7/29/2019 Soaps and Detergents Sector Report_170912
1/12
Your success is our success
Emkay
Sec
torReport
Emkay Global Financial Services Ltd. 1
Soaps and Detergents
Ear to the ground
September 17, 2012
Pritesh Chheda
+91-22-66121273
Harsh Mehta
+91 22 6624 2479
In order to delve into the reasons for the resilient growth witnessed by the
highly penetrated laundry and soaps category and assess its future
prospects, we conducted an extensive survey covering the entire supply
chain. We did a 360 degree survey, wherein we met/spoke to sales
managers and distributors of soaps and detergent companies across
regions. This was also done with the intention of demystifying the
inconsistency between research firms estimation for market growth and
that reported by leading companies.n Volume grow th remains res i l i en t in b randed S& D cat egory bu t
va lue grow th to modera t e ow ing to cap on fu r ther p ri ce h ikes
and base e f fec t k ick ing in . Grow th c ou ld normal ize to 16-17%
in laundry ca t egory and 10-12% in soaps ca t egory
n Branded p layers ga ined share a t the expense o f smal l /f r inge
reg iona l p layers . S ign i f i can t p resence o f reg iona l p layers s t i l l
ex is ts (p layers w i t h s t rong brand reca l l ) , bu t any inc rem enta l
share ga in w ou ld be a t h igher assoc ia ted c os ts
n Southern and Eastern Ind ia have rec e ived su f f i c ien t ra in fa l l ,
thereby dea lers /sa les managers f rom South and Eas t w ere
fa i r l y conf ident o f l im i ted impac t o f de f i c ien t monsoon.
Whereas , Nor th and West w ere unab le to guess the course o f
g r o w t h
n Laundry : New produc t launc hes w i l l d r i ve h igher ad spends .
Renew ed v igor w i t nessed in T ide natura ls . How ever , no t m uch
change w i tnessed in market share d i f fe rent ia l be tw een HULand P&G. Also, Ghadi deterg ents hav e deepened thei r
penet ra t ion in Maharasht ra
n Soaps: Lux and Rexona are w i tness ing de-grow th and los ing
out t o Santoor and Godre j No.1 . HUL p lans to re focus on
Rexona and Lux - in i t ia te t rade prom ot ions . Godre j Consumer
reac t i va t ed Cin tho l por t fo l io and a lso launched rosewat er and
a lmo nd var iant i n Godrej No. 1 soap
n On a pos i t i ve no te , soaps and laundry ca t egory i s no t
w i tness ing dow nt rad ing l i ke persona l p roduc t ca t egory
n Posi t i ve in S& D category i s o f fse t by negat ives brew ing in PP
cat egory - earning upgrades for c ompa nies l ike HUL and GCPL
un l i ke ly
n We might have underes t imat ed the c onsumer buoyancy (or b i t
ear ly ) as consumer demand cont inues to be robus t un t i l
August 2012. We in t end t o repeat t h is ex erc ise in Oc t ober
(around fest ive season)
n Unt i l then, re ta in negat ive b ias as va lua t ions do not o f fe r
com for t and earn ings upgrades un l i ke ly . We m ain ta in HOLD
rat ing on HUL and GCPL w i th pr i ce t arget s of Rs415/Share and
Rs580/Share respect ive ly
7/29/2019 Soaps and Detergents Sector Report_170912
2/12
Soaps and Detergents Sector Report
Emkay Research September 17, 2012 2
Growth momentum to continue; However, incremental price hikes to
become difficult
Branded S&D category is growing at a brisk pace with laundry segment witnessing robust
value growth of 20-25% (double digit volume growth) and soaps segment growing at 15%
(5% volume growth). National players are likely to sustain their volume growth momentum
given the significant presence of regional players (market share gains). Also, new product
pipeline could aid growth momentum. However, as base effect kicks in and further pricehikes become difficult, value growth might subside to normalized levels of 16-17% in
laundry business and 10-12% in soaps business.
Further share gain from regional players to be an expensive affair
Study revealed that unorganized small/fringe players (Nirma, Breeze, Dyna, etc) have lost
market share. However, there are still several regional players having significant size
(Venus, Champo), presence and brand recall. Hence, incremental market share gain at
the expense of these regional players achievable only with higher associated costs.
