1. health and fitness
2. nutrition

Glaxosmithkline Consumer
Taller, Stronger, Sharper
Your success is our success
n Rs 45bn MFD category is represented by Horlicks, Boost,
October 14, 2013
Rating
Previous Reco
Accumulate
Accumulate
CMP
Rs4,472
Target Price
Rs4,200
EPS Chg CY13E/CY14E (%)
NA/NA
Target Price change (%)
NA
Nifty
6,113
Sensex
20,608
Bournvita and Complan. The category has undergone
product, customer and market development
n Players’ efforts are channelized towards: a) distribution
expansion, b) product offering, and c) roping new consumers.
Collective efforts should augment category growth
n Heinz is aggressive than the rest, but a serious challenger to
GSK Consumer is nowhere in sight
n Strong brand with inherent pricing capability is reassuring.
Maintain Accumulate, with a price target of Rs4200/share
Price Performance
(%)
6M 12M
MFD category largely represented by three players
-4
10
48
-7
-3
35
The malted food drinks (MFD) category is largely represented by brands such as
Horlicks, Boost, Bournvita and Complan. The top three players alone account for about
90% of the Rs 45bn MFD category. GSK Consumer is the market leader, with about
65% share led by its lineage brands , ’Horlicks ’ and ’Boost’. Cadbury’s Bournvita and
Heinz’s Complan are the other top players in this category.
1M
3M
Absolute
-4
Rel. to Nifty
-8
Source: Bloomberg
Relative price chart
5900
Rs
%
100
5300
80
4700
60
4100
40
3500
20
2900
Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
GlaxoSmithkline Consumer (LHS)
0
Oct-13
Aug-13
In the last few months, the category has come ‘ALIVE’ and is beaming with ‘ACTION’: 1)
the active usage of media by new players such as Endura and Pediasure, 2) stakes and
pitch have risen by roping in celebrities to endorse products , and 3) differentiation in
product offerings and differentiated communication strategy adopted by the challenger,
Bournvita and Complan.
Rel to Nifty (RHS)
Collective efforts by players would augment category growth
Source: Bloomber g
Stock Details
Sector
Consumers
SKB IB
Bloomberg
421
Equity Capital (Rs mn)
Face Value(Rs)
10
No of shares o/s (mn)
42
6,348/ 2,901
52 Week H/L
Market Cap (Rs bn/USD mn)
188/ 3,064
Daily Avg Volume (No of sh)
19,654
Daily Avg Turnover (US$mn)
1.4
Shareholding Pattern (%)
Sep'13 Mar'13 Dec'12
Promoters
72.5
72.5
43.2
FII/NRI
11.6
11.2
15.4
Institutions
0.6
0.7
16.1
Private Corp
2.0
2.1
9.9
13.4
13.6
15.4
Public
But stakes have increased; all players in the arena
Source: Bloomberg
We inspected category dynamics, product portfolio, product pricing, communication plan
and business strategy of key players in the MFD category. We conclude that efforts of
players are channelized towards : a) distribution expansion, b) new product offerings , c)
eyeing new consumers , and d) exploring rural India. In our opinion, these industry efforts
on a collective basis should augment growth of the MFD category in the long run.
Heinz is aggressive than the rest, but challenger to GSK Consumer is
nowhere in sight
Heinz is aggressive than the rest of the players, with an inherent drive to minimize the
gap with GSK Consumer. It is evident from its efforts to augment its portfolio offerings
and engage in price competition. But we remain unfazed, and rule out a meaningful
impact on GSK Consumer with its Rs 5bn outlay on A&P spends. It is a daunting task for
competitors to surpass this summit. In our opinion, a serious challenger to GSK
Consumer is nowhere in sight. We maintain an Accumulate rating on GSK Consumer,
with a price target of Rs4200 (30x CY14E earnings).
YEPritesh Chheda
[email protected]
+91-22-66121273
Prashant Kutty
[email protected]
+91-22-66121341
Emkay Global Financial Services Ltd.
