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Consumer Pulse November 2017Industry PicksHome appliance and consumer electronics market likely to grow by 10%According to the recent PwC report, the domestic home appliance and consumer electronics market is expected to grow at a CAGR of 10% till 2022, with the country having the potential to be oneof fastest growing markets in the world in terms of consumption, manufacturing & job creation.The report considers factors like emerging middle class, rising disposable incomes & progressive government reforms such as ‘Digital India’ and ‘Make in India’ will drive growth. However, a keychallenge is the low domestic cumulative value addition in the production cycle, which is less than 40% for most new age products and 7% for smartphones - far lower than the global average. Thisis attributed to limited domestic component ecosystem, high cost of finance and power & inefficient infrastructure. Nearly 84% of the participants surveyed in this report stated that their overalldomestic value add in production was less than 50%.The report recommends creating large scale demand by easing the tax structure and encouraging financing firms to provide easy consumer finance. It suggests domestic manufacturing cost shouldbe competive by lowering cost of capital, creating a phased manufacturing plan for products like mobile phones in which incentives will be linked to domestic value addition in India and ensuringlow sourcing costs through development of a good supplier ecosystem. If these are adopted, the Indian appliances and consumer electronics industry can aim to increase value addition by two tothree times by 2022.FMCG firms slash prices post GST reductionGST rates on as many as 178 products, including chocolates, cosmetics, detergents & air-fresheners were reduced in November. Under the GST law, companies must pass on the gain from thelowered tax to consumers, but stocks lying in the market still carry previous price tags. The government has communicated that it is the responsibility of the companies to ensure that their entireretail chain follows the directives on pricing.ITC, which makes Fiama cosmetics and Engage deodorants, has begun releasing ads in mainstream media to sensitise consumers about the reduction in prices. Mars, the maker of Snickers, Mars &Galaxy chocolates has informed its distributors and retailers to pass on these benefits to the end consumer, offering them flexibility to meet their diverse operational models. Mars is exploring theuse of technology to see how it can monitor invoicing at the store level. Dabur announced an 8-10% drop in the prices of skin-care, shampoo and homecare products. Another home-grown player,Emami, is communicating the reduction in prices at points of sale.India's food processing sector may attract USD 33 bn by 2024According to a joint study by Indian industry body Assocham and Grant Thornton, India's food processing sector has the potential to attract USD 33 bn (c.a. INR 2.1 tn) in investments by 2024.The study states that the country's food and retail market is expected to touch USD 482 bn by 2020, up from USD 258 bn in 2015, with recent reforms making the sector more competitive andmarket-oriented. There is a huge scope for large investments in food processing technologies, skill development and equipment as total food production in India is estimated to double in the next10 years.While the sector provides opportunity for growth, it needs to focus on product conformity with global standards and quality together with factors like logistics traceability and safety, quality ofpackaging and delivery. There is a need for policy intervention and field level changes for India to develop global competitiveness in many related sub-sectors and ensure that they are firmlyentrenched in global value chains.Fast growth in food processing and simultaneous improvement in the development of value chain are of great importance to achieve favourable terms of trade for India's agriculture sector both indomestic and international markets.6