Exhibit 1:
Source: Company, Emkay ResearchToo soon to talk about deficient monsoon; confident of maintaining growth
momentum
Deficient monsoon can have a significant impact on rural income (agri-related income).
Rural India, in the past two years, has been in the forefront of FMCG growth story and
hence, weak rain can put pressure on growth. The drought of 2002, when the monsoon
deficiency was 19.2%, may be a precedent to assess the impact on growth. During that
year, growth in private final consumption expenditure, in real terms, was just 2.9% yoy.
Thats a far cry from consumption growth in recent years, which has been much higher. In
2010-11, despite high inflation, high interest rates and the slowdown in GDP growth,
private consumption growth was 5.5%.
Most of sales managers and distributors indicated that there has been no impact on the
demand till date due to deficient monsoon. Also, Southern and Eastern India has witnessed
sufficient rainfall, thereby rural demand is not expected to deteriorate in those regions.
Also, with gradual pick-up in rainfall in Western and Northern India, the situation has
improved drastically.Volume growth the key; A&P spends to continue
On a broad brush basis, companies have maintained their A&P spends. However in certain
regions, especially the Northern belt, where there is some impact on consumer demand,
companies have intensified their A&P spends.
Laundry category
In laundry, new product launches will drive higher ad spends. We are witnessing renewed vigor in Tide Natural (mass end detergent powder; INR
49/kg or INR10/190gm).
Trade initiatives have led to stock outs for Tide sachet (INR. 1). Ghadi has deepened penetration in Maharashtra at price point INR 45/kg and is trying
to gain market share by offering higher trade margins.
7/29/2019 Soaps and Detergents Sector Report_170912
3/12
Soaps and Detergents Sector Report
Emkay Research September 17, 2012 3
Exhibit 2:
Source: Companies, Emkay ResearchSoaps category
In soaps, Lux and Rexona are witnessing de-growth and losing out to Santoor (inSouthern India) and Godrej No.1 (in Western and Central India).
HUL plans to refocus on Rexona and Lux - initiate trade promotions, which can revivetheir growth in soaps business especially in mass end.
Godrej Consumer to continue its growth momentum in personal wash category. It hasreactivated Cinthol portfolio and also launched rosewater and almond variant in Godrej
No. 1 soap.
Exhibit 3:
Source: Companies, Emkay ResearchMarket share gain for national players is visible
National players are gaining share at the expense of smaller regional players.
Laundry category
Not much change witnessed in market share differential between HUL and P&G. Entry of Ghadi in Maharashtra has created some ripples in the laundry market.
Soaps category
In soaps, Lux and Rexona are witnessing de-growth and losing out to Santoor (inSouthern India) and Godrej No.1 (in Western and Central India).
Dove continues to enjoy strong brand loyalty and thereby, witness resilient growth and
market share gain.Brand loyalty a suspect in soaps; However, Dove glides through
Consumers remain brand agnostic to soaps business. Thereby persistent brand activation
and competitive pricing is required. In the recent months, mass brands Lux and Rexonahave seen significant exodus to other brands especially Santoor (southern India) and
Godrej No.1 (Western and central India). This can be attributed to aggressive trade
promotions. Moreover, Santoor and Godrej No.1 primarily sell in bundle packs which are
7/29/2019 Soaps and Detergents Sector Report_170912
4/12
Soaps and Detergents Sector Report
Emkay Research September 17, 2012 4
more economical to consumer. Thereby, HUL might have witnessed lower volume growth
of ~5% in soaps category in Q1FY13 (as against ~10% in laundry business). However,
Dove is one of the few brands which continues to enjoy strong brand loyalty and thereby
will continue to see resilient growth.
Exhibit 4:
Source: Company, Emkay Research
Consumer trading down; more apparent in personal products
We witnessed certain pockets of downtrading. However, it was more pronounced in
categories like toothbrush and shampoos.