(Rsmn)
Financial Snapshot (Standalone)
Dec
Net
EBITDA
EPS
EPS
RoE
EV/
(%)
P/E
EBITDA
P/BV
Sales
(Core)
(%)
APAT
(Rs) % chg
CY11A
27,650
5,045
18.2
3,552
84.5
19.2
33.8
52.9
35.1
16.4
CY12A
31,875
5,734
18.0
4,368
103.9
23.0
34.9
43.1
30.2
13.8
CY13E
36,230
6,889
19.0
5,098
121.2
16.7
34.1
36.9
25.0
11.6
CY14E
41,333
7,848
19.0
5,820
138.4
14.2
32.7
32.3
21.4
9.7
1
Company Update
Emkay
©
Glaxosmithkline Consumer
Company Update
Refreshing category dynamics to set the tone for discussion
Exhibit 1: Malted Food Drinks - Category Dynamics
MFD category has grown at a 16 % CAGR over last 7 years
GSK is the market leader in MFD category with a 65 % share
10%
10
5%
0
0%
MFD Category (Rs bn)
Heinz
14%
MFD Penetration in India
% penetration
Urban
Rural
41%
12%
All India
22%
Total Popn – 105 gm
Popn 2 yrs-44 yrs – 140 gm
Penetrated Popn – 637 gm
Others
2%
GSK
Consumer
65%
% growth
India MFD Penetration is abysmally low, more so rural areas
MFD Consumption
Abbot
2%
Cadbury
17%
CY12
CY11
20
CY10
15%
CY09
30
CY08
20%
CY07
40
CY06
25%
CY05
50
Urban Rural Consumption
On Urban Penetrated Popn
– 989gm
On Rural Penetrated Popn
– 170 gm
Growth drivers in the MFD category
§
§
§
§
§
§
Higher advent of malnutrition in India
Youth is over 50% of Indian population
Increased urbanization; Higher disposable income
All-India penetration at a mere 22%; Huge opportunity
Per capita consumption offers upside as well
Untapped market; Scope for better distribution
MFD category growth led by penetration and consumption
Deciphering MFD Category Growth
CY06
CY07
CY08
CY09
CY10
CY11
CY12
Volume Led MFD
6.8%
9.8%
16.1%
10.0%
13.2%
8.9%
5.7%
Population Led
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
Penetration Led
5.2%
5.0%
4.8%
4.7%
4.6%
4.8%
4.8%
Consumption Led
1.4%
4.6%
11.0%
5.1%
8.4%
3.9%
0.7%
Price Led
4.4%
5.7%
4.9%
7.1%
4.8%
6.7%
8.8%
11.5%
16.2%
21.7%
17.8%
18.6%
16.3%
15.0%
Category Growth (Value)
MFD Category volumes (tons) grown at 9.8% CAGR (05-12)
132509
140000
120000
15%
100000
80000
20%
67821
10%
60000
40000
5%
20000
0
0%
CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12
Volumes (tons)
Emkay Research
October 14, 2013
% growth
MFD Avg. Realization (Rs/kg) grown at 6.1 % CAGR (05-12)
400
350
300
250
200
150
100
50
0
340
10%
8%
225
6%
4%
2%
0%
CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12
Avg Realization (Per Kg)
% growth
2
Glaxosmithkline Consumer
Company Update
What are the product offerings in the market?
Product offering ranges from general nutrition to special offerings
The MFD category has seen significant upgradation in product offerings , which have addressed specific requirement and preferences of a
much wider audience. The product offerings now encompasses plain malt nutrition drink for kids to flavoured malt drink (chocolate, vanilla
and strawberry) to health and nutrition drink for different customers (women, mothers and adults). The portfolio also construes specialized
offerings for memory development, under-nourishment, weight gain, etc. GSK is the only player in this category, which has a full product
portfolio that straddles across the consumer segment and price points. Heinz is mimicking GSK and attempting for a full product portfolio.
Cadbury is primarily focused on kids’ nutrition through Bournvita and Bournvita Lil’ Champs. A few incumbents such as Endura, Abbot, and
Zydus Wellness have entered the category with a differentiated product offering, though they are yet to make a mark.
Exhibit 2: Product Offerings of MFD players
Company
Horlicks Malt
GSK Consumer
Products
Boost
Junior Horlicks 2
Horlicks Chocolate
Junior Horlicks 1
Horlicks Gold
Complan Original
Mother’s Horlicks
Horlicks Pro Mind
Complan Chocolate
Complan Memory
Horlicks Lite
Maltova
Complan Nutrigro
Women’s Horlicks
Viva
Nutriful
Maplan P & L
Heinz India
Bournvita
Bournvita 5-star Magic
Bournvita Lil’ Champs
Cadbury India
Medinn Belle
Endura Mass
Enzest
Endura Kidkilos
Abbot
Zydus Wellness
Pediasure
Actilife
Source: Company, Emkay Research
GSK’s product offering straddles across customer segments
Although they have not achieved a generics stature, ‘Horlicks ’ and ’Boost’ from GSK are highly successful brands in the MFD category. GSK
has made ‘Horlicks’ most relevant to consumers by addressing needs and preferences of a wider audience. Horlicks has product offerings
for kid’s nutrition, general nutritional needs of the entire family, nutritional needs of women and mothers, specific needs such as memory
development, vitamin deficiency and protein deficiency. Also, product offerings are available across price points , thereby making them
relevant for a much large audience; spanning both urban and rural consumers .
Emkay Research
October 14, 2013
3
Glaxosmithkline Consumer
Company Update
What is customer charged for the MFD extravagance?
The product offerings are available at varied pricing points from Rs 328/Kg to Rs 1230/Kg. The basic variants of Horlicks and Bournvita are
priced at Rs330-340/Kg, whereas Complan at Rs416/Kg. Specialized offerings like mind development is priced at Rs560-580/Kg, kid’s
nutrition at Rs412-470/Kg and women’s nutrition at Rs460/Kg. Premium offerings for special needs is priced at Rs1230/Kg (Pediasure).
The extent of premiumization in the MFD category is a 4X base offering. The steep price relative to other packaged foods makes it an
urban-centric category. It aptly justifies urban penetration at 41% as against rural penetration at 12% and all-India penetration at 22%.