Consumer Pulse November 2017News PickAmul to invest INR 2.5 bn in OdishaAmul has decided to invest INR 2.5 bn in the dairy sector of Odisha. Currently there is asupply gap of 30 lakh litres of milk per day in the state. Odisha is the second largest marketfor Amul in the country. Food processing is a focus sector for the state. In order to promotethe industry, Odisha has chalked out a food processing policy, developed mega food parks atDeras and Rayagada and also provides single window facilitation for investors.Local rivals take away market share from Coca-Cola, PepsiCoCoca-Cola and Pepsi have been losing share to local rivals, including Parle, Dabur & ITC inthe aerated-beverages segment even as the global soft-drink giants introduced more fruitbased and healthier products to reduce their reliance on sugary sodas. In the overall juices,nectars and still drinks, the share of Coca-Cola’s largest fruit-based brand Maaza declined 230basis points (bps) to 33.1%, while Pepsi’s Slice fell 4.3 bps to 9.6% during the year toSeptember. At the same time, Parle Agro’s Frooti gained 170 bps to 15.7%, while Dabur’s Realshare rose 60 bps to 9.8%. New entrant ITC’s B Natural and ethnic drinks maker Paper Boat —both marginal players — have gained slightly in the same period, while Pepsi’s Tropicana lost50 bps to 5%RIL to foray into co-branded apparel business with ‘RElan'Reliance Industries, which has recently introduced RElan - a portfolio of specialty fabrics, is intalks with several apparel brands for co-branding of apparels. Besides, RIL is also adopting aB2B2C approach under its HEP (Hub Excellence Program), in which it is forging partnershipswith textile manufacturers to provide technology to manufacture high performance fabricsfor RElan. The categories include denim, ethnic wear, formal wear & women's wear. Thecompany has already tied up with VF Corporation and is in advance discussions with 5 morebrands. This co-branding exercise will give RIL a foothold in the INR 2.5 tn Indian apparelindustry, comprising almost equal share across menswear & womenswear.Prabhat Dairy eyeing 10% market share in North-East India by 2019Prabhat Dairy is exploring the possibility of setting up a processing unit in Assam. Thecompany is eyeing to capture 10% of market share by FY19 and firm up the scale ininstitutional business in North-East India. The market for UHT (Ultra-Heat Treatment) milk isgrowing exponentially with CAGR of 32% and the company aims to be a major contributor tothe industry. To achieve the growth targets, the company has also planned to leverage itsexisting presence in the region by expanding its product portfolio. By end of FY18, thecompany plans to enter and firm up its presence in Tier II and Tier III towns with higherdisposable incomes across India.ITC betting on Charmis to gain skincare spaceITC is extending the newly acquired Charmis brand to a range of skincare products thatwould compete with HUL’s Pond’s and Nivea and help scale up the company’s presence inthe high-margin personal-care business. Acquired from Colgate-Palmolive, Charmis creambrand is among the low-profile buyout opportunities the company is betting on to expand itsnon-cigarette profitability. Categories where ITC plans to extend Charmis could includespecialised face washes and applications such as tan removal, day cream, anti-ageing &moisturising lotions. ITC has just re-launched Charmis winter cream, and the brand willoperate in the mass segment; while the Vivel range will enjoy premium positioning. ITC hasalso acquired the brand rights for South Asia and some African & Middle Eastern markets.ITC to invest INR 100 bn to set up food processing unitsITC plans to invest INR 100 bn to set up food processing facilities across the country. Thecompany is looking to have around 20 such units pan India. It is a fast-track investment and 3factories would be ready by January 2018. The company is investing heavily in bothagriculture and food segments as it sees huge potential in these two sectors. The investment isa part of INR 250 bn capex to enhance physical infrastructure and manufacturing capabilities.US-based Mitchell eyes INR 1 bn turnover from India in 3 yearsUS-based skincare firm Mitchell is looking at an INR 1 bn turnover from the Indian market inthe next 3 years as it plans to augment its portfolio and stretch its presence to outside metrocities in the country. The company entered the Indian market with a portfolio of 7 – 8products and will soon add more such as sunscreen & haircare