Inside India’s consumption slump⁠— stories from Godrej Consumer to Page Industries to Emami and many more

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Inside India’s consumption slump⁠— stories from Godrej Consumer to Page Industries to Emami and many more
FILE PHOTO: Inside a shopping mall in Goregaon, Mumbai
The Indian economy just clocked its eighth straight quarter of slowing GDP (gross domestic product) growth. Consumer confidence had slipped further after hitting a six-year low late last year. All this had to hurt earnings of companies— Page Industries, Colgate, Dabur, Asian Paints to name a few— that depend on people spending money on their products.

In the last one month, at least ten companies have seen cuts in earnings estimates anywhere between a slight tweak to as much as 10%.

CompanyCut in earnings estimate in last one month
Page Industries-10.60%
Marico-2.40%
Emami-2.30%
Titan-1.50%
Berger Paints-1.40%
Jubilant Foodworks-1.40%
Godjrej Consumer-1.30%
Asian Paints-1.30%
HUL-0.30%
Dabur-0.20%
Britannia0.10%
GSK Consumer0.30%
Nestle0.40%
ITC0.70%
Pidilite3%
Colgate3.70%
Source: Axis Capital

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The following is the commentary from analysts on each of the stock that has seen a cut in the consensus earnings estimate.

Page Industries: “The path to earnings recovery, particularly after the unprecedented margin dip in 3QFY20, is unclear. Category slowdown, weak channel liquidity and competitive tailwinds present significant near-term challenges. Our channel checks across various cities in the country also do not indicate green-shoots of recovery,” Motilal Oswal said in its report on Feb 13 while cutting the target price for the stock to ₹22,250 a piece for the next one year .

Marico: From a slowdown in rural consumption and drying of cash circulation among dealers and distributors who are looking to cut down on inventory are not the only problems for the company. As economic growth got slower and people got more penny-wise, some of the company’s customers are moving back to unbranded products that are cheaper and can be bought in small quantities as per need.

This has led to a cloud of uncertainty for Marico, which has lost over 15% in share value since early December. “The near term pain envisaged, when we released our initiation note on Dec 2, has actually extended by a couple of quarters, with revival now expected from the second half of the next financial year ending March 2021,” according to Nirmal Bang Institutional Equities, which still has a ‘buy’ rating on the stock and a target price of ₹400 that implies a nearly 33% jump from the current value.
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Aside from being oversold, the only silver lining for Marico is the cheaper price of key inputs.

Emami: Like Marico, Emami also benefits from cheaper commodities but that is no good when data shows that domestic volume growth contracted for the first time in recent memory. But the fears have already played out and the stock has lost over 35% of its value in the last one year. “Valuations are at about 60% discount to peer average,” cited a Motilal Oswal report while recommending that investors buy Emami expecting a 19% jump in price in the next one year.


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Titan: ‘Growth’ was never under question for Tanishq; ‘Growth + Margins’ was, said the opening lines of a report from ICICI Securities recently. Tanishq is a jewellery chain operated by Titan that also sells watches and eyewear.

The company’s jewellery business surprised analysts by growing 11% and making as much profit margin as a year ago, if not better. But watches and eyewear, two other important segments, showed signs of weakness.

Over 85% of the company’s revenue comes from jewellery and the recent rise in gold prices may affect buyers’ sentiment.

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Berger Paints: Berger’s revenue growth decelerated further and earnings were 7% below estimates, Kotak Institutional Equities said after the latest quarterly report from the company. One of the biggest stumbling blocks for the company is the sharp slowdown in car sales and production. The fall in crude oil prices as the coronavirus spread is good news but not good enough. Kotak rated the stock as ‘sell’, adding that the fair value for the stock would be ₹430, nearly 25% lower than the current level.


Jubilant Foodworks: The sole franchise holder for Domino's Pizza and Dunkin Donuts in India is faced with a double whammy. Both vegetables and milk are getting expensive shrinking margins.

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In early 2018, Jubilant’s same store sales ⁠— sales from stores open for at least a year ⁠— were growing well above 20%, today it is down single digits. The same-store sales in the latest third quarter 5.9% and that was the highest this financial year. The ongoing quarter, Jan to March 2020, may see a hit from a rise in violence in Delhi that has led to fewer people stepping out to eat or ordering in for that matter.

PhilipCapital’s target price for the stock is ₹1,750 not very far where it is right now.



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Godrej Consumer: The same PhilipCapital gave a ‘high-conviction sell’ rating for this company that is a king of toiletries in India⁠— from soaps and shampoos to hair colour.

What’s helping Godrej is the fact that 45% of business is overseas and in countries that have shown better economic performance. Without the 11% growth (in constant currency terms) in overseas revenue, the total topline growth would have been much worse than the 2.1% clocked in the latest third quarter.



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However, a report from Credit Suisse has projected a turnaround in the home insecticides sales and therefore increased the target price to ₹680 a piece a year from now, a 21% rise from Friday’s closing price.

Asian Paints: As a paint maker, Asian Paints has challenges similar to those of Berger Paints mentioned above. But Asian Paints is a leader in the market and has been focussed on gaining market share by offering competitive prices to beat the slowdown.

Asian Paints has expanded its market share (value) from 44% in the financial year ending March 2008 to 53.6% at the end of March 2019. “With the entry of new players, Asian Paints has increased its aggression in trade and is focusing on gaining market shares even in low priced paints / putty & primers,” an ICICI Securities report said citing the risk of action from the country’s monopoly regulator.

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HUL: Hindustan Unilever, which sells every soaps and shampoos to food items of daily use at home, has been improving its profit margin nine years in a row. The current slowdown has not changed that but the volume growth is abysmally low at 5% for the last three quarters compared to 12% in the first quarter of financial year 2018.



There is no recovery in sight for at least another two quarters. While rising prices of key inputs are either forcing price hikes or narrower margins, people’s spending power has been eroded by rising inflation and now, rising cost of keeping a mobile phone.
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There may be some upside after the company’s decision to set up a 100% subsidiary to enjoy a lower tax rate of 15%. However, the street is waiting to see how this plays out and what benefits accrue. ICICI Securities kept its estimates unchanged citing the risk of further slowdown in consumption and irrational competition.

Dabur: Except for Dabur Amla, Dabur India’s journey so far in the Indian Hair oil sector has been lackluster. Its other key offerings like Dabur Anmol and Dabur Almond has not been able to make a mark till now. Vatika, a key offering positioned in the coconut oil segment has not worked well in India, while has gained good success in international markets, said a report from SBI Caps recently.


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The growth in the modern trade has gradually decelerated as the slowdown catches up and the company is trying to beat that with new product launches. It is expected that the company owned by the Burman family, so far known for its health supplement Chyawanprash and hair oil, may launch fruit-based cold drinks this summer to take on the like of Coke, Pepsi and Parle.

The consensus earnings estimate is only 0.2% down for Dabur in the last one month but in the last one year it is down by 8.4%.

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