Exhibit 3: Sub-segment-wise Product Prices
General Nutrition
200gm
500gm
1000gm
Horlicks - Original
90
182
344
Junior Horlicks 1
Bournvita
90
188
335
Junior Horlicks 2
Boost*
210
Complan - Original
92
182
Amul Pro
Kids & Infants
200gm
Bournvita Lil' Champs
416
140
125
Complan Nutrigro*
500gm
Need Based Nutrition
500gm
206
Horlicks Pro Mind*
238
206
Horlicks Gold
216
230
Complan Memory
228
238
Endura Kidkilos
525
Pediasure*
492
* 400gm
* 450 gm
* 400 gm
Flavours
Horlicks - Chocolate
200gm
500gm
1000gm
90
172
328
Adult Nutrition
500gm
Women & Pregnancy
Horlicks Lite - Malt
200
Women's Horlicks*
Horlicks Lite - Chocolate
217
Mother's Horlicks
Boost - Choco Éclair^
210
Bournvita 5-star magic
188
335
Complan Nutriful
416
500gm
230
166
326
Maplan L
Complan - Chocolate
109
200
Enzest
290
Maplan P
Complan - Kesar Badam*
120
240
Actilife*
160
* 400 gm
Complan - Pista Badam*
120
240
* 250 gm
Complan - Strawberry
200gm
198
^ 450 gm, * 400 gm
Source: Company, Emkay Research
Horlicks and Boost turn dearer by the day
GSK has taken regular price hikes on ‘Horlicks ’ and ‘Boost’, with an annual price hike of 5-7%. Last pricing actions on ‘Horlicks ’ and ‘Boost’
were 5% in July 2012 and January 2013, respectively. Currently, GSK product offerings are priced thus: lower-end at Rs328/kg for
Chocolate Horlicks and upper-end at Rs625/kg for Mother’s Horlicks . The ability to undertake sustained pricing action demonstrates brand
strength, demand inelasticity and high profitability.
Exhibit 4: Sustained pricing actions
Exhibit 5: High m argins have sustained in the last 3-5 years
20%
70%
25%
20%
15%
65%
15%
10%
10%
60%
5%
5%
0%
Volume-led growth
Source: Company, Emkay Research
Price-led growth
Gross Margin
CY12
CY11
CY10
CY09
CY08
CY07
CY06
CY05
CY04
-5%
0%
CY03
55%
CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12
EBIDTA Margins
Source: Company, Emkay Research
An anecdotal evidence of a recent survey conducted by us in a tier-2 location indicated that an MFD product is a regular in a
consumer’s monthly shopping basket. As per the assessment of a few local kirana shops in that location, a monthly budget
for a four-member home (two adults and two children) of Rs 1000/month includes 1 no 500gm malted beverage. This
suggests that a strong distribution reach of larger players like GSK Consumer and Cadbury, along with the introduction of
low unit packs (LUPs) sachets, is driving penetration in tier-2/3 and rural markets.
Emkay Research
October 14, 2013
4
Glaxosmithkline Consumer
Company Update
MFD category sees Product, Customer and Market development
The MFD category development encompasses product, customer and market development. The category leader, GSK, should be credited
for driving the process. Heinz is following suit in product development.
Product Development; Traversed from kid’s nutrition to family nutrition to specific needs
Over and above base offerings of Horlicks, Complan and Bournvita, there are 23 products offerings further extended to multiple variants
and multiple packaging formats. Horlicks Malt itself has morphed into Horlicks Chocolate, Junior Horlicks, Women Horlicks, Horlicks Gold,
Horlicks Life and Horlicks Pro-Mind. The product offerings have a price range of Rs328-1230/kg. The extent of premiumization in the MFD
category is the 4X base offering.
Customer Development; Traversed from kid’s to adult
Players have made brands relevant for consumers by addressing needs and preferences of a wider audience. MFD offerings have
traversed from addressing nutrition requirements of kids to general nutrition for family and specific offerings for women, mothers and the
youth. Horlicks has product offerings for kid’s nutrition, general nutrition needs of the entire family, nutritional needs of women and
mothers, as well as specific needs such as memory development, vitamin deficiency, protein deficiency, etc.
Exhibit 6: Key product offerings in the MFD Space
General Nutrition
Infants & Kids
Health & Lifestyle
Women/Pregnancy
Mind Development
Added Nutrition
Source: Company, Emkay Research
Market Development; recruiting new customers and tapping the market
Penetration of the MFD category in urban areas has gradually improved to 41% over the years, but rural areas still remain an underpenetrated market at a mere 12%. Players have introduced low unit packs (LUP) to recruit new customers in tier-2 and rural markets .
Horlicks, Bournvita and Complan have lower SKUs at Rs 5/25 for 18gm/90gm in rural markets . Growth in LUP is 30% p.a., a healthy
contributor in category growth.
Emkay Research
October 14, 2013
5
Glaxosmithkline Consumer
Company Update
Discussing communication strategy adopted by brands?
The category is characterized by GSK Consumer as the top spender, with an A&P outlay of Rs 5bn or 16.1% of revenues . Recently, media
activity in the category has soared, and players are aggressive on communication and advertising (above the line) and promotions (below
the line). Given below is a media pitch and communication strategy of brands .
Horlicks – Communicating clinically proven functional benefits of the product
§ Horlicks has multiple product offerings; its communication strategy revolves around functional benefits of the product.
§ Best example is “Taller, Sharper, Stronger,” highlighting the five growth areas : more bone area, more muscles, better concentration,
active nutrients and healthier blood.
§ Other communications of Horlicks are: (1) “Increase the power of milk”
(2) “Epang, Opang, Jhapang,” depicting Iron, Vitamin C and
Vitamin D requirements.
§ Horlicks
is roping in consumers from rural markets through rural-centric initiatives like HUT activities (advertisement through magic
shows).
Exhibit 7: Communication strategy of Horlicks, Junior Horlicks, Women’s Horlicks and Horlicks Gold)
Source: Company, Emkay Research
Boost – ‘Secret of Energy’
§ Boos t is positioned as a nutritional energy drink; especially for children. The celebrity endorsement for Boost dates back to 1977. "Boost
is the secret of my energy" has the highest recall amongst consumers .
§ Endorsement by celebrities
(sportsmen) has helped in brand building and business development. Consistent communication has made
brand trustworthy.
§ Recent change in communication is ‘Boost is the secret of OUR energy’ as against ‘Boost is the secret of MY energy’.