products. Mitchell productscurrently are sold through 150 premium multi-brand outlets in metro cities. The company islooking at increasing it to 1,000 outlets by mid of the next financial year. It is also looking atexporting products suitable for Indian skin to neighboring counties such as Nepal, Bhutan &Bangladesh.Hershey’s to invest USD 50 mn in India over 5 yearsUS-based chocolate and confectionery firm Hershey’s is planning to invest USD 50 mn in Indiaover the next 5 years to scale up its operations here. The company is focusing on growing andexpanding its presence in India. The country is among the 4 key markets for Hershey’sglobally outside North America. India has emerged as its fastest growing market, clocking anet sales growth of 16%. The company is on track to expand gross margins in India by 1,000bps in 2017.Cargill to spend INR 15 bn on India expansion planUS food major Cargill will invest INR 15 bn in India over the next few years. The company isalso adapting to Indian market conditions focusing on local aspects of the market. Investmentwill be in Cargill’s current lines of business including edible oil, cocoa and chocolates,starches and sweeteners & animal nutrition. The company will employ 4,800 people in thenext couple of years, up from the current strength of 3,500 people.ITC launches new Farmland brand, to sell potato based productsITC has forayed into the fresh fruits and vegetables market under the 'Farmland' brand ofproducts by launching value-added potatoes such as low sugar potatoes, potatoes withantioxidant, baby potatoes & French fry potatoes. The company claims these potatoes arenaturally low in fat and sugar with fat content below 0.2% and sugar level below 2%. Theproducts will be launched at highly competitive prices with 10-15% over local price. ITC will7

Consumer Pulse November 2017Virat Kohli to launch his men’s collection under its own brand One8Indian cricketer Virat Kohli is set to launch his debut collection of premium men’s innerwearand sleepwear. Kohli has entered into an exclusive brand licensing agreement with Kolkatabased Lux Industries for designing, manufacturing & marketing the entire range of men’sinnerwear and sleepwear under his brand One8. The 10-year deal involves a royalty paymentdepending on the brand’s business performance. Kohli launched his athleisure brand One8 incollaboration with German sports lifestyle brand Puma, which is providing design, product,retail & communication channels for the brand.target the potato market in metros and mini-metros which alone is close to INR 50 bnopportunity. The company plans to sell the products through organised retail, e-commerce &even neighborhood vegetable vendors.Titan sees jewellery sales rising more than 25% in 2017-18Titan expects jewellery sales to rise more than 25% this fiscal year as tighter rules on cashflows and a new sales tax has hurt the mom-and-pop firms that dominate the business.Events like demonetisation and implementation of GST are helping the company to increasemarket share as the industry is getting organized. Titan reported a 71% surge in net profit inthe July-September quarter. In the first half of FY18, the company's jewellery sale surged 47%to INR 61 bn. Titan plans to open 15 jewellery stores in the second half of the fiscal year, inaddition to its existing 268 stores and extend its geographical reach.With the help of sales strategy & price cuts, LG India posts 11% growthLG Electronics India reported 11% sales growth last fiscal year even as the white goodsmarket grappled with a slowdown in demand post demonetisation. Industry executives citeddecentralisation of sales and price cuts in products like TVs among the reasons for LG’sperformance. The South Korean major posted sales of INR 161 bn in India for the yearthrough March 2017, compared with INR 145 bn the year before. In contrast, the industrygrowth rate slipped to 4-5% in FY17 as sales were hit in the months following thedemonetisation announcement in November 2016.Raymond aims to double FMCG turnover to INR 10 bn in 3-4 yearsRaymond is sharpening its focus on FMCG business as it plans to double turnover to INR 10bn over the next 3-4 years. The group had recently acquired Ansell's stake in the sexualwellness and personal care brand KamaSutra, from JV entity JK