Market research firms way off the mark in their findings
Leading market research firm and FMCG companies are in sharp disagreement over
performance of the categories. In the April-June quarter of 2012, sales growth in value
terms of some of India's biggest fast-moving consumer goods companies is higher than
research firms growth estimate for the FMCG market and category growth. Such a
difference can be attributed to ignoring / underestimating trade channels like Canteen
Services Department (CSD), Modern Trades (MT) and institutional sales. CSD can easily
qualify as India's largest retailer with some 3,500 outlets across the country.
Volume growth to continue; however, further earnings upgrades unlikely
The study revealed that volume growth in S&D continues to be resilient. However, as
further price hikes become difficult, value growth might subside to normalized levels of 16-
17% in laundry business and 10-12% in soaps business. This is merely 1-2% higher than
our assumption and inline with streets estimates. Further, downtrading was evinced in PP
as against S&D category. Hence, further earning upgrades for companies like HUL and
GCPL is unlikely - positive in S&D category is offset by negatives brewing in PP category.
Outlook - would wait till October to see if unfavorable macro condition and
delayed monsoon impacts demand
We might have underestimated the consumer buoyancy (or bit early) as consumer demandcontinues to be robust. However, we would re-evaluate our negative stance on demand
only post October (festive season begins) when we plan to repeat this exercise to evaluate
impact of unfavorable macro condition and delayed monsoon on consumer demand if any.
Until then, we retain earnings estimates and negative bias on HUL and GCPL . We have a
HOLD rating on HUL and GCPL with price targets of Rs415/Share and Rs580/Share
respectively.
7/29/2019 Soaps and Detergents Sector Report_170912
5/12
Soaps and Detergents Sector Report
Emkay Research September 17, 2012 5
Annexure
Given below are sample interviews from each category (supply chain as well as
geographical) of our 360 degree survey, in order to provide a feel of the viewpoint of
each region and intermediary. We have classified each of these sample interviews
on a region and intermediary basis. For eg- Sales manager, AP would mean an
interview with the sales manager of an FMCG company to assess the groundrealities in AP region.
Sample Interview 1: Sales manager, Northern IndiaQ) With the Indian economy weakening, what is your view on overall consumer
demand?
Ans. The company continues to see resilient volume growth in the region and no
evident sign of slowdown. There is no marked change in the pace of premiumization
Q) Please throw light on the competitive landscape in the detergent (and S&D in
general) business across other brands
Ans. Competitive intensity is very high. However, the companys detergent brand is aleader in the region, unlike pan-India. The company plans to enhance profitability by
managing costs and also taking one more price hike to offset new packaging norms.
Also, the competitor (national leader) is aggressively trying to acquire clients with
increased trade promotions, better display and not going for price hike in its mid-
segment detergent brand.
Q) From where is volume growth coming?
Ans. Smaller/unorganized players are losing market share on account of launch of
lower priced SKU, thereby reducing the price differential. And with superior
communication, visibility, promotions and value proposal, consumers switch to
branded products.
Q) If the entire volume growth is coming at the cost of fringe players, then when do
you think the situation will turn on its head? Any indication that market share
gain momentum is reducing?
Ans. As significant chunk of unbranded/unorganised players still exist, future volume
growth is achievable (however, with higher associated costs).
Q) Do you think FMCG companies have to spend incrementally more on ad and
promotions to sustain volumes?
Ans. Yes. However, the companys policy is to increase efficiency i.e. rather than
increasing distribution and ad spends, the company would like to increase usage of
the existing consumers rather than acquiring new ones.
Q) Your region predominantly falls in the agricultural belt. Do you see deficient
monsoon impacting volume growth going ahead.
Ans. No impact witnessed till date. Impact on volume if any, only after February next
year. Distributor inventory provides us with some level of confidence.
Q) Any indications from the top management about the entry into much awaited
consumer category?
Ans. Globally, there has been a change in strategy with more focus on existing line of
business and profitability. Thereby, entry into new category in such a tough macro-
environment looks unlikely. Also, very strong global player is present in the category
and entering would involve large brand investment.
7/29/2019 Soaps and Detergents Sector Report_170912
6/12
Soaps and Detergents Sector Report
Emkay Research September 17, 2012 6
Sample Interview 2: Distributor, Tier 2 city MaharashtraQ) With Indian economy weakening, what is your view on overall consumer
demand?
Ans. Region more impacted by deficient rainfall then economy at large, as the region
is highly dependent on agriculture.