Exhibit 8: Consistent communication ‘Boost is the secret of our energy’
Source: Company, Emkay Research
Bournvita – Riding on differentiated communication
§ Bournvita has resorted to differentiated communication
to showcase functional benefits. Communication strategy is oriented towards
developing emotional connect with brand, and functional benefits remains the soft message.
§ Most successful communication of Bournvita in recent times is
“Tayyari Jeet Ki”; Bournvita has used emotional connect between a
mother and her child to convey functional benefits of the product.
§
‘Bournvita Lil’ Champs for Kids aged 2-5 years . Communication message is “Doodh ka calcium waste nahin hota hai”.
Emkay Research
October 14, 2013
6
Glaxosmithkline Consumer
Company Update
Industry experts’ comments on Bournvita communication strategy and its TV campaigns
Jagdeep Kapoor, Samsika Marketing - Bournvita needs to move up the perception ladder with consistent aggression in the
category and prove that from preparing to win, it can actually become a winner.
Vispy Doctor, MD, Ormax Consultants - Bournvita has always had a two-pronged strategy in its communication. While mothers are
expected to feel good about buying into the rational benefits of health and wellness, for kids it is more about the taste and fun of
drinking Bournvita.
Narayan Sundararaman, ED, Cadbury Kraft Foods - We want to take the fight to the market leader. Both Boost and Bournvita are
brown malted drinks and have been direct competitors. Horlicks has always been the market leader, with almost 45% share in the
category. We are seeing the potential in the health and wellness segment and want to grow in this space. There could be also more
variants based on fortification and more age groups
Exhibit 9: Bournvita – ‘Taayari Jeet Ki’ where Child competes with Mother
Bollywood actress Kajol as mother learning from the child
Source: Company, Emkay Research
Complan – Cross-fire
§ Complan has the best brand recall, thanks to its message: “I am a Complan Boy” and “I am a Complan Girl”. But the catch phrase seems
to have faded over time.
§ Even Complan has tuned its communication on showcasing functional benefits . On quite a few occasions, it has collision with competing
brands. For example, a recent advertisement features mothers comparing functional benefits of Complan and Horlicks .
§ At present, it has resorted to pricing actions as well. There is a Rs20 off on flavored offering of Complan.
Exhibit 10: Complan (I am a Complan Boy, I am a Complan Girl, Complan vs. Horlicks: Good Mom, Bad Mom , Rs 20/off on Complan)
Source: Company, Emkay Research
Kidkilos – Celebrity endorsement is the way
§ Endura Kidkilos is targeted at kids in the age group 3-10 years. It is marketed as a nutrition supplem ent promising weight gain. Juhi
Chawla is the brand ambassador. Brand communication highlights functional benefits of the product.
Pediasure – An exotic health drink targeted at the rich class
§ Priced at Rs 1088/Kg, Pediasure is premium offering in the category. It is marketed as a health drink for kids aged 2-10 years, promising
complete and balanced nutrition.
§ Brand communication is “Complete Nutrition, Complete Peace of Mind”. It showcases clinically proven 37 vital nutrients for height and
weight gain, reduce the number of sick days and cuts down incidences of infection.
Emkay Research
October 14, 2013
7
Glaxosmithkline Consumer
Exhibit 11: Endura Kidkilos endorsed by Juhi Chawla
Company Update
Abbott’s Pediasure – specially targeted at kids aged 2-10 years
Source: Company, Emkay Research
What is the growth strategy deployed by players?
GSK Consumer – Perfect moves by category leader
§ Horlicks has traversed from kid’s nutrition to adult nutrition. It has product offerings for kid’s nutrition, general nutrition needs of the entire
family, nutrition needs of women and mothers, specific needs like memory development, vitamin deficiency, protein deficiency, etc.
§ Horlicks Malt itself has morphed into Horlicks Chocolate, Junior Horlicks, Women Horlicks, Horlicks Gold, Horlicks Life and Horlicks ProMind. The product offerings have price range of Rs 344-476/Kg. Horlicks has achieved premiumization of 1.4X base offering.
§ Given the low penetration for the MFD category in rural areas (12%), GSK is augmenting its distribution infrastructure, especially in rural
and under-penetrated areas . GSK has introduced low unit packs (LUPs) and increased promotional activities to drive growth in these
markets.
Exhibit 12: Deciphering GSK Consumer Value growth and its sustainability
Deciphering GSK Consumer Growth
CY06
CY07
CY08
CY09
CY10
CY11
CY12
Volume Led
6.8%
9.9%
16.2%
10.0%
13.3%
9.0%
5.8%
Population Led
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
Penetration Led
5.2%
5.0%
4.8%
4.7%
4.6%
4.8%
4.8%
Consumption Led
1.4%
4.6%
11.0%
5.1%
8.4%
3.9%
0.7%
Market Share
0.0%
0.0%
0.1%
0.0%
0.1%
0.0%
0.0%
Price Led
4.4%
5.7%
4.9%
7.1%
4.8%
6.7%
8.8%
11.5%
16.2%
21.8%
17.9%
18.7%
16.3%
15.0%
GSK Consumer Value Growth
Source: Company, Emkay Research
Cadbury – Stationed in North and West
§ Even Cadbury is
tapping rural markets through distribution expansion, promotional activity and low unit packs (LUPs ). The brand has
launched ‘Mission Nutrition’ to reach one million households in small towns of Rajasthan, Uttar Pradesh, Maharashtra and Gujarat.
§ Bournvita has a strong presence in
northern and western regions, which are relatively under-penetrated compared to south ern and
eastern regions. Cadbury is planning to increase its penetration in northern and western regions, traditional stronghold for the company.