Ansell and expects to getregulatory approvals shortly. Raymond is present in the FMCG space through its subsidiaryJK Helene Curtis, which makes the Park Avenue brand of men’s grooming products.Combined FMCG revenue between the two companies is INR 5 bn at present. The companyplans to take the Park Avenue range of men's grooming products to global markets like WestAsia, Bangladesh & Nepal to begin with and then to Sri Lanka, Bhutan & Myanmar in thesecond phase. The domestic men's grooming industry is estimated to be INR 50 bn andRaymond will be launching new products in this category.Pizza Hut marks out India as a key market for global growthPizza Hut, a division of US-based Yum! Brands Inc identifies India as one of the key marketsfor its future global growth. The company has lined up plans to double its outlets in India toover 700 over the next 5 years vs. current count of 350 stores spread over 100 cities in India.The chain is operated by its two franchise partners in India - Devyani International &Sapphire Foods India.Godrej Appliances to invest INR 2 bn in Shirwal plantGodrej Appliances, the consumer durables division of the Godrej Group, will invest INR 2 bnto expand the production capacity at its Shirwal manufacturing plant in Maharashtra. To beoperational by the end of 2019, the new factory will increase production capacity of premiumproducts by 0.7 mn units, including 0.3 mn high-end refrigerators & 0.3 mn fully automaticwashing machines. With the latest expansion, the total production capacity of the companywill increase to 4.6 mn units annually, and generate additional employment for 400 people.Coca-Cola India sees Thums Up as USD 1 bn brand in 2 yearsCoca-Cola India expects its softdrink brand Thums Up to be a USD 1 bn brand in the next 2years and is adding variants to the home-grown product. With the introduction of 'Thums UpCharged', the company added the first ever variant to the 40-year-old brand. The new ‘ThumsUp Charged’ will be available in 7 different packs. Coca-Cola India, along with partnerbottlers, will invest suitably in enhancing the brand, launching new packs, expandingdistribution & augmenting manufacturing capacity to increase sales of the brand by2020. Thums Up currently has revenue of c.a. USD 770 mn (INR 50 bn).Philip Van Heusen Corporation to merge Calvin Klein, Tommy Hilfiger operationsAmerican clothing giant Philip Van Heusen Corporation (PVH) plans to consolidateoperations of its 2 Indian JVs - Tommy Hilfiger & Calvin Klein to create a company with retailsales topping INR 10 bn. The new legal entity will have Arvind as an equal partner. Thecombined operations will emerge as PVH's flagship business in India, and a possible vehiclefor future inroads into a key market. The new entity has over 450 points of sale.Marico enters soup segment, plans healthy snacks tooMarico started selling Saffola soups, entering INR 4.5 bn segment that is dominated by HUL &Nestle. The move is part of its strategy to launch healthy, in-between snacks and at the sametime, add premium products to its portfolio as it targets a 70% increase in revenue to INR 100bn by 2020. While the Indian market for soups has been primarily driven by increasingurbanisation, rising incomes & heavy marketing, penetration is less than 5%. The companyhas created a new business team which will help create and incubate new categoriesincluding healthy foods, nutraceuticals, male grooming & other personal care products.8

Consumer Pulse November 2017Consumer ScorecardCompany AMarginNet IncomeMargin(INR)(INR mn)(INR 6.10x33.37xEV/Revenues (x)EV/EBITDA (x)P/E (x)ROEROCEFY19ELTMLTM31.57x27.35x23.2%17.8%Agro & Food ProcessingKRBLAvanti rej 6.09x24.04x20.06x39.16x38.87x31.30xN.A.N.A.Venky's aap .18x39.10xN.M.N.M.N.M.20.2%12.9%LT 8.50x7.83x14.68x13.14x11.22xN.A.N.A.ADF 4x29.13x21.96x18.74x32.41x33.25x27.70xApex Frozen FoodsDFM FoodsAverageApparelsPage x21.03x17.64x13.04x82.74x61.50x31.74x4.1%3.3%Rupa & 5.66x55.30xN.A.N.A.24.3%14.2%Dollar x 0.15x7.72x6.58x22.71x18.08x12.67x20.7%20.9%Monte Carlo .59x10.28x8.64x24.47x17.95x14.43x9.5%6.2%Ashapura Intimates Fashion521.210,3553,11215.0%5.4%

Consumer Pulse November 2017 3 Returns of consumer indices vis-à-vis Sensex returns for the month* Returns* Index 1M 3M YTD 12M Agro & Food Processing 14% 74% 226% 223%