Académique Documents
Professionnel Documents
Culture Documents
Nikhil Vora
(M) +91 –9821132471 / (Dir) +91-22-56383308
1
nikhilvora@sski.co.in
HLL v/s ITC
Circa 2000…
The Big Fight
HLL: Reaching two third of Indian ITC: Reaching depth and breadth of the
households, best of the brands in its nation, but under constant litigation
kitty, a venerable position among threat and desperately looking for
competitors newer avenues
100
80
60
40
FY96 FY97 FY98 FY99 FY00
2
HLL v/s ITC
On former
3
HLL v/s ITC
Today…
Gross Revenues
(Rs bn)
150
HLL ITC
ITC = 1.2x HLL
130
110
90
70
FY01 FY02 FY03 FY04 FY05
HLL: Core business stagnating, intense ITC: No more just a cigarettes business,
competitive pressure and failure to limited competition, growth derived
identify growth drivers from multiple fronts
4
HLL v/s ITC
HLL ITC
Deflationary cycle Business Model Growth cycle
Margin myopia 3Cs impact
5
HLL v/s ITC
Cause and impact of the overall business model and competitive strength
6
HLL v/s ITC
Value Market share Value Market share Value Market share Value Market share
59.7% 380bps drop in 5 yrs 38.6% 200bps drop in 5 yrs
Henkel
Reckitt
Godrej
Ghadi
P&G
Godrej Henkel
Have not only eaten market share, but even stripped HLL’s pricing power
7
HLL v/s ITC
Value Market share Value Market share Value Market share Value Market share
36.4% 380bps drop in 5 yrs 70% 2100bps drop in 5 yrs
Colgate Colgate
HLL HLL
HLL HLL
P&G
Dabur Cavinkare
Anchor P&G
Amar Dabur
Dabur
8
HLL v/s ITC
8.0% 6.7%
6.0% 5.0%
4.3%
4.0%
1.2%
2.0% 0.5%
0.0%
-2.0% -0.5%
-1.2%
-4.0% -3.1% -2.8%
-3.4%
FY01 FY02 FY03 FY04 FY05
9
HLL v/s ITC
10
HLL v/s ITC
11
HLL v/s ITC
HLL: Play in known territory ITC: play where others fear to tread
12
HLL v/s ITC
2010 ?
2000
1980
1970
1960
Rin Bar FAL Skin Close up Clinic Plus Vim Bar Annapurna Atta Max Ayush Kissan Kissan Sangam Pure It
Cream Salt Herbal Bistix Soupy Direct
Snax
13
HLL v/s ITC
Sales – Rs135.9bn
Cigarettes – 70%
Sales – Rs118.2bn
EOU - Packaging
Sales – Rs75.8bn
Cigarettes 87%
14
HLL v/s ITC
15
HLL v/s ITC
16
HLL v/s ITC
Ability to evolve
The Big Fight
Consumer and
Focused consumer play A pure Consumer care
Evolution – power branding consumer play
health care around
and healthcare
herbal proposition
5 years
0% 11% 15% 10%
CAGR
17
HLL v/s ITC
18
HLL v/s ITC
19
HLL v/s ITC
20
HLL v/s ITC
¾ Soaps &
Detergents the
High
Processed Foods
¾ Insignificant
Low
Detergents
Tea / Coffee
presence in
Low Medium High
most lucrative
Incremental scope for HLL
foods business
With this product portfolio, HLL can at best expect low double digit growth
21
HLL v/s ITC
• India – 0.35% of the global tourism, ARR much below global standards
• Growing tourist arrivals, increasing ARR – shrinking gap between
Hotels – demand and supply of rooms
significant • Eyeing to be the largest player - organic and inorganic growth plans
‘room’ for
on cards
growth
At a GDP growth over 6%, demand for rooms to double in next
five years
22
HLL v/s ITC
23
HLL v/s ITC
High
Hotels
Agri business
Market Attractiveness
Medium
24
HLL v/s ITC
HLL ITC
• Low entry barriers • High business barriers
• Only available option is buy small • ITC, a mortal competitive fear
brands Recent acquisitions
Unimpressive track record - Modern • Wimco (safety matches) – competition
Foods: bought at Rs1.5bn, size today killed
< Rs500m • Ansal Hotels – added assets
• Best Foods: acquired brands Knorr, • BILT (Paper) – added capacity
Captain Cook. Captain Cook
discontinued, Knorr’s presence Scouting for more acquisitions in FMCG,
insignificant greetings, paper and hotels
25
HLL v/s ITC
26
HLL v/s ITC
Low ability to
Margin myopia
call shots
High profits luring
competition to
enter and play
price game Low incremental
cash generation
Increased
from core business,
dependence
low risk taking
on core
appetite
business
Stagnant No new
revenues business entry
Absence of scalable
growth drivers
Unless HLL does something drastically different, to remain caught in the cycle
27
HLL v/s ITC
Higher revenues,
Multiple growth
but lower profits
drivers
in initial years
Increasing profits
with growing scale
28
HLL v/s ITC
190.0 30
170.0
25
150.0
Rs bn
Rs bn
130.0 20
110.0
15
90.0
10
70.0
50.0 5
FY04 FY05 FY06E FY07E FY08E FY04 FY05 FY06E FY07E FY08E
30
HLL v/s ITC
31
HLL v/s ITC
ITC HLL
160
120
80
Bigger scale
40
Better growth
0
Sales Turnover EBITDA Net Profit 3 yr Revenue CAGR 3 yr PAT CAGR
ITC HLL
25
20
15
10
Yet… lower
5 Valuations!
0
HLL - PE ITC - PE
70.0
58.0
46.0
34.0
22.0
10.0
Mar-95
Sep-95
Mar-96
Sep-96
Mar-97
Sep-97
Mar-98
Sep-98
Mar-99
Sep-99
Mar-00
Sep-00
Mar-01
Sep-01
Mar-02
Sep-02
Mar-03
Sep-03
Mar-04
Sep-04
Mar-05
As the consumer portfolio increases, ITC to get consumer valuations
33
HLL v/s ITC
480
320
160
0
Jan-01
Jan-03
Jan-04
Jan-02
Jan-05
Sep-00
Sep-01
Sep-04
Sep-02
Sep-03
May-00
May-01
May-02
May-03
May-04
May-05
34
HLL v/s ITC
THANK YOU
This document has been prepared by S.S. Kantilal Ishwarlal Securities Pvt. Ltd. (SSKI) and is meant for use by the recipient and not for circulation. This
document is not to be reported or copied or made available to others. It should not be considered to be taken as an offer to sell, or a solicitation to buy
any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be
relied upon as such. We may from time to