Heinz – Matching the pace of category leader
§ Heinz is matching the footsteps of the category leader. Complan has done product development and customer development, and kept
the brand relevant for current times. The product portfolio includes Complan Original, Complan Chocolate, Complan Memory, Complan
NutriGro, Complan Nutriful and Maplan P&L.
Medina Belle – New products on the block
§ Base portfolio of
Endura is nutrition and health supplement for sportsmen, gym enthusiast, etc. New launches of Enzest & KidKilos
address nutrition requirements of adults and weight management for kids , respectively. These product offerings are specialized and
premium priced compared to base offerings in the category.
Abbott – Absolutely luxurious
§ Pediasure is another high-priced superior formulation product targeted to premium consumers.
Emkay Research
October 14, 2013
8
Glaxosmithkline Consumer
Company Update
What are the visible changes in the category?
Premiumisation in the category at its fore
Despite MFD being discretionary in nature, premiumization remains unabated with sustained product innovation in this category. New
products have driven expansion of customers beyond kids (adults, women) and aided 30-90% premiumisation over the base offering, while
products such as Endura KidKilos and Pediasure addressing the specific nutritional needs such as weight gain, vitamin C and proteins are
priced at a premium (2X-4X) to the base offering.
Media intensity has substantially risen among MFD players
The category is characterized by GSK Consumer as the top spender, with an A&P outlay of Rs 5bn or 16.1% of revenues. Recently, media
activity in the category has soared, with players becoming aggressive on communication and advertising (above the line) and promotions
(below the line). New products such as Endura KidKilos and Pediasure have celebrity endorsements . Only positive emerging is that players
are competing on media spends and not on pricing, depicting the inherent strength of the category.
Players focused on product innovation and renovation
Product offerings have traversed from addressing nutrition requirements of kids to general nutrition for family and specific offerings for
women, mothers and the youth. Being priced at a premium to the base offering, these innovations are driving premiumisation in the
category. The companies have also experimented with packaging. Innovations are expected to drive category growth in the ensuing years.
Expanding distribution to tap under-penetrated market
While urban still remains the key market, players are gradually expanding their distribution network in rural areas, given the low penetration
of MFD and huge potential for growth. To facilitate these objectives, players such as GSK and Cadbury’s have introduced recruiter packs
priced at Rs25 for 90gms/100gms. Rural-specific initiatives are implemented to reach new customers and augment category growth.
Heinz is aggressive than the rest; Needs close vigilance?
Heinz is No 3 in India: Although being an old brand and holding lineage in India, Complan has lost to Horlicks and concurrently occupies
No. 3 spot in the category. We believe this is due to two factors: lack of innovation and high competition.
Ties few loose-ends: Heinz has initiated: (1) innovations and concurrent product development like Complan Kesar Badam, Complan Pista
Badam, Complan with Memory Chargers, Complan NutriGro, Maplan L and Maplan P and (2) product offerings targeting both kids and
adults. Presently, it has resorted to pricing actions as well. There is Rs20 off on a flavored offering of Complan.
Complan is priced at premium to Horlicks – A few observations worth noting: (1) 500gm Complan - Chocolate is priced at Rs200 vs.
Rs172 for 500gm Horlicks – Chocolate vs. Rs188 for 500gms Bournvita; premium of 12-15% (2) 1kg Complan – Chocolate is priced at
Rs416 vs . Rs328 for Horlicks Chocolate and Rs335 for Bournvita; at a premium of 25%. A high price premium could favour competition.
But why does Heinz still lack the punch? – A few arguments are: (1) Complan lacks innovation relative to Horlicks and (2) Complan is
relatively weaker in distribution reach. This is despite Heinz being early entrant to India.
Can any other player challenge the leader? – Barring Heinz, none of the other players in the category have the ability to challenge the
market leader, GSK Consumer due to the following reasons: i) lack of product portfolio, ii) limited distribution reach, and iii) willingness for a
sustained A&P spend. GSK Consumer with its first-mover advantage in India, coupled with a strong brand equity and large A&P outlay
would always pose a serious challenge to incumbents.
GSK Consumer’s Rs 5bn A&P budget; No challenger in sight
GSK has the highest A&P spend; It’s build a fort
GSK Consumer’s A&P spends has risen from Rs 0.8bn in CY01 to Rs 5bn in CY12; which is a CAGR of 18% in the CY01-12 period. The
stakes have increased from 9% of revenues in CY01 to 16% of revenues in CY12. Commensurate efforts have also been made towards
the product portfolio. The outcome is consistent volume growth of 8-10% for the last decade.
GSK symbolizes the category and vice-versa. But the media intensity has risen with players becoming aggressive on communication and
advertising (above the line) and promotions (below the line). However, GSK Consumer is at the top with Rs 5bn A&P outlay, which is too
difficult to surpass for competitors . Certainly, there is no challenger in sight.
Emkay Research
October 14, 2013
9
Glaxosmithkline Consumer
Exhibit 13: A&P spends have been rapidly rising over the years
6000
Exhibit 14: EBIDTA margin movement when A&P rises
20%
5000
25%
20%
15%
4000
Company Update
15%
10%
A&P spends
% of sales
A&P spend as % of sales
Source: Company, Emkay Research
CY12
CY11
CY10
CY09
CY08
CY07
0%
CY06
0%
CY12
CY11
CY10
CY09
CY08
CY07
CY06
CY05
CY04
CY03
0
5%
CY05
1000
10%
5%
CY04
2000
CY03
3000
EBIDTA Margin%
Source: Company, Emkay Research
What Rs 5bn A&P budget means? Colgate is a good comparison
What does Rs 5bn A&P budget means? We have drawn a comparison between Colgate and GSK Consumer. The underlying premise for
both players is alike: i) focus on a single category, ii) strong product portfolio, iii) strong brand equity, iv) market leadership, and v) high A&P
spends . If Rs 6bn A&P budget of Colgate is perceived as an entry-barrier for P&G in India, the same logic should also hold true for GSK
Consumer.
