17 12 -41% -45% -29%

Emami 34 34 25 26 -23% -24% 3%

Jyothy 36 34 31 22 -39% -37% -30%

ITC 25 22 18 17 -32% -24% -10%

UNSP 129 63 63 51 -60% -18% -19%

Radico 21 24 25 32 48% 35% 28%

Marico 38 44 43 44 15% 0% 2%

GCPL 39 45 42 32 -18% -29% -23%

Britannia 38 49 48 39 3% -20% -18%

Colgate 39 40 39 36 -8% -10% -8%

Dabur 40 47 49 45 13% -4% -9%

HUL 46 56 59 47 2% -15% -20%

Nestle 55 61 69 60 10% -1% -12%

Jubilant 71 64 77 64 -11% 0% -17%

FMCG 36 39 39 36 -5% -12% -12%

FMCG (Ex-ITC) 45 52 53 48 3% -10% -13%

Nifty-50 19 21 21 18 -5% -13% -10%

Exhibit 41: Valuation summary

Companies

MCap

(INR

bn)

CMP

(INR) Reco.

TP

(INR)

EPS (INR) P/E (x) EV/EBITDA (x) Core RoCE (%)

FY22E/

CY21

FY23E/

CY22E

FY24E/

CY23E

FY22E/

CY21

FY23E/

CY22E

FY24E/

CY23E

FY22E/

CY21

FY23E/

CY22E

FY24E/

CY23E

FY22E/

CY21

FY23E/

CY22E

FY24E/

CY23E

HUL 4,626 1,998 REDUCE 2,100 38.7 42.4 46.7 51.7 47.1 42.8 36.1 33.0 30.0 19.5 21.5 23.9

ITC 2,819 229 BUY 285 12.7 13.9 14.9 18.1 16.5 15.4 12.2 11.2 10.4 44.6 46.9 49.8

Nestle 1,653 17,146 REDUCE 17,250 241.4 287.7 323.1 71.0 59.6 53.1 45.2 40.2 35.7 61.5 57.2 61.1

Britannia 753 3,124 REDUCE 3,200 65.4 80.4 91.4 47.7 38.8 34.2 33.0 27.8 24.4 54.8 63.0 67.0

Dabur 933 528 ADD 560 10.9 11.7 13.3 48.4 44.9 39.8 37.2 33.9 29.5 55.2 59.4 66.9

GCPL 718 702 ADD 880 18.5 22.0 25.0 37.9 31.9 28.0 29.5 26.4 22.8 23.4 26.2 30.0

Marico 636 493 ADD 550 9.5 11.3 13.1 51.8 43.8 37.7 37.8 32.2 28.0 63.0 67.9 76.0

Colgate 394 1,449 ADD 1,500 38.1 40.5 42.9 38.0 35.8 33.8 25.0 23.5 22.1 181.9 161.1 195.4

Emami 209 471 REDUCE 500 17.3 18.1 20.5 27.2 26.1 22.9 20.4 18.8 16.5 50.1 59.9 65.6

Exhibit 42: Change in estimate, target multiple, TP and rating

Company CMP Rating TP (INR) Target P/E (x) Old EPS (INR) New EPS (INR) Est Chg (%)

Old New Old New Old New FY22E FY23E FY24E FY22E FY23E FY24E FY22E FY23E FY24E

HUL 1,998 REDUCE REDUCE 2,542 2,100 55 45 38.7 43.1 47.4 38.7 42.4 46.7 - (1.5) (1.5)

ITC 229 BUY BUY 285 285 19 19 12.7 13.9 14.9 12.7 13.9 14.9 - - -

Nestle 17,146 REDUCE REDUCE 17,991 17,250 55 52 241.4 291.9 327.0 241.4 287.7 323.1 - (1.4) (1.2)

Britannia 3,124 REDUCE REDUCE 3,600 3,200 40 35 65.7 82.9 93.1 65.4 80.4 91.4 (0.5) (2.9) (1.9)

Dabur 528 ADD ADD 650 560 50 42 10.9 12.0 13.6 10.9 11.7 13.3 (0.3) (2.2) (2.1)

GCPL 702 ADD ADD 1,025 880 42 35 18.7 22.6 25.4 18.5 22.0 25.0 (1.0) (2.4) (1.4)

Marico 493 ADD ADD 580 550 45 42 9.6 11.6 13.4 9.5 11.3 13.1 (0.7) (2.6) (2.1)

Colgate 1,449 ADD ADD 1,700 1,500 40 35 38.1 40.5 42.9 38.1 40.5 42.9 - - -

Emami 471 REDUCE REDUCE 500 500 25 25 17.3 18.4 21.0 17.3 18.1 20.5 (0.0) (1.8) (2.1)

Page | 21


Competitive landscape change in BPC

Exhibit 43: Comparing D2C BPC companies to traditional BPC companies

Product Product Pricing Right to win for DC2 Impact on top traditional

brands

Cosmetics To differentiate their product

offering, D2C brands have

concentrated on naturals with

vegan, ethical sources. D2C

brands have received positive

feedback (>4 stars out of 5).

They compete with

conventional brands due to

their diverse product line.

In the cosmetics market, pan-

India brands are mostly in the

mid-premium range. Most D2C

brands (Sugar, Nykaa, and

MyGlamm) are targeting that

segment. The pricing of D2C

brands is at a slight premium

to traditional brands, but

product differentiation along

with effective marketing is

providing them an edge to gain

customer attention.

Right-to-win for D2C is high in

this category. Consumers on

this platform are ready to

experiment with products,

given the effective product

offerings by D2C brands and

brand fatigue they experience

with the top traditional brands.

Various D2C players are

entering this category at an

aggregate level and that poses

a risk for the top traditional

brands

Skin Care In comparison to traditional

brands, D2C brands are more

focused on launching

organic/natural products and

are less concerned with

fairness and anti-aging.

Glow & Lovely (earlier F&L),

Pond’s, Lakme, Nivea, Dove,

and Lotus have been the top

trusted brands in the skin care

market. These top traditional

brands are in the mid-premium

range, while most D2C brands

are in the premium range.


this category. Consumers on

this platform are ready to

experiment with products,

given the effective product

offerings by D2C brands and

brand fatigue they experiences

with the top traditional brands.


entering this category, and at

an aggregate level, it poses a

risk to the top traditional

brands

Hair Oil Focused on naturals with

vegan offerings, ethical

sourcing. Focusing on

differentiated product offering.

D2C are priced at a premium

of 1.5x to top traditional

brands.

Right-to-win for D2C is low for

this category. Distribution is

one of the big entry barriers in

this category, considering the

high category penetration. For

D2C players, it is a challenging

category for success as

consumer demand is highly

dependent on GT.

Hair oil is one of the most

prominent categories among

the traditional categories. Most

domestic FMCG companies

have high dependence on hair

oil business. Most leading hair

oil companies have also been

focusing on diversifying their

hair oil basket by keep entering

into other hair oil sub-segment

Shampoo Focused on naturals with

plant-based ingredients and

vegan offerings. Focusing on

differentiated product offering.

HUL, P&G, and L’Oreal

command the market in the

mid-premium range and have

enjoyed the entire consumer

upgradation in the past 10

years. Many

ayurvedic/naturals and

problem solving shampoos are

in the premium range. D2C are

priced at a premium >50 to top

traditional brands.


this category. Differentiated

product offering, effective

social media marketing, and

direct connect to consumers

would give right-to-win for

D2C brands.


entering this category, and at

an aggregate level, it poses a

risk to top traditional brands.

Personal Wash Focusing on differentiated

product offerings. More

innovation in liquid body

wash.

Priced at a premium to

traditional brands.

Right-to-win high for liquid

body wash, while for soaps, GT

will remain critical entry

barrier.


entering this category and

trying to capitalise the brand’s

success in personal wash. Top

soaps players are too strong to

be impacted by D2C.

Feminine Hygiene New variety of products are

introduced, which is helping

the category develop.

Priced at a premium to

traditional brands.

Various OTC and pharma

brands have right-to-win; D2C

success will not be easy

Potential acquisition

opportunity for top traditional

companies.

Men's Grooming New varieties of products are

introduced, which is helping

the category develop.

Priced at a premium to top

traditional brands.

Alternate channels (MT +

ecomm) are gaining traction for

this category; D2C players can

capitalise by correct product

offering and fix the white

spaces.

Potential acquisition

opportunity for top traditional

companies.

Source: Company, HSIE Research

Page | 22


Color Cosmetics

Top traditional brands

The Indian color cosmetics industry has been dominated by Lakmé, HUL’s

flagship beauty brand. It is in the mid-premium segment of cosmetics, which has

seen most uptrend benefits in the past decade.

Maybelline is a competitor brand of Lakme’s, having similarities with it in terms

of product, pricing, and marketing.

L’Oreal is in the premium segment, which still pertains to value-buying

proposition due to its product quality.

Brands like M.A.C. and Bobbi Brown are in the super-premium segment,

attracting a celebrity following.

D2C brands

In recent years, D2C brands like MyGlamm, Sugar, and Nykaa have risen to

prominence in this space. Most of these brands are in the mid-premium segment

and are enjoying the uptrend story that Lakme has captured successfully for

many years.

While D2C brands have their own websites, the rise of ecommerce platforms like

Nykaa has further fueled this sector’s growth. Lakmé too launched its own

website in late 2018.

Following their success in online, these D2C companies have started expanding

into the offline channel, with the help of new rounds of funding.

D2C brands, on a comparable basis, are priced at a premium (>50) to top

traditional brands.

On Nykaa, D2C brands have also received good star rating (with high number of

ratings). Some D2C brands like Sugar, MyGlamm, Kay, and Nykaa have similar

star ratings to Lakme and other traditional brands.

Our view

Within BPC, cosmetics is one of those categories where D2C has a strong right-to-

win through product differentiation, price filling, and effective marketing.

Women are ready to experiment with new brands, provided they have a

compelling proposition.

Exhibit 44: Lips - brand pricing (price/5gms) Exhibit 45: Lips - most rated products across brands

Source: Nykaa, HSIE Research Source: Nykaa, HSIE Research

-

500

1,000

1,500

2,000

2,500

3,000

3,500

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No of ratings Star Rating (RHS)

Page | 23


Exhibit 46: Face - brand pricing (price/10gms) Exhibit 47: Face - most rated products across brands


Skin care


Glow & Lovely (earlier F&L), Pond’s, Lakme, Nivea, Dove, and Lotus have been

the top trusted brands in the skin care market. These top brands have dominated

the market for the past many years. Also, after seeing success in skin creams,

some of the brands have extended into other BPC categories.

Marketing and distribution were the key tools for success of these brands. These

were the entry barriers for any new brand (limited success), as well as these

brands historically gained share from other regional brands.

After seeing success of D2C brands, HUL has launched its own digital brand

Simple, to compete with the new age businesses. Marico has acquired Just Herbs ,

a D2C brand, to be more competitive in this space.

D2C brands

There has been a rise of D2C brands in the skin care space over the last 3-5 years

and brands like SUGAR, MyGlamm, WOW and mamaearth have seen initial

success.

D2C brands are focusing on launching organic/natural products and are not just

focused on fairness and anti aging as compared to traditional brands.

New age brands have created a large variety of options for customers. They help

customers buy products for family consumption and individual consumption.

D2C are priced at a premium of 40-50 to top traditional brands.

Our view

Skin care is also one of those BPC categories in which D2C brands have seen

good initial success. D2C brands also have a high right-to-win, given their global

packaging, effective marketing, pricing strategy (fill the white spaces), and

unique product proposition. Consumers are ready to experiment for such brands,

given the premium positioning of these brands and brand fatigue with traditional

brands.

-

500

1,000

1,500

2,000

2,500 M

ay

bel

lin

e

L'O

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ga

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4.1

4.2

4.3

4.4

4.5

4.6

0

10,000

20,000

30,000

40,000

50,000

60,000

M.A

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Ma

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mm

Su

ga

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Page | 24


Exhibit 48: Cream - brand pricing (price/100gms) Exhibit 49: Cream - most rated products across brands


Hair oil


Hair oil is one of the most prominent categories in traditional brands. Most

domestic FMCG companies have a high dependence on hair oil business (Marico,

Emami, Dabur, and Bajaj Consumer). Brands like Parachute, ADHO, Dabur

Amla, Navratna, Kesh King, Patanjali, Nihar, and Indulekha are the top brands in

the hair oil market.

Non-sticky hair oils have seen success over the past 10 years and increased their

mix in the overall hair oil category. Still sticky hair oils (coconut, amla, sarson)

have the maximum mix in the hair oil business.

D2C brands

D2C brands that have seen success in other BPC categories have also entered the

hair oil business.

Hair oil category is flooded with various brands and is one of the most

fragmented categories among traditional categories.

D2C brands are offering a differentiated product basket, compared to traditional

brands.

Innovations are being driven by D2C brands, which the well-established brands

are following.

Established brands like Marico have acquired D2C brands in this category for not

just competing but also to gain access to latest trends for extension into their

brands.

D2C brands are priced at a premium of 1.5x to top traditional brands.

Our view

Most leading hair oil companies have also been focusing on diversifying their

hair oil baskets by entering into other hair oil sub-segments. Distribution is one of

the big entry barriers in this category, considering the high category penetration.

Hair oil market has seen several trends in the last 10 years, i.e., sticky to non-

sticky, rising trust towards ayurvedic products. For D2C players, it is a

challenging category to succeed in as consumer demand depends greatly on GT.

-

500

1,000

1,500

2,000

2,500 G

low

& L

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4

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4.2

4.3

4.4

4.5

4.6

0

2,000

4,000

6,000

8,000

10,000

La

km

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Page | 25


Exhibit 50: Brand pricing (price/100ml) Exhibit 51: Most rated products across brands


Shampoo


Shampoo is also traditionally a large category with many players (although much

lower than in the hair oil market).

HUL, P&G, and L’Oreal command the market in the mid-premium range, having

enjoyed the entire consumer upgradation over the last 10 years.

Many ayurvedic/naturals and problem-solving shampoos are in the premium

range.

The category penetration has increased massively through sachet launches in the

rural market.

D2C brands

D2C brands that have seen success in the other BPC categories have also entered

the shampoo business.

Most D2C brands are in the premium segment through offerings of natural

ingredients-based products.

D2C brands are priced at a premium of >50 to top traditional brands.

Our view

Most leading shampoo brands are driven by MNCs companies,

ayurvedic/naturals shampoos by domestic companies. D2C companies are

coming out with offerings like plant-based ingredients, vegan products, etc.

Consumer acceptance of some D2C brands in such a competitive category is

good. Distribution has been one of the big entry barriers in this category,

considering the high category penetration. Differentiated product offerings,

effective social media marketing, and direct connect to consumers would give

right-to-win to D2C brands.

-100 200 300 400 500 600 700 800

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Page | 26




Personal wash


HUL, Reckitt, GCPL, and Wipro are top players in personal wash.

The category has consistently been benefited by premiumisation. The market is

gradually shifting from soaps to liquid bodywashes.

Deep distribution in such highly-penetrated categories is the key right-to-win for

top traditional brands.

D2C brands

D2C brands offer more variety in soaps compared to traditional brands.

MyGlamm, mamaearth, and Bombay Shaving are among the top D2C brands in

this space.

Price strategy is the same and remains at the premium end.

Our view

The category is dominated by the top 4-5 players, with distribution being a big

strength for these players. We believe D2C brands have more right-to-win in

liquid bodywash category than it has in soaps. GT will remain the dominating

channel for soaps. Liquid bodywash is stronger in alternate channels; D2C

companies can win here through differentiated product offerings and leveraging

BPC brand positioning for this category.

Exhibit 54: Soaps - brand pricing (price/100gms) Exhibit 55: Soaps - most rated products across brands


-

50

100

150

200

250

300

350 V

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400

500

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2,000

3,000

4,000

5,000

6,000

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Page | 27


Exhibit 56: Body wash - brand pricing (price/100ml) Exhibit 57: Body wash - most rated products across

brands


Feminine hygiene

Rise of D2C players in the feminine hygiene category is helping the category

develop new innovative products. New age players are investing in R&D which

would help the category grow.

The variety of products available has significantly increased.

Various OTC and pharma brands have right-to-win, and we believe D2C success

will not be easy.

D2C brands are priced at a premium of 11 to traditional brands.



-

50

100

150

200

250

300

350

400

450

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160

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4.2

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4.4

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3,000

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5,000

6,000

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Naturals

Pee Safe Sanfe


Page | 28


Men's grooming

With the introduction of D2C brands, new products are being introduced

compared to very few (limited to shaving kits) earlier.

New innovative grooming products such as beard oil and wax are being

introduced.

Established companies such as Colgate, Marico and Emami have acquired D2C

brands such as Bombay Shaving Company, Beardo, and The Man Company.



-

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1,000

1,500

2,000

2,500

3,000

3,500

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Page | 29


Competitive landscape change in BPC F&R

Comparing D2C F&R companies to traditional F&R companies

Product Product Pricing Right to win for DC2 Impact on top traditional

brands

Coffee D2C brands are focused on

whole bean and drip brew

coffee markets rather than

instant or filter coffee ones.

The cost per serving for the

coffee sold by D2C brands is

significantly higher than the

cost for instant coffee sold by

traditional brands. The pricing

of whole bean coffee by ITC

also remains at a discount to

that by D2C.

Right-to-win for D2C is

high in this category as

these players have

developed a new subset of

the category in India.

Traditional brands have the

opportunity to tap into the

new growing market. While

crowded, this space is

witnessing decent growth.

Milk & Milk

Products

D2C offers fresh and high

quality milk and other dairy

products.

The pricing of D2C brands is at

a premium to offerings by

traditional brands. Some

brands have started

subscriptions, which reduces

the pricing to almost the same

level as traditional peers

D2C brands have a right-

to-win, given the

integration of the supply

chain. However, pan-India

scalability remains a

challenge.

While negative in a few cities,

the limited scalability of D2C

brands at the moment has

limited impact on top

traditional brands.

Food/Staple D2C brands focus on healthy

products. The brands have

entered spaces like nuts and

dried fruits, which has mainly

been unorganised.

Products are priced at a

premium, but being healthy

justifies a part of the premium.

Right-to-win for D2C is

high in this category as

these players have

developed a new subset of

the category in India.


opportunity to tap the new

growing health-focused

market. Brands like Marico are

capitalising on this trend.

Meat & Meat

Substitute

In the meat space, D2C players

are focused on selling high

quality meat. The variety of

meat substitute products is

wide.

Meat sold by D2C brands is at

a significant premium to the

wet market with which the

brands compete.

D2C brands have a right-

to-win, given the supply

chain integration.

Traditional brands like ITC

could benefit from entering

this space.

Nutrition -

Supplements

D2C brands offer specific

problem-solving products in

the nutrition space. The

products here are natural and

at time even vegan.

The D2C offerings for both the

drinks and vitamins space

command a premium, given

their specific problem-solving

propositions.

Right-to-win for D2C in

this category is the

constant R&D focused

products, which are

positioned to solve specific

issues.

The D2C products pose a risk

to traditional brands in the

vitamins space due to their

focused problem-solving

propositions.

Tea D2C brands offer a wide range

of products at different price

points. The products have a

health proposition.

D2C brands price their

products at a premium,

offering health benefits.

Right-to-win for D2C in

this category is the wide

range of products on

offering that have health

benefits.


opportunity to enter the

health-focused tea space, a fast

growing market compared to

CTC.

Source: Company, HSIE Research

Page | 30


Coffee


India has predominantly been an instant coffee or filter coffee drinking nation.

Filter coffee is more popular in South India.

To cater to these needs, brands like Nescafe and Bru have offerings like Nescafe

Classic and Bru Green Label.

The instant space has not seen much disruption from the D2C brands, but

innovative products like the beaten coffee (ITC's Sunbean) are being introduced

here, with many brands participating in this innovative journey.

Nestle has launched its own whole bean coffee products to take part in the

developing category.

D2C brands

The rise of D2C brands is causing the whole bean coffee category to develop in

India.

To brew whole bean coffee, equipment is required. The D2C brands are

expanding into brewing equipment space as well.

While ease and cost of preparing instant coffee is more desirable, the rising coffee

enthusiasts continue to shift to the whole bean space.

Whole bean coffee costs higher per serving due to lower coffee extraction.

Besides the whole bean coffee, D2C brands also offer ground coffee within drip

bags, which eliminates the need for brewing equipment. The cost/serving of this

coffee is the highest compared to instant and whole bean coffees.

Our view

The whole bean coffee is still in nascent stages, which is an opportunity for

brands like Nestle and Bru to expand. However, with the growing number of

D2C coffee brands, the competition in this space is high. Listed companies like

ITC are further creating categories like the beaten coffee, which has not been

adopted by other brands like Bru.

Exhibit 62: Brand pricing (price/100gms) Exhibit 63: Instant vs. whole bean coffee costing

Instant Whole Bean Drip Bag

MRP for 100gms (INR)* 285 160 240

Coffee/ 200 ml serving (gms) 1.8 12 12.5

Cost/serving (INR) 5.13 19.2 30

Source: Nykaa, HSIE Research

Source: Nykaa, HSIE Research

0

100

200

300

400

500

Nes

cafe

Bru

Su

nb

eam

Sle

epy

Ow

l

Min Max Avg

Page | 31


Dairy and dairy products


India has traditionally been an unorganised dairy country. Within this, the

traditional brands sell packaged milk.

The companies also offer other dairy products like ghee, paneer, and curd.

D2C brands

D2C brands’ offerings include fresh, high quality and ethical sourced milk, with

its premium products having superior packaging (glass bottles).

Dairy products such as ghee and curd are seeing an upmarket trend, driven by

D2C players.

Listed companies too have been present in this space with Pride of Cow, a part of

Parag Milk Foods, becoming an early entrant in 2012.

Milk and milk products by D2C brands (Country Delight and Pride of Cows) are

at a significant premium to traditional brands.

The brands are focusing on subscription-based models to increase customer

stickiness.

D2C brands are offering different types of subscriptions with discounts (>25).

Post such discounts, the pricing of the products are at par or below traditional

brands.

Our view

D2C brands do pose a risk to traditional brands, especially with the discounting

models. Given the fresh milk propositions, the widespread expansion of these

brands should be limited. With limited presence and tough scope for pan-India

scalability, the risks to traditional brands are limited to concentrated geographies.

Exhibit 64: Milk pricing (price/ltr) Exhibit 65: Ghee pricing (price/ltr)

Source: Company Data, Amazon, HSIE Research Source: Company Data, Amazon, HSIE Research

-20 40 60 80

100 120 140

Nes

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A+

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Min Max Avg

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400

800

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igh

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Min Max Avg

Page | 32


Exhibit 66: Curd pricing (price/ltr) Exhibit 67: Evolution of milk delivery/packaging


Nutrition - supplements


Within the nutrition drink space, Horlicks and Nestle are the dominant players.

The MNC brands are able to leverage the parent products to offer a large variety

or products across all consumer sections.

The vitamins (OTC) supplements space has been dominated by players such as

Patanjali, Himalaya, and Dabur.

D2C brands

Within the nutrition drink space, the D2C brands have a limited presence, but

they offer a natural proposition. Compared to traditional brands, the pricing of

D2C brands comes at a premium.

D2C companies in the supplements space provide a focused problem-solving

approach.

Unlike the product formats of traditional brands (pills/capsule), D2C products

are in different types of formats like pills, gummies, and shots.

Our view

D2C products pose a higher risk to traditional brands in the vitamins space due

to their focused problem-solving propositions.

-

50

100

150

200

250

300

Nes

tle

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Page | 33


Exhibit 68: Brand pricing (price/100gms) Exhibit 69: Nutrition product offerings across brands


Food


Well-established brands have a presence in packaged foods such as RTC/RTE,

biscuits, instant noodles, snacks, etc.

ITC has a basket of 14 brands through which it is present across a variety of

products at different price points.

D2C brands

D2C brands are focused on healthy foods with the possibility of hyper

customisation.

RTE/RTM is a segment that has intense competition, with brands such as ID

Foods.

New categories that were earlier fragmented, i.e., dried fruits and nuts, are being

targeted by D2C companies.

Our view

The health-oriented food space has seen traction with the rise of D2C brands.

Traditional brands do have an opportunity to tap into this vast space. Companies

like Marico and ITC are adopting industry trends by increasing their product

baskets. With a growing health-conscious population, the nutrition health space

is here to stay.

Britannia ITC Marico Nestle HUL Dabur ID Foods Soulfull Happilo Yoga bar

True

Elements

Beverages

Biscuits & Bakery

Breakfast

Chocolate

Frozen Food

Masala

RTC/RTE

Sauce & Jams

Seeds/Dry Fruits

Snacks

0

500

1,000

1,500

2,000

2,500

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(P

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)

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iva

(V

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min

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Ak

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per

food

s

Min Max Avg

Page | 34


Tea


Established tea brands in India have limited product offerings, focused on CTC

tea and green tea.

With rising premiumisation trends, HUL, under its Taj Mahal brand, has

launched premium, single estate tea products.

D2C brands

Within tea, D2C brands offer a wide range of products across different price

points, with a focus on health proposition.

Pricing for D2C is much higher, aimed to make tea a lifestyle choice.

Our view

Traditional tea brands have dominated the traditional tea market, but lack

presence in the health-oriented tea market. Traditional bands are present in the

healthy tea space with limited offerings like green tea. With a wide variety of

solution-driven products, D2C players have an edge over traditional brands.

Traditional brands could scale up their offerings to compete in this fast-growing

space.

Exhibit 70: Brand pricing (price/100gms) Exhibit 71: Types of tea offerings


Meat and meat substitutes

Top traditional market

The Indian meat industry is worth $45bn, with 72 of the population being non-

vegetarians. The industry is highly (95) unbranded, or a wet market.

Traditional brands like ITC have a presence, but are limited to the frozen meat

and packaged food space.

D2C brands

The key for D2C in the meat industry is managing logistics and reducing

wastage.

Within the meat industry, the normal dumpage is 5; however, some D2C brands

claim to have achieved lower dumpage.

While the products are priced at a significant premium to the wet market, the

product quality is superior with a control over the supply chain.

-

10

20

30

40

50

60

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Page | 35


India is also seeing a rise in popularity of plant-based meat products along with a

rise in D2C brands in this space. Brands in this space are targeting non-

vegetarians seeking animal-meat replacement.

Our view

D2C brands compete with the wet meat industry rather than established brands.

Given the large untapped market, traditional brands like ITC could benefit from

entering this space. The meat-substitute space is seeing good traction in the

western countries and to capitalise on the trend, ITC has launched its plant-based

meat products.

Exhibit 72: D2C meat delivery priced at a steep premium to the unorganised sellers (INR/KG) Licious Freshtohome Pescafresh CambayTiger Local (1) Local (2)

Chicken breast 633 618 598 489 460 490

Chicken curry cut 335 378 366 360 320 280

Pomfret (Black Steak) 1897 2258 1626 1210 1000 750

Sea Prawns 1956 1663 1790 2000 1500 NA

Mutton curry cut 1376 1200 1096 940 900 850

Source: Companies, HSIE Research

Page | 36


mamaearth Company brief: mamaearth is a natural-focused baby and mother personal care D2C

brand launched by the company Honasa Consumer Pvt. Ltd. The company currently has

a portfolio of around 140 products under mamaearth, and over 40 products under The

Derma Co. It had also said that it has a vision of becoming a 'house of brands’. Its online

channel contributes 70 to sales.

Key success factors:

▪ mamaearth is Asia's first company to receive the MadeSafe certification for its toxin-

free products, thanks to its toxin-free and natural ingredient proposition, which is

driving trust.

▪ The move from baby care to personal care was built on mothers' faith in the brand.

The company could leverage that trust to benefit in other women's personal care

goods that it launched.

▪ The disruptive innovations, rapid execution pace, and a focus on customer

satisfaction have enabled customer acquisition and higher per customer transactions.

▪ India’s rising online ecosystem has also benefited the company, which had early

mover advantage in the space.

▪ Social media and personalised marketing, as well as the availability of vast amounts

of customer data, are also assisting the company in customer acquisition.

▪ Premiumisation is also aided by product packaging that meets global standards.

Pricing strategy and competition:

▪ While still above the average MRP of most traditional brands, mamaearth is

relatively more affordable than the other D2C brands.

▪ The brand is well rated on Nykaa with an average rating of 4.5 (out of 5) in the

categories of cream, hair oil, shampoo, body wash, and soaps.

Future trends:

▪ The company expects distribution costs to reduce over time, which will increase the

value proposition for customers.

▪ Subscription model is a key future trigger, but the current RBI regulations are

creating friction for customers to shift to this model.

▪ The next phase of growth will come from going beyond tier-3 cities where the

company has seen significant traction. These customers have already built trust

using ecommerce aggregators.

▪ Product individualisation is needed, which has a huge scope in India, given the

dense population.

▪ Trust is the underlying emotion that will propel D2C to move forward.

▪ Return to origin (RTO) for ‘cash on delivery’ vs. ‘online payments’ is 13-14 times

greater, which is a significant cost. COD transactions are gradually reducing, with

consumers gaining trust in payment systems.

▪ India is a value-conscious market, and D2C brands will benefit from proper

branding, product development, and product quality.

Potential threats/opportunities for listed companies:

mamaearth started with baby products and gradually expanded into other personal care

products. With rising consumer confidence in the brand and platform, the company

should be able to further expand its footprint in personal care categories. The acquisition

of BBLUNT further strengthens its personal care portfolio. We believe it has the potential

to impact listed personal care companies like HUL, Dabur, GCPL, Emami, and Marico.

Product basket Category Products

Baby Shampoo, oral care, oil, skin care and bath products

Beauty Face, hair and body products

Hair Shampoo, conditioner, hair oil, mask and serum

Face Face wash, mask, cream, serum, scrub, toner, gel and sheet mask

Body Body butter, soap, lotion, scrub and hand cream

Source: Company website

FOUNDED: 2016

LOCATION: Gurgaon

PROMOTER

Varun Alagh, CEO and Co-founder B.E., PGDBM (XLRI Jamshedpur)

Experience: HUL, Diageo, Coca-Cola

Ghazal Alagh, Co-founder BCA

Experience: NIIT, dietexpert.com

INVESTORS

Fireside Ventures Titan Capital

Sequoia Capital Evolvence

Stellaris Ventures

Sharrp Ventures

Sofina Sa

VCC Edge

FUND RAISING

Latest Valuation $1.2bn

Fund raised $52mn

Date Jan 2022

VCC Edge

Honasa Consumer Brands: Mamaearth

The Derma Co

Aqualogica

Ayuga

BBLUNT

Page | 37


SUGAR Cosmetics Company brief: SUGAR Cosmetics (Vellvette Lifestyle) is an Indian cosmetic brand

that creates mid-priced products in colours that match the skin tones of Indian women.

The company was founded in 2015 by Vineeta Singh and Kaushik Mukherjee, with a

focus on millennials. SUGAR Cosmetics operates on a hybrid model, with a presence

both online and offline. The brand has >10,000 retail touch points and a strong digital

presence.


▪ Women personal care is a very large market and the company gained success by

filling the white spaces in pricing (gaps between mass and premium).

▪ The company has focused on niche (specific/target oriented) products, in contrast to

the me-too brands in the market.

▪ The brand is targeting bold, independent women who refuse to be stereotyped into

roles. SUGAR has a differentiated product offering for consumers who want to

experiment but are tired of (suffering from brand fatigue with) traditional products.

▪ Focus on R&D, effective marketing, and global packaging are helping the company

with customer acquisition.


▪ While still above the average MRP of most traditional brands, SUGAR is relatively

more affordable to the other new age brands.

▪ The brand is well rated on Nykaa, with an average rating of 4.3 (out of 5) in lipsticks,

lip liners, and lip balms.

Future trends:

▪ Consumers, especially when it comes to health and wellness, are not searching for

deep discounts and are willing to often pay a small premium for superior quality or

a differentiated product.

▪ Women’s personal care is a huge business, and the uptrend is expected to continue.

Many new companies are joining this market, but they must focus on production

innovation and marketing strategies that are relevant.

▪ Online accounts for 7-8 of the BPC market in India, and there is immense scope for

improvement. Offline has more operating leverage and lower CAC (customer

acquisition cost). As a result, both offline and online channels are important.

▪ Funding is available for D2C companies but the best capital comes from customers

(through business), as it is more sustainable.

▪ The BPC industry is expected to reach $28 billion by 2025, growing 12 percent per

annum, from $16 billion in 2020, according to a RedSeer report.


SUGAR has been able to create a brand in one of the most competitive categories.

Vellvette has also acquired a majority stake in ENN Beauty (founded in 2011) that sells lip

balms, scrubs, undereye creams, and hair care products. With rising trust around brand

and platform, the company will be able to further expand its footprint in other personal

care categories. It has the potential to impact listed personal care companies like HUL,

Dabur, Emami, and Marico.

Product basket Category Sub-Category Products

Makeup Lips

Face

Eyes

Lipstick, Liner, Lip care

Primers, Foundation, BB Cream, Highlighters

Eyeliner, Kajal, Eye shadow

Brushes Face Brushes and Eye Brushes

Skin Care Moisturisers, Masks, Setting mists


FOUNDED: 2015

LOCATION: Mumbai

PROMOTER

Vineeta Singh, CEO & Co-founder MBA IIM Ahmedabad, B.Tech IIT Madras

Experience: Quetzal Online, FAB BAG

Kaushik Mukherjee, COO & Co-

founder MBA IIM Ahmedabad, B.E. Pillani

Experience: Oracle, BigSlick, McKinsey, FAB

BAG

INVESTORS

India Quotient Fund Stride Ventures

A91 Emerging Fund Elevation Capital

Texport Industries Nitin Agarwal

India Quotient Fund

RB Investments

VCC Edge

FUND RAISING

Latest Valuation NA

Fund raised $21mn

Date Feb 2021

VCC Edge

Vellvette Lifestyle Brands: Sugar Cosmetics

ENN Beauty

At a time when it has become very

crowded to get any kind of mindshare

of the consumer, Sugar is still able to

get more than 350 million impressions

every month. In addition to that, it is

also getting 10 times more views on

their YouTube channel than any other

brands

Page | 38


The Good Glamm Group Company brief: Sanghvi Beauty and Technologies is committed to inclusive beauty

and cruelty-free, vegan, and environmentally friendly clean products. Its content-to-

commerce approach is democratising access to beauty products and advice. Its product

offerings include make-up, skincare, haircare, personal care and soon-to-be-launched

baby-care items. The firm claims that its products are made with formulations that are

best suited to solve the beauty and personal care needs of millions of consumers.


▪ It sells products through its own website, app, and >30,000 retail touch points.

▪ Its content offering, coupled with an army of over 220,000 influencers, helps

customers spot new products and spur engagement.

▪ Own platform provides direct communication to consumers, unlike other companies

that depend on third-party marketplaces.

▪ The company could build a master brand and leverage it by extending it into various

BPC sub-categories. Consistent expansion in SKUs (>800SKUS) has added many

active customers. While the company has benefitted from the digital route, the

progress of the online ecosystem has enabled growth.

▪ Consumers will continue to try other products, but it is the job of the company to

reinforce its brands and provide innovative products to retain customers.


▪ Pricing position is quite different in various sub-categories of BPC. The target is to be

available for the vast BPC basket to address large consumer pool.

▪ The brand has a limited number of reviews on Nykaa, with an average rating of close

to 4 (out of 5) across products.

Future trends:

▪ With a strong portfolio of D2C brands and proprietary content assets, the group is

well-positioned to scale rapidly and create a large digital-first business in the beauty

and personal care space.

▪ In the offline space, the company has >30,000 retail points of sale. It plans to reach to

100,000 points of sale in the near term.


The Good Glamm group has been able to create a brand in one of the most competitive

categories. It has been able to continuously expand its product basket and customer base.

The acquisition of Organic Harvest (launched in 2013, current revenue run-rate of ~INR

750mn) also provides entry in the organic BPC category. With rising trust around the

brand and digital platform, the company is continuously expanding its footprint in other

personal care categories. It has the potential to impact listed personal care companies like

HUL, Dabur, Emami, and Marico.

Product basket Category Sub-Category Products

Makeup Lips

Face

Eyes

Lipstick, Metallic Lipstick, Lip Gloss, Lip Balm, Liner, Lip care

Fixing Powder, Primer, Foundation, Compact Powder, Highlighter

Eyeliner, Kajal, Eye shadow

Hair Care Shampoo, Conditioner, Hair Oil, Serum, Hair Mask

Skin Care Cleanser, Toner, Moisturiser, Serum, Body lotion

Source: company website

FOUNDED: 2015

LOCATION: Mumbai

PROMOTER

Darpan Narendra Shangvi, CEO and

Founder B.E. (MIT), MBA (ESADE Business School)

INVESTORS

Trifecta Venture Trifecta Capital

Loccitane International Kalaari Capital

Tano India Chiratae Ventures

Mankekar Family Office Amazon.com

Bessemer Venture Wipro Consumer

VCC Edge

FUND RAISING

Latest Valuation $1.2bn

Fund raised $150mn

Date Nov 2021

VCC Edge

Sanghvi Beauty and Technologies

Brands: MYGLAMM

Organic Harvest

The moms co

Baby chakra

St.Botanica

SIRONA

POPXO

Scoop Whoop

Page | 39


WOW Company brief: WOW Skin Science (company Body Cupid) is an Indian company of

Health, Wellness, and Fitness. WOW Skin Science combines time-tested ingredients from

nature with innovative formulations backed by science to deliver 100 vegan beauty. From

being a digital-first brand, the company’s eyeing on becoming the number one brand in

the toxin-free space within the FMCG sector.


▪ WOW Skin Science combines time-tested ingredients from nature (apple cider

vinegar, onion, vitamin C) with innovative formulations backed by science to deliver

100 vegan beauty.

▪ Quality product at affordable price point is a right-to-win for the brand. It perfectly

fits in with the fast-growing millennial population.

▪ It sells products on ecommerce platforms, its own website, as well as in brick-and-

mortar stores.

▪ WOW is aiming to maintain its growth momentum by capitalising on its loyal

customer base, expanding penetration across channels, and further developing its

portfolio of brands and products.

▪ While the company has benefitted through the digital route, the progress of the

online ecosystem has enabled growth.

▪ Consumers will continue to try other products but it is the job of the company to

reinforce its brands and provide innovative products to retain customers.

▪ The targeted audience is not price sensitive, but it is value conscious. A company can

achieve this through correct branding, product development, and product quality.


▪ While still above the average MRP of most traditional brands, Wow is relatively

more affordable to the other D2C brands.

▪ The brand is well-rated on Nykaa with an average rating above 4 (out of 5) across

most personal care products.

Future trends:

▪ The company is working at increasing its online penetration, driving pan-India

offline expansion and launching new brands in adjacent categories.

▪ It is working towards positioning itself as India's largest brand in the toxin-free space

within FMCG.

▪ It is focusing on stronger content to play on our brand’s strengths.


WOW has been able to create a brand in one of the most competitive BPC categories. The

product recall and rating are good, and the company keeps diversifying its product

portfolio to other BPC categories. It can give potential threat to other personal care

companies like HUL. Marico, and Emami.


Skin Face Wash, Scrub, Serum, Cream, Mask, Moisturiser

Hair Shampoo, conditioner, hair oil, mask and serum

Bath & Body Hand Cream, Hand wash, Body Wash, Body Scrub, Body Lotion

Mother & Child Massage Oil, Stretch Care, Kids body lotion, Kids Sunscreen

Wellness Hair Vanish, Essential Oil, Women Hygiene

Nutrition & Health Omega Fatty Acids, Immunity Care, Multivitamins, Detox, Antioxidants


FOUNDED: 2016

LOCATION: Bengaluru

PROMOTER

Manish B. Chowdhary, Co-founder

Karan Chowdhary, Co-founder

Ashwin Sokke, Co-founder

Arvind Sokke, Co-founder

INVESTORS

ChrysCapital Investment VCC Edge

FUND RAISING

Latest Valuation NA

Fund raised $50mn

Date April 2021

VCC Edge

Body Cupid Brands: WOW

Page | 40


Bombay Shaving Company Company brief: Bombay Shaving Co. is by the company Visage Lines Personal Care.

The company caters to men’s grooming needs with shaving rituals. It has also expanded

to other personal care products like face wash, masks, face scrubs, etc. It has also started

to cater to women’s products.


▪ Personal care products including grooming have predominantly been purchased

offline, but COVID led to a shift in buying patterns, driving D2C brands.

▪ Men moving towards more male-specific products have given opportunities for D2C

brands in this space.

▪ The company ventured into women’s hair removal category during COVID, which

has now become a sizable (20 of revenue) business.


▪ With a large variety of products, the company has products at different price points

catering to different needs.

▪ Compared to other D2C brands, Bombay Shaving Company is one of the more

affordable brands.

Future trends:

▪ The company is working at expanding its offline presence. It will leverage its

strategic investors (Reckitt Benckiser and Colgate) in doing so.

▪ It aims to generate 60 of revenue from offline channels in the next two years,

compared to 40 currently.

▪ It plans to expand to the United States, Europe, West Asia, and Australia.


Besides competing with other D2C brands, the Bombay Shaving Co is also up against

traditional players such as Gillette. Leveraging the strengths of its strategic investors, the

brand can improve its offline presence and challenge traditional brands. Having

expanded into more of a men’s personal care brand (opposed to only shaving), the brand

also poses competition to the likes of Emami and HUL.


Grooming Razors, shaving foams, pre shave, post shave, beard trimmer, beard care kit, beard

growth kit, beard straightener kit

Hair Care Hair oil, growth booster kit, hair masks

Skin Care Facial kit, face serum, moisturizer

Bath Care Bath soaps

Hair Removal Women’s hair removal kit


FOUNDED: 2015

LOCATION: New Delhi, Delhi

PROMOTER

Shantanu Deshpande, CEO and Co-

founder MBA (IIM Lucknow)

Experience: McKinsey & Co

Rohit Jaiswal, Head of products and

Co-founder B.Tech, MBA (IIM Udaipur)

Experience: Crompton Greaves, UAE

Exchange, Emel Group

Deepu Panicker, Co-founder M.Tech (IIT Bombay)

Experience: McKinsey & Co, FREECULTR,

Times Internet

Raunak Munot, Co-founder B.Tech, MS

Experience: Audi of America, Group M,

Trove

INVESTORS

Fireside Ventures Singularity AMC

Malabar Investment Patni Wealth

Sixth Sense Ventures Gulf Islamic Invest.

Reckitt Benckiser Group

Colgate-Palmolive India

VCC Edge

FUND RAISING

Latest Valuation NA

Fund raised $28mn

Date Jan 2022

VCC Edge

Visage Lines Personal Care

Brands: Bombay Shaving Company

BSC women

Page | 41


Pee Safe Company brief: PeeSafe is a brand by Redcliffe Hygiene that has a product portfolio

focused on women’s hygiene. The brand started off selling toilet seat sanitizers and has

expanded into female and male hygiene products. The company is a house of brands,

including brands like Peesafe, Raho Safe, FURR, and Domina.


▪ Pee Safe has introduced a variety of products in the feminine hygiene space, a

category highly concentrated on sanitary pads.

▪ The company has not only introduced new products, but also continuously develops

new ones, investing in R&D for category growth.

▪ It has created awareness about its products through advertisements, a step much-

needed, given the limited availability and education.


▪ The products are priced at a premium to competitors but most of them are new to

India so pricing can’t be compared.

Future trends:

▪ The brand is working towards expanding its retail presence. It is looking to add

around 50 brand exclusive stores across India by CY22.

▪ The company is currently available in Germany with plans to expand into Central

and Western Europe in the future. It has a production unit for sanitizers in Europe.

▪ It will also consider the Middle East, North Africa and South East Asia for further

expansion.

▪ For the brand, R&D is the key to introduce new products.


The company is competing with not just the sanitary pad companies, but also with the

likes of V-Wash, with its feminine hygiene products. Attractive packaging and customer

education are helping the company establish its brand.


Feminine Hygiene Sanitary pads, intimate wash, intimate wipes, menstrual cups, panty liners, etc.

BPC Face serum, stretch mark oil, hair removal, body wash, shaving foam

Sexual Wellness Sexual wellness products like condoms, oils oriented towards women

Safety oriented Face mask and guard, sanitizer, hand wash, surface sanitizer and toilet seat santizer


FOUNDED: 2013

LOCATION: Gurgaon, Haryana

PROMOTER

Vikas Bagaria, CEO and Co-founder B.E., MCA Electronics

Experience: V R Forklift Marketing,

SafetyKart.com, SRV Damage Prevention

Srijana Bagaria, Co-founder Bachelors Political Science

Experience: SRV Damage Prevention

INVESTORS

Venture Catalysts Safetykart Retail

Alfa Capital Redcliffe Capital

Green Shoots Capital Merrill Estates

Real Time Ventures

Alkemi Venture

VCC Edge

FUND RAISING

Latest Valuation NA

Fund raised $3.43mn

Date June 2021

VCC Edge

Redcliffe Hygiene Brands: Pee Safe

Raho Safe

FURR

Domina

Page | 42


Licious Company brief: Licious is a meat delivery D2C brand by the company Delightful

Gourmet. It has a presence in raw meat and seafood, marinades, and packaged foods. It

operates in over 20 Indian cities, with more than 2 million unique customers until date.


▪ The brand has built trust amongst its customers, a key right to win in this space.

▪ Meat delivery was an untouched space with a lack of infrastructure like packaging,

sourcing cold storage.

▪ India consumption is towards fresh meat rather than frozen foods, a trend seen in the

west. The brand, hence, recognised the need to deliver fresh meat to its customers.

▪ It has a strong backend sourcing base, working with farmers to produce high quality

meat under defined processing standards. The butchers are a part of the company's

employee base and ecosystem.

▪ Licious is one of the main drivers that has organised the meat industry by setting

standards, building manufacturing capabilities, cold storage units, etc. to enable

smooth functioning.

▪ Pandemic had accelerated the tier-2 expansion, led by the reverse migration in the

country.

▪ Branding is the key, especially carried out through word of mouth, which has helped

the company grow.


▪ The products are priced at a premium (>50 average) to unbranded products.

▪ The products are well packaged with a premium and secure feel factor.

Future trends:

▪ By FY22 end, the company is planning to expand its operations to 30 cities and

further up to 60 cities by CY22 end.

▪ Tier-2 cities have delivered superior metrics for growth.

▪ Given the unavailability of superior products in tier-2 regions, there is more demand

for products by the D2C brands. This is visible in other D2C categories as well.

▪ The company has leveraged its existing customer base to enter into future growth

drivers such as the spread business.

▪ D2C winners will be the brands that build core capabilities rather than just

repackaging.

▪ Customers are looking at better quality products, creating solutions to problems

intrinsic to India.


Licious competes with the wet meat industry rather than established brands. It is a

completely unorganised market and there is huge scope for scaling up. While brands like

ITC have its frozen meat and packaged food products, we believe that considering the

availability of a large untapped market, the exposure is not too high.


Raw meat Raw chicken, mutton, fish and sea food

Ready to cook RTC marinated chicken mutton, fish and sea food products

Spreads Meat based spreads


FOUNDED: 2015

LOCATION: Bengaluru, Karnataka

PROMOTER

Vivek Gupta, Co-founder CA

Experience: Tavent Technologies, Helion

ventures, MobiCom America

Abhay Hanjura, Co-founder BSc

Experience: Infosys, Google, Bajaj Allianz

INVESTORS

Mayfield India UCLA Investment

Sistema Asia Multiples

Fireside Ventures Temasek

Indo Nippon Foods IIFL

3one4 Capital MacRitchie

VCC Edge

FUND RAISING

Latest Valuation $1bn

Fund raised $52mn

Date Oct 2021

VCC Edge

Delightful Gourmet Brands: Licious

Page | 43


Country Delight Company brief: Country Delight, a brand by the company, Beejapuri Dairy, is an app-

based milk delivery service. With proposition of selling unadulterated milk, the brand

sells in 14 Indian cities. It operates under a daily subscription model, delivering cow and

buffalo milk, dahi, ghee, paneer, and fresh bread and eggs.


▪ Similar to the meat industry, Country Delight also enjoys a large unorganised dairy

market. It thrives on delivering fresh and unadulterated milk to its customers.

▪ The brand has also provided test kits to its new customers to check the quality of

milk, a trust building activity.

▪ The company has full control over its supply chain that has helped it function

smoothly, even during the COVID-led lockdowns.

▪ Besides dairy and dairy products, the company has built a supply chain network in

north and west India which gives it access to very high-quality raw materials for

other categories like bread and eggs.

▪ With its IoT integration, the company is able to secure and maintain quality of the

products.

▪ The company started off with its subscription model, which would maintain

customer stickiness.


▪ Milk and milk products by Country Delight are at a significant premium to the

traditional brands.

▪ While at a premium, the brand has launched a VIP membership where the subscriber

receives a 30 flat discount on all products, which makes the product pricing more

affordable or at par with package milk by traditional brands.

Future trends:

▪ The company is working closely on customer feedback to launch new products or

enter new categories.

▪ The brand captures around 20-30 of the fresh product basket, which the company

looks to expand, adding a restricted set of products that are margin accretive.


With its robust supply chain and quality product, Country Delight poses a risk to the

packaged milk players. Besides the fresh availability of milk, another key advantage of

milk delivery is convenience. With the current discounting, the products by the brand are

at a better value proposition as well.


Milk Cow milk, low fat cow milk, A2 cow milk and buffalo milk,

Other Dairy Products Ghee, Paneer, Curd

Other F&B Products Multigrain bread, brown bread, white bread, coconut water


FOUNDED: 2013

LOCATION: Gurgaon, Haryana

PROMOTER

Chakradhar Gade, Co-founder CFA, FRM, PGDM (IIM Indore)

Experience: Infosys, Indxx Capital Mgmt

Nitin Kaushal, Co-founder PGDM (IIM Indore)

Experience: HSBC

INVESTORS

IIFL India PE Elevation Capital

Indo Nippon Foods Orios Venture

Matrix Partners

Alteria Capital

SAIF Partners

VCC Edge

FUND RAISING

Latest Valuation NA

Fund raised $25mn

Date Oct 2020

VCC Edge

Beejapuri Dairy Brands: Country Delight

Page | 44


Vahdam Teas Company brief: Vahdam Teas is a health-focused tea brand selling Indian tea overseas.

With recognition from notable personalities like Oprah Winfrey, Mariah Carey, and

Martha Stewart, the brand has a strong mainstream customer base in the US and Europe.

It has now been working towards replicating its global success in the Indian markets.


▪ Vahdam tea sells health-focused Indian tea to the west (US and Europe) and for the

past two years, the company has been replicating its success in India as well.

▪ The brand in India is still in nascent stages, with INR 250mn annual revenue run rate

(of total INR 1.6bn in FY21).

▪ Vahdam is expanding in the country using digital first strategies in marketing as well

as distribution.

▪ The brand is present in the wellness category of tea, a market sized at INR 15-20bn,

which is growing much faster than the total tea industry.

▪ The company has also been launching wellness tea products to solve specific

problems.

▪ Within F&R D2C, innovation is critical as compared to BPC. New product

experiment in India is relatively low.


▪ Vahdam tea is priced at a premium to the traditional as well as other D2C brands

such as Tea Box and The Good Life Co.

▪ Vahdam offers a vast variety of products within the health-focused tea. Further, the

company has also launched teas catering to solve specific problems in the domain of

sleep, detox, and immunity.

Future trends:

▪ According to the brand, digital distribution is the best route for new brands (with

less than INR 1bn revenue) to grow.

▪ In the US, the brand expanded its offline presence, post achieving a revenue and

customer base threshold.

▪ The house of brands are more scalable as opposed to a single category brand.

▪ Every year, the cost of building a brand is rising.

▪ For its overseas markets, the company will look at selling other products such as

spices and coffee under its brands, given the large customer base (3mn).


Traditional tea brands, including HUL’s and Tata’s basket of brands, have dominated the

INR 100-120bn traditional tea market. The new age D2C brands compete in the INR 15-

20bn health-oriented tea market, which is a fast growing segment. Traditional brands

have made an appearance in the healthy tea market, but only with restricted options such

as green tea. With a wide variety of products and focus on solutions, the D2C players

have an edge over traditional brands.


Tea Black, green, chai, herbal, turmeric, oolong, white and iced teas

Super foods Matcha, instant premixes, turmeric latte, elixir

Drink ware Tea makers, infuser, tumblers, cups, bottle, pitcher


FOUNDED: 2015

LOCATION: Noida, Uttar Pradesh

PROMOTER

Bala Sarda, CEO and founder BBS

Experience: b10 media, Youth 360

INVESTORS

Fireside Ventures IIFL AMC

White Whale Ventures

Sixth Sense Ventures

Singapore Angel Network

Mumbai Angels Network

VCC Edge

FUND RAISING

Latest Valuation NA

Fund raised $24mn

Date Sep 2021

VCC Edge

Vahdam Teas Brands: VAHDAM

Page | 45


OZiva Company brief: OZiva is a plant-based nutraceuticals D2C brand launched by Zywie

Ventures. Its products range across categories such as women’s health, skin, hair, men’s

health, and general wellness. It also offers personalised diet and fitness consultations and

nutritional and fitness content.


▪ Oziva operates in a niche category of the FMCG healthcare industry, where it has

successfully built a brand by launching plant-based innovative products.

▪ The company considers R&D as the cornerstone for its success, with huge

investments in product development.

▪ A major driver for the company’s growth (2.4x YoY in FY21) has been the rise of the

wellness centric population, post the pandemic.

▪ The brand’s product line is primarily comprised of problem solving or targeted

solutions.

▪ Given the company’s products are health-oriented, it produces a lot of content to

acquire new customers and retain existing ones. With retention, the brand has the

opportunity to cross-sell its large portfolio.


▪ Within the nutraceuticals industry, OZiva offers problem solving products targeted

for men, women, and children in the form of capsules or even gummies.

▪ The products sell at a premium to products by traditional brands such as Dabur, but

its products are not direct substitutes/competition.

▪ OZiva’s powdered health drink products are priced at a premium to its peers.

▪ The brand has also ventured into personal care products, with a focus on problem

solving such as aging, hair fall acne, etc.

Future trends:

▪ With traction in the OZiva brand, the company is looking at cross-selling as a major

aspect for growth.

▪ This space is highly underpenetrated, with huge scope for the company to grow.

▪ It also has a women’s nutrition product portfolio under a sub-brand Her Balance,

which itself has the potential to scale up into a large brand.

▪ The company is developing ingredients that are now being sold as B2B products.


OZiva competes with the likes of Himalaya and Dabur in the vitamins space. The brand,

however, differs from its competition as the products are more focused on solving

problems rather than their supplement aspect. The company also offers powdered health

supplements (shakes), competing with Horlicks, Amway, etc. It has also extended its

brand into the BPC space. Growing 2.4x YoY in FY21 (on a small base) poses a threat to

established brands in the long term.


Nutraceuticals Different blends of vitamins

Health Drinks Protein supplements, detox drinks, immunity boosters

BPC Face wash, face serum, hair mask, hair serum, hair oil, shampoo


FOUNDED: 2016

LOCATION: Mumbai, Maharashtra

PROMOTER

Aarti Gill, CEO and Co-founder B.Tech (IIT Rourkee), MBA (Insead)

Experience: Capital One, FitCircle

Mihir Gadani, Co-founder B.Sc., M.Tech

Experience: Molecule, FitCircle

INVESTORS

LogX Ventures

Matrix Partners

F Prime Inc.

Eight Roads Ventures

Titan Capital

VCC Edge

FUND RAISING

Latest Valuation NA

Fund raised $12mn

Date Feb 2021

VCC Edge

Zywie Ventures Brands: OZiva

FitCircle

Page | 46


True Elements Company brief: True Elements is a brand by HW Wellness. It is focused on selling

breakfast cereals, grains & raw seeds, roasted snacks, and other healthy items. The

products are natural and made of whole grains. The brand is now certified 'Clean Label'

by the Clean Label Project, US.


▪ The company’s health driven offerings have helped it gain traction among India’s

growing health-conscious population.

▪ The brand showcases its product transparency by providing batch-by-batch

information to customers on its website.

▪ Further, the Clean Label certification increases customers’ confidence in the brand.

▪ The company allows customers to customise cereal boxes based on their preferences.


▪ Since the brand picots on “healthy” proposition, it commands a premium over the

other snacks and cereal products.

▪ Customisation option provides the company a competitive advantage.

Future trends:

▪ The company has overseas presence in Nepal, Singapore, the US, Mauritius, and

Dubai. It is looking to expand its global footprint in 20 more countries in Europe,

South Asia, Australia, Canada, and West Asia.

▪ It also plans to raise capital for brand expansion in Indian and overseas markets.

▪ It is also looking to increase the physical availability of products. Offline sales

generate around 20 of its revenue.

Potential threat/opportunity for listed companies:

The health-oriented food space has gained traction, with the rise of D2C brands.

Traditional brands now have the opportunity to tap into this vast space as well. While

True Elements' hyper customization is more sustainable for a D2C brand, health-oriented

products can be rolled into the breakfast space. We believe this presents an inorganic

opportunity to various listed F&B players who are trying to tap the breakfast market.


Cereals Granola, muesli, jowar flakes, wheat flakes, bajara flakes and oats

Breakfast Mixes Dosa mix, pancake mix, oat meal, upma, dalia,

Seeds Halim seed, chia seed, sunflower, flax seed, watermelon seed, pumpkin seed, basil

seed available in both raw and roasted

Snacks Flavoured seeds, nuts, pulses, oat balls,

Sweets Berry and berry mixes, honey, chocolate products


FOUNDED: 2015

LOCATION: Pune, Maharashtra

PROMOTER

Puru Gupta, CEO and Co-founder B.E., MBA (FMS)

Experience: Cognizant, ITC, CII, P&G,

Healthy World and Kartnowa Technologies

Sreejith Moolayil, COO and Co-

founder LLB, MLL & LW, MBA

Experience: Tata Motors, Cognizant,

Healthy World and Fitard

INVESTORS

Maharashtra State Social Venture

RPG Enterprises

VCC Edge

FUND RAISING

Latest Valuation NA

Fund raised $1.4mn

Date Jan 2021

VCC Edge

HW Wellness Brands: True Elements

Page | 47


Sleepy Owl Company brief: Sleepy Owl is a homegrown Indian D2C coffee brand. The brand had

entered the coffee space with its innovative cold brew offering in India and has, since

then, expanded into selling a large range of coffees like instant, whole bean, ready-to-

drink, along with merchandise.


▪ Within the coffee D2C space, Sleepy Owl has created the cold brew and drip coffee

bag sub-categories, which has helped it gain traction.

▪ In an effort to develop the category, the brand has focused on educating customers

about the benefits of freshly-brewed coffee. It endeavors to convert the large tea

drinking population into coffee drinkers as well.

▪ Its differentiated and unique product offerings have helped it gain market share.

▪ The brand has expanded from cold brew to hot brew, ready-to-drink, and flavoured

ground coffee formats, in order to tap a larger and evolving consumer base.


▪ The company’s coffee is priced at a premium to other D2C brands and traditional

brands in the instant and whole bean categories.

▪ Given that it is a category developer, its cold brew is priced at a significant premium,

with per serving cost of INR 33, vs. instant coffee’s INR 9 and whole bean’s INR 22.

Future trends:

▪ Taking the omnichannel approach to sales would be wise.

▪ The company has collaborated with Greater Than gin, with more collaborations in

the pipeline.

▪ D2C will continue to grow, but for brands to survive, omnichannel is the key. Sleepy

Owl is working towards this end.

▪ The company is looking at the subscription model for its next growth phase as coffee

is a part of the daily routine amongst coffee drinkers.

▪ It also sees potential in exporting its coffee to markets like the Middle East and South

East Asia.


D2C brands are mainly present in the whole bean coffee or innovative formats like Sleepy

Owl’s cold brew and drip coffee. This is a space where traditional brands like Nescafe

and Bru were not always present. However, with rising customer acceptance of whole

bean/grounded coffee, well-established players like ITC and Nestle have launched new

products in this space, albeit the range is limited. As Nestle is a prominent player in the

instant coffee market, we believe it has the ability to enter into the new coffee domains

with innovative launches.


Instant Coffee Flavoured and unflavoured instant coffee

Whole Bean Flavoured and unflavoured whole bean/grounded coffee

Brew Packs Cold and hot brew packs

Ready To Drink Flavoured and unflavoured brewed coffee with milk and sugar

Merchandise Brewing equipment, tumblers, pitchers and cups


FOUNDED: 2016

LOCATION: New Delhi, Delhi

PROMOTER

Ajai Singh Thandi, Co-founder Bachelors – Economics (USE & LSE)

Experience: J.P Morgan

Arman Sood, Co-founder BA.LLB

Experience: Embibe

Ashwajeet Singh, Co-founder LL.B

INVESTORS

DSG Consumer Partners

Rukam Capital

AngelList

VCC Edge

FUND RAISING

Latest Valuation NA

Fund raised $6.5mn

Date Nov 2021

VCC Edge

Sleepy Owl Brands: Sleepy Owl

Page | 48

FMCG: D2C Disruption Thematic reports by HSIE

Cement: WHRS – A key cog

in the flywheel

Autos: Where are we on “S”

curve?

FMCG: Defensive

businesses but not

valuations

Autos: A changed landscape Banks: Double whammy for

some

India Equity Strategy: Atma

Nirbhar Bharat

Indian IT: Demand recovery

in sight

Life Insurance: Recovery

may be swift with

protection driving margins

Retail: Whole flywheel is

broken?

Appliances: Looing beyond

near-term disruption

Pharma: Chronic therapy –

A portfolio prescription

Indian Gas: Looking

beyond the pandemic

India Equity Strategy:

Quarterly flipbook

Real Estate: Ripe for

consumption

Indian IT: expanding centre

of gravity

Indian Chemical: Evolution

to revolution!

Life Insurance: ULIP vs. MF Infrastructure: On the road

to rerating

Cement: Spotting the sweet

spot

Pharma: Cardiac: the

heartbeat of domestic

market

Life Insurance: Comparative

annual report analysis

Indian microfinance:

Should you look micro as

macros disappoint?


Quarterly flipbook

Autos: Divergent trends in

PVs and 2Ws

India Internet: the stage is

set

FMCG: Opportunity in

adversity - A comparative

scorecard

Logistics: Indian Railways -

getting aggressive

Industrials: Triggering a

new cycle

Indian IT: raising the bar India Equity Strategy:

Quarterly flipbook

FinTech Playbook: P2M

Payments | Surging pool,

dwindling yields

India Hospitals: capital

discipline improving,

sustenance is key

Autos: Will EVs impact the

‘EV’?

Cement: Riding High Power: Reforms essential

for rennaissance

Fashion & Lifestyle: From a

disruptor’s lens II


Quarterly flipbook

Indian Gas Sector:

Resilience in the eye of the

storm

Consumer Durables: Fans -

a compounding story but

underrated

Quarterly flipbook:

Q2FY22–Demand

environment improves but

input cost inflation dents

profitability

FinTech Playbook: Discount

Brokers

Footwear: No bargains here!

Holdcos for portfolio

diversification

Cement: A concrete road for

net-zero emissions

FinTech Playbook: Buy

Now Pay Later | De-

mystifying the tablestakes

Institutional Investors’

shareholding pattern - A

key to spot potential gems

Real Estate: On a cyclical

high

Fluorination: Fluorine

reacting fantastically!

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