There has been marginal decline in volume growth but still volume growth is resilient
at 6% for laundry business. Most volume comes from mass market products viz.
Wheel, Tide Naturals, Nirma (80%). Rin, Surf and Ariel contribute remaining. People
are not moving to unbranded players or downtrading.
Q) Competitive landscape in the detergent (and S&D in general) business across
other brands
Ans. P&G not very strong in the region. Ghadi has recently entered the market and
has priced its product at a premium to Wheel with no special offer running for any of its
laundry products.
Q) From where is volume growth coming?
Ans. Nirma and other unbranded players have lost market share to the tune of 20%.
Q) If the entire volume growth is coming at the cost of fringe players, then when do
you think will the situation turn on its head? Any indication that market share
gain momentum is reducing?
Ans. As significant chunk of unbranded/unorganized players still exist (20-25%), future
volume growth achievable.
Q) Do you think deficient monsoon will impact volume growth going ahead.
Ans. Yes. However, volume growth unlikely to fall below 3-4%.
Q) Can you share the inventory level
Ans. The inventory is at normal level.
7/29/2019 Soaps and Detergents Sector Report_170912
7/12
Soaps and Detergents Sector Report
Emkay Research September 17, 2012 7
Sample Interview 3: Sales Manager, Tamil Nadu
Q) With the Indian economy weakening, what is the sense of overall consumer
demand?
Ans. The company continues to see resilient volume growth (12%) in the region and
no evident sign of slowdown. Smaller unorganized players are losing market share.
However, further client acquisition will require incremental costs.
Q) Competitive landscape in the detergent (and S&D in general) business across
other brands
Ans. We face competition from major national player and other large domestic players.
However, our being the market leader in laundry in this region helps. It is unlikely that
these large local players will succumb to national player and thereby gaining market
share will become incrementally difficult.
Q) From where is volume growth coming?
Ans. Smaller/unorganized player are losing market share on account of launch of
lower priced SKUs, thereby reducing the price differential and aiding consumer switch
to branded products.
Q) If the entire volume growth is coming at the cost of fringe players, then when do
you think will the situation turn on its head? Any indication that market share
gain momentum is reducing?
Ans. Market share gain to become incrementally difficult as large regional players are
unlikely to relent easily as they have decent brand presence in the region.
Q) Do you think FMCG companies have to spend incrementally more on ad and
promotions to sustain volumes?
Ans. Yes.
Q) Do you see deficient monsoon impacting volume growth going ahead.
Ans. Rainfall deficiency is not significant in the region. Also, no impact witnessed till
date. However, going by past experience, there might some impact to the volume
growth.
7/29/2019 Soaps and Detergents Sector Report_170912
8/12
Soaps and Detergents Sector Report
Emkay Research September 17, 2012 8
Sample Interview 4: Multi branded distributor, Rural Maharashtra
Q) With Indian economy weakening, what is the sense of overall consumer
demand?
Ans. Laundry business and soaps category is maintaining its growth trajectory.
Laundry business is witnessing robust value growth of 20-25% and soaps businessgrowth is pegged at 15%. Most of the growth is price led.
The volume growth achieved is primarily at the expense of small local players.
However, incrementally, it becomes difficult to take market share from local players
having significant size. There has been some downtrading happening but not
significant in laundry and soaps category.
The companies might not be able to take price hikes in immediate future, thereby
value growth might be impacted and it may come down to the range of 15-16% for
laundry and 10-12% for Soaps.
Q) Competitive landscape in the detergent (and S&D in general) business across
other brands
Ans. Competition is fierce with entry of Ghadi, which has been successful in taking
market share from both P&G and HUL due to extensive trade promotions. HUL is the
leader in this region and to maintain its dominance has initiated promotions in Rin
detergents. However, HUL regularly comes up with such promotional activities.
In soaps, ayurvedic soaps are losing out to perfumed soaps.
Q) From where is volume growth coming?
Ans. Bundle pack major volume driver. Santoor, Venus (Ghadis soap brand) and
Godrej No. 1 have gained market share and witnessed good volume growth. In soaps,
ayurvedic soaps are losing out to perfumed soaps.
Q) If the entire volume growth is coming at the cost of fringe players, then when do
you think will the situation turn on its head? Any indication that market share
gain momentum is reducing?
Ans. Market share gain to slow down.
Q) Do you think FMCG companies have to spend incrementally more on ad and
promotions to sustain volumes?
Ans. Yes.
Q) Your region predominantly falls in agricultural belt. Do you see deficientmonsoon impacting volume growth going ahead.
Ans. The consumers still have spending power and in past few days, have witnessed
some rains, which have given relief to the consumer. No impact witnessed till date.
However, going by the past experience there might be some impact to the volume
growth and also, we may witness downtrading.
7/29/2019 Soaps and Detergents Sector Report_170912
9/12
Soaps and Detergents Sector Report
Emkay Research September 17, 2012 9
Sample Interview 5: Sales manager, MetroQ) With Indian economy weakening, what is the sense of overall consumer
demand?
Ans. The company continues to see resilient volume growth in soaps (18-20%)in the
region and no evident sign of slowdown.
Smaller unorganized players (Dyna, Breeze) are losing market share in urban area.
Also, high growth in rural India continues to remain growth driver.
Brand loyalty is a suspect in soaps business, thereby constant focus and competitive
pricing is required. Dove is one of the few brands which continues to enjoy strong
brand loyalty and thereby, will continue to see resilient growth.
There is no marked change in the pace of premiumization
Q) Competitive landscape in the Soaps (and S&D in general) business across other
brands
Ans. Brand loyalty is a suspect in soaps business, thereby constant focus andcompetitive pricing is required. Dove is one of the few brands, which continues to
enjoy strong brand loyalty.
Q) From where is volume growth coming?
Ans. Smaller unorganized players (Dyna, Breeze) are losing market share in urban
area. Also, high growth in rural India continues to remain growth driver.
Q) If the entire volume growth is coming at the cost of fringe players, then when do
you think will the situation turn on its head? Any indication that market share
gain momentum is reducing?
Ans. In urban region, growth is expected to normalize. However, rural regions willcontinue to witness robust growth. Bundle packs in soaps are major volume driver.
Q) Do you think FMCG companies have to spend incrementally more on ad and
promotions to sustain volumes?
Ans. Yes.
Q) Can you share about the inventory level
Ans. Inventory is below the normalized level.
7/29/2019 Soaps and Detergents Sector Report_170912
10/12
Soaps and Detergents Sector Report
Emkay Research September 17, 2012 10
Sample Interview 6: Distributor, Gujarat
Q) With Indian economy weakening, what is the sense of overall consumer
demand?
Ans. Laundry business is maintaining its growth trajectory. Laundry business is
witnessing robust value growth of 22%.
The volume growth achieved is primarily at the expense of Henko, Mr. White loosing
share. Also, Tide Natural (mass brand which competes with Wheel of HUL) has aided
growth.
Local players are strong in this territory and also of late, there has been some
downtrading happening but not significant in laundry and soaps category.
Q) Competitive landscape in the detergent (and S&D in general) business across
other brands
Ans. Competition is fierce with HUL and P&G having almost equal market share. Local
players like Nirma are strong and continue to dominate mass category. Due to
distribution glitch in Henko and Mr. White, there has been gain by P&G and HUL.
Q) From where is volume growth coming?
Ans. The volume growth achieved is primarily at the expense of Henko, Mr. White
loosing share.
Q) Do you think FMCG companies have to spend incrementally more on ad and
promotions to sustain volumes?
Ans. Yes.
Q) Do you deficient monsoon impacting volume growth going ahead?
Ans. No impact witnessed till date. However, going by the past experience,there might
some impact on volume growth and also, we may witness downtrading. Villages to be
more impacted. Other categories like shampoo, toothbrush are largely feeling the
brunt of downtrading.
Q) Can you share about the inventory level
Ans. Inventory level is normal at retail level. However, a bit above normal at distributor
level.
7/29/2019 Soaps and Detergents Sector Report_170912
11/12
Soaps and Detergents Sector Report
Emkay Research September 17, 2012 11
Sample Interview 7: Sales manager, AP
Q) With Indian economy weakening, what is the sense of overall consumer
demand?
Ans. Laundry business and soaps category is maintaining its growth trajectory.
Laundry business is witnessing robust value growth of 20-25% (double digit volumegrowth) and soaps business growth is pegged at 15% (5% volume growth).
In laundry business, the volume growth is primarily achieved at the expense of small
local players and new launches. In soaps category, Santoor is gaining share from
HULs Lux and Rexona.
No downtrading happening in laundry and soaps category.
Q) Competitive landscape in the detergent (and S&D in general) business across
other brands
Ans. Laundry: HUL is market leader with Surf and Rin dominating the laundry
business. HUL has been successful in taking market share from local players. P&G isalso witnessing robust growth in the region. However, we not deterred and are
confident of sustaining market share.
In soaps, Lux and Rexona are witnessing de-growth and losing out to Santoor.
Santoors market share gain is attributed to significant trade promotions. HUL plans to
refocus on Rexona and initiate trade promotions, which can revive their fortunes and
be growth driver in soaps business especially in mass end. Dove is doing exceedingly
well.
Q) From where is volume growth coming?
Ans. Laundry: Smaller/unorganized players are losing market share.
In soaps, bundle packs in soaps are major volume driver. Santoor in South and Godrej
No. 1 in West and central India have gained market share and witnessed good volume
growth.
Q) If the entire volume growth is coming at the cost of fringe players, then when do
you think will the situation turn on its head? Any indication that market share
gain momentum is reducing?
Ans. Laundry: New product pipeline to drive growth in future. Also, do not expect
volume growth to decline below 10%.
Soaps: Plan to refocus on Rexona and initiate trade promotions which can revive their
fortunes and be growth driver in soaps business especially in mass end.
Q) Do you think FMCG companies have to spend incrementally more on ad and
promotions to sustain volumes?
Ans. Yes. Increase in trade promotion in Rexona is on the cards.
Q) Will deficient monsoon impact volume growth going ahead?
Ans. Our region has received normal rainfall. So, no impact.
Q) Can you share the inventory level
Ans. Inventory level is below normal at distributor level i.e. no inventory pile up.
7/29/2019 Soaps and Detergents Sector Report_170912
12/12
Soaps and Detergents Sector Report
Emkay Research September 17, 2012 12
DISCLAIMER:Emkay Global Financial Services Limited and its affiliates are a full-service, brokerage, investment banking, investment management, and financing group. We along with our affiliatesare participants in virtually all securities trading markets in India. Our research professionals provide important input into our investment banking and other business selection processes. Investors may
assume that Emkay Global Financial Services Limited and/or its affiliates may seek investment banking or other business from the company or companies that are the subject of this material and that the
research professionals who were involved in preparing this material may participate in the solicitation of such business. Our salespeople, traders, and other professionals may provide oral or written market
commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions
that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential
conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein. This report is not directed to,
or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use
would be contrary to law or regulation or which would subject Emkay Global Financial Limited or its group companies to any registration or licensing requirement within such jurisdiction. Specifically, this
document does not constitute an offer to or solicitation to any U.S. person for the purchase or sale of any financial instrument or as an official confirmation of any transaction to any U.S. person unless
otherwise stated, this message should not be construed as official confirmation of any transaction. No part of this document may be distributed in Canada or used by private customers in United Kingdom.
All material presented in this report, unless specifically indicated otherwise, is under copyright to Emkay. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to,
copied or distributed to any other party, without the prior express written permission of Emkay. All trademarks, service marks and logos used in this report are trademarks or registered trademarks of
Emkay or its Group Companies. The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized reading, dissemination,
distribution or copying of this communication is prohibited unless otherwise expressly authorized. Please ensure that you have read Risk Disclosure Document for Capital Market and Derivatives
Segments as prescribed by Securities and Exchange Board of India before investing in Indian Securities Market. In so far as this report includes current or historic information, it is believed to be reliable,
although its accuracy and completeness cannot be guaranteed.
Emkay Global Financial Services Ltd.
7th Floor, The Ruby, Senapati Bapat Marg, Dadar - West, Mumbai - 400028. India
Tel: +91 22 66121212 Fax: +91 22 66121299 Web: www.emkayglobal.com
www.emkayglobal.com