Exhibit 15: Comparison of Colgate with GSK Consumer based on key financial metrics
Colgate
Financial Metrics
Revenues (Rs bn)
GSK Consumer
FY13
30.8
FY14E
35.1
FY15E
40.8
CY12
30.8
CY13E
34.9
CY14E
39.8
% growth
17.5%
14.0%
16.2%
14.7%
13.4%
13.9%
%volume-led
10.0%
10.7%
11.1%
5.8%
7.6%
8.0%
5.3%
4.6%
4.6%
8.8%
5.4%
5.4%
4.9
6.0
6.7
5.0
5.6
6.4
A&P % of sales
15.9%
17.1%
16.3%
16.1%
16.1%
16.1%
Gross Margins%
59.5%
59.7%
59.9%
62.3%
62.2%
62.3%
EBIDTA Margins%
18.8%
20.2%
21.7%
15.1%
16.0%
15.8%
5.0
5.4
6.6
4.4
5.1
5.8
% growth
11.3%
9.1%
21.4%
23.0%
16.7%
14.2%
EPS (Rs)
36.5
39.9
48.4
103.9
121.2
138.4
ROCE%
148.9%
138.1%
143.1%
54.2%
53.0%
50.4%
ROE%
107.4%
97.7%
100.2%
34.9%
34.1%
32.7%
% price-led
A&P spends (Rs bn)
PAT (Rs bn)
P/E
-
30.8
25.4
-
36.9
32.3
FCF Yield (%)
-
32.%
3.9%
-
1.4%
2.7%
Source: Company, Emk ay Research
Exhibit 17: One-year forward P/E Band of Colgate
2000
GCHL-P/E band
6000
Colgate-P/E band
32x
1500
Source: Company, Emkay Research
Emkay Research
October 14, 2013
1000
24x
500
16x
8x
Sep-12
Sep-11
Aug-10
Aug-09
Jul-08
Jul-07
Jun-06
Jun-05
May-04
0
May-03
Oct-13
Sep-12
Aug-11
Aug-10
Jul-09
Jun-08
May-07
Apr-06
8x
Mar-05
1000
0
Feb-04
24x
16x
Jan-03
32x
3000
2000
Jan-02
4000
Apr-02
5000
Oct-13
Exhibit 16: One-year forward P/E Band of GSK Consumer
Source: Company, Emkay Research
10
Glaxosmithkline Consumer
Company Update
Annexure I – Major Players in MFD Category
GSK Consumer – Horlicks, Boost
Company Profile
Key Products Portfolio
§ Market leader in the MFD segm ent, with a market share of
over 60%. A strong presence in South and East.
§ Horlicks and Boost – Key products in MFD growing at 10%
volumes and revenues of a CAGR of 17% (CY08-12).
§ Price maker in the MFD category; average price-led growth in
the last 5 years is 7-8%.
§ Horlicks is a market leader with 50%+ share, while Boost has
market share of 14%.
§ Strong brand with a wide reach in over 1.5mn outlets. GSK’s
direct reach is 700000, while Horlicks alone is present in 1mnplus outlets.
§ Product portfolio – Horlicks, Boost, Junior, Lite, Women’s,
Mother’s, Gold, Pro-Mind.
§ Company growing at revenue CAGR of 19% and 23% PAT
CAGR in CY08-12.
§ About 75-80% of revenues in the MFD segment comes from
Horlicks .
§ MFD segment alone accounts for 90% of revenues .
§ Horlicks is sold in multiple packs and multiple price points.
Horlicks base product is available from Rs 5/18g to Rs
515/2000g.
Target Customer Segment
Comments on Business
§ Horlicks – Great Family Nourisher
§ Horlicks acts as an umbrella brand for categories like noodles,
biscuits, health snack and breakfast, among others .
§ Boost – Energy Drink for Children
§ Junior Stage 1 – Above 2 Years
§ Junior Stage 2 - Preschoolers
§ Women’s – Women Between 19-50 years
§ Mother’s – Pregnant Mothers
§ Eyeing a higher market share in North and West, traditionally
weak markets .
§ Business drivers are A&P spends and distribution expansion.
§ Rural India is a huge opportunity; penetration at 12% vs . 41%
in urban India.
§ Lite – Diabetics and Health Conscious Adults
§ Gold – Superior Nutrients for Children
§ Pro-Mind – Energy Drink for Kids and Adults
Key Ad campaigns
Horlicks Pro Mind
Horlicks Gold
Emkay Research
October 14, 2013
Women’s Horlicks
Horlicks Lite
Junior Horlicks
Horlicks
11
Glaxosmithkline Consumer
Company Update
Cadbury’s – Bournvita
Company Profile
Key Products Portfolio
§ Present in MFD since 1948, among the oldest brand in India
§ Bournvita is available in 2 flavours, Bournvita – Chocolate and
Five Star Magic – Chocolate & Caramel Flavor
§ Rs 7bn brand and contributes nearly 20% to Cadbury Kraft
Foods India’s revenue
§ 17% overall value market share, with market leadership in
North at 36% share and 29.2% share in modern trade
§ Bournvita Lil Champs is a specially formulated drink with DHA
for toddlers
§ Strong presence in North & West; aims to strengthen its
presence further
§ Has forged an emotional connect with consumers rather than
prophesying claims like ‘Taller’, ‘Sharper’ and ‘Smarter’
Target Customer Segment
Comments on Business
§ Bournvita is largely targeted for kids in their growth phase (514 years)
§ Relatively low consumption of malted foods in North and West
remains key business challenge
§ Bournvita Lil Champs targeted for kids age 2-5 years
§ 2-pronged communication strategy; educate mothers about
health & wellness and attract kids on taste premise
§ Reaching out to small towns in Rajasthan, UP, Maharashtra
and Gujarat through ‘Mission Nutrition’ and targeted 1mn
households
§ LUP are sold at Rs 25 (90 gm); trying to make inroads into
rural India
§ Brand communication showing head-on collision with market
leader Horlicks and Boost
§ Brand communication not built to showcase functional benefits
§ South is Horlicks fiefdom, focused on North & West and
especially rural India
Key Ad Campaigns
Tayyari jeet ki!
Emkay Research
October 14, 2013
Bournvita Lil’ Champs
Lil’ Champs – Print Ad
12
Glaxosmithkline Consumer
Company Update
Heinz – Complan
Company Profile
Key Products Portfolio
§ Launched by Glaxo in 1954 and acquired by Heinz in 1995.
§ Complan – The COMplete PLANned food with 34 vital
nutrients available in 7 flavours.
§ It’s a Rs 6-7bn brand growing at a CAGR of 20% over the
past 4 years. Complan has a market share of 14% in the MFD
segment
§ Complan is priced at a premium of 15-30% to competing
brands .
§ Despite being a heritage brand, Complan lacked innovations
and lost to competition.
§ Complan Memory with 8 memory chargers.
§ Complan Nutri Gro – a health drink for kids aged 2-4 years
available in 3 flavours .
§ Nutriful – Multigrain Family Drink with 30 vital nutrients and
available in 2 flavours .
§ Maplan P&L is for pregnant as well as lactating mothers.
Target Customer Segment
Comments on Business
§ Complan is targeted at adolescent child aged 5-15 years .
§ Heinz’s high-priced product has worked well for competition at
a time when consumer spending is slowing. Getting the pricing
strategy right by offering price-offs in Complan.
§ Complan Memory – Child aged 7-12 years.
§ Complan Nutri Gro – Infant aged 2-4 years.
§ Nutriful – Family health drink.
§ Off late, Heinz is mimicking Horlicks; the large portfolio
includes Maplan, Nutriful, NutriGro and Complan Memory.
§ Maplan P for pregnant women and Maplan L is a supplement
for lactating mothers .
§ Mantra caters to all target segments: kids, women and family
Key Ad campaigns
Complan for Growth
Nutriful
Emkay Research
October 14, 2013
Complan Boy & Complan Girl
Maplan L & Maplan P
13
Glaxosmithkline Consumer
Company Update
Medinn Belle – Endura Kidkilos
Company Profile
Key Products Portfolio
§ Started in 1996 with a laxative named Raahat focused
towards health and wellness.
§ Endura Mass is the flagship product for weight gain and
available in 3 flavours .
§ Extended into bodybuilding and fitness by launching Endura
in 2001, which was well-accepted in Indian markets and
became the no. 1 selling weight-gainer in 5 years.
§ Gym -based products of Endura – First, Force, Mega Lean
Mass, E-pro Blast, Ultra Whey Pro, Creatine
§ Has partnered with Solae, US, an established name in soybased technologies. Medinn Belle sources its key ingredients
for its products from Solae.
§ Gym premiere products – Endura premium series are health
supplements , ranging from gym starters to advanced levels of
bodybuilding
§ Enzest – Energy boosting supplement for adults
§ Forays into gym based products and health products like
Enzest and Kidkilos .
§ Kidkilos – Offering for kids and endorsed by Juhi Chawla.
Available in 2 flavours – Chocolate and strawberry.
Target Customer Segment
Comments on Business
§ Endura Mass - Gain weight for adults.
§ Targets to become a leader in the food supplements industry
in India.
§ Gym -based Endura products – targeted purely for regular
gym goers, gym trainers and bodybuilders .
§ Gym premiere products – Endura premium series purely for
body builders .
§ Forayed beyond professional gym -based and weight-gain
products into general nutrition requirements for kids and
family.
§ Enzest – For adult above 30 years.
§ Kidkilos – For child aged 3-10 years.
Key Ad campaigns
Endura Kidkilos
Emkay Research
October 14, 2013
Enzest
Endura Mass
14
Glaxosmithkline Consumer
Company Update
Abbott - Pediasure
Company Profile
Key Products Portfolio
§ Pediasure is Abbott’s hallmark brand, which is a nutritional
supplement for children in the growth stage
§ Formulated with 37 vital nutrients, PediaSure is clinically
proven to help increase height and weight, reduce the number
of sick days and cut down incidences of infection.
§ PediaSure also contains nutrients such as Taurine, Choline
and Omega 3 and 6 to support brain development in children.
Target Customer Segment
Comments on Business
§ Pediasure – For Children aged 2-10 years
§ A premium product offering compared to competition.
Key Ad campaigns
Pediasure Kids Ad on Children’s Day
Emkay Research
October 14, 2013
Pediasure TV Commercial
15
Glaxosmithkline Consumer
Company Update
Key Financials (Standalone)
Income Statement
Balance Sheet
Y/E Dec (Rsmn)
Net Sales
CY11A
26,855
Growth (%)
CY12A
30,794
CY13E
34,933
CY14E
39,776
Y/E Dec (Rsmn)
Equity share capital
CY11A
421
CY12A
421
CY13E
421
CY14E
421
16.5
14.7
13.4
13.9
Reserves & surplus
11,021
13,189
15,857
18,903
22,606
2,584
26,141
3,011
29,341
3,416
33,486
3,890
Net worth
Minority Interest
11,442
0
13,610
0
16,278
0
19,324
0
Other Exp
SG&A
935
4,374
1,166
4,965
1,183
5,632
1,526
6,413
Secured Loans
Unsecured Loans
0
0
0
0
0
0
0
0
EBITDA
5,045
5,734
6,889
7,848
Loan Funds
12.1
13.7
20.1
13.9
18.2
460
4,585
18.0
361
5,373
19.0
514
6,375
19.0
613
7,235
16.6
853
35
16.9
1,138
24
17.6
1,221
24
5,403
1,851
6,487
2,119
7,572
2,474
Expenditure
Employee Cost
Growth (%)
EBITDA margin (%)
Depreciation
EBIT
EBIT margin (%)
Other Income
Interest expenses
PBT
Tax
Effective tax rate (%)
0
0
0
0
-399
11,043
-616
12,994
-616
15,662
-616
18,708
Gross Block
Less: Depreciation
6,367
4,360
6,562
4,624
9,062
5,138
9,562
5,751
17.5
1,433
24
Net block
2,007
1,938
3,924
3,811
Capital work in progress
Investment
1,492
0
1,972
0
0
0
0
0
8,644
2,824
Current Assets
Inventories
16,927
3,700
21,018
3,696
23,021
4,435
27,774
5,050
Sundry debtors
Net deferred tax liability
Total Liabilities
34.3
32.7
32.7
32.7
992
1,126
974
1,109
3,552
19.2
4,368
23.0
5,098
16.7
5,820
14.2
Cash & bank balance
Loans & advances
10,797
1,439
14,642
1,553
16,127
1,486
19,923
1,692
Net Margin (%)
(Profit)/loss from JVs/Ass/MI
12.8
0
13.7
0
14.1
0
14.1
0
Other current assets
Current lia & Prov
0
9,383
0
11,935
0
11,284
0
12,878
Adj. PAT After JVs/Ass/MI
3,552
4,368
5,098
5,820
Current liabilities
6,636
8,414
7,359
8,399
E/O items
Reported PAT
0
3,552
0
4,368
0
5,098
0
5,820
Provisions
Net current assets
2,747
7,544
3,521
9,083
3,924
11,738
4,479
14,897
PAT after MI
Growth (%)
3,552
19.2
4,368
23.0
5,098
16.7
5,820
14.2
Misc. exp
Total Assets
0
11,043
0
12,994
0
15,662
0
18,708
CY11A
CY12A
CY13E
CY14E
CY11A
CY12A
CY13E
CY14E
4,550
5,349
6,351
7,211
460
35
361
24
514
24
613
24
EBITDA Margin
Net Margin
18.2
12.8
18.0
13.7
19.0
14.1
19.0
14.1
-627
-413
-943
2,090
0
-1,171
0
638
ROCE
ROE
53.4
33.8
54.2
34.9
53.0
34.1
50.4
32.7
-332.7
-220.8
-312.0
-861.1
84.5
103.9
121.2
138.4
95.4
272.1
112.4
323.6
133.5
387.1
153.0
459.5
DPS
58.3
49.5
57.8
66.0
Valuations (x)
PER
52.9
43.1
36.9
32.3
P/CEPS
P/BV
46.9
16.4
39.8
13.8
33.5
11.6
29.2
9.7
Adjusted PAT
Growth (%)
Cash Flow
Key Ratios
Y/E Dec (Rsmn)
PBT (Ex-Other income)
Depreciation
Interest Provided
Other Non-Cash items
Chg in working cap
Tax paid
Y/E Dec
Profitability (%)
-1,809
-2,242
-2,474
-2,824
Operating Cashflow
Capital expenditure
3,907
-853
5,543
-773
3,245
-528
5,662
-500
Per Share Data (Rs)
EPS
Free Cash Flow
Other income
3,055
853
4,770
1,138
2,717
1,221
5,162
1,433
CEPS
BVPS
Investments
RoIC
0
0
0
0
-1,252
0
-3,772
0
-520
0
-493
0
Loans Taken / (Repaid)
Interest Paid
0
-35
0
-24
0
-24
0
-24
Dividend paid (incl tax)
-2,452
-1,711
-2,430
-2,774
6.6
5.6
4.9
4.2
0
6
0
-20
0
1,214
0
1,426
EV / EBITDA
Dividend Yield (%)
35.1
1.3
30.2
1.1
25.0
1.3
21.4
1.5
Financing Cashflow
Net chg in cash
-2,481
175
-1,755
16
-1,240
1,484
-1,372
3,797
Gearing Ratio (x)
Net Debt/ Equity
-0.9
-1.1
-1.0
-1.0
Opening cash position
9,761
10,797
14,642
16,127
Net Debt/EBIDTA
-2.1
-2.6
-2.3
-2.5
Closing cash position
10,797
14,642
16,127
19,923
Working Cap Cycle (days)
-43
-64
-44
-44
Investing Cashflow
Equity Capital Raised
Income from investments
Others
Emkay Research
October 14, 2013
EV / Sales
16
Glaxosmithkline Consumer
Company Update
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October 14, 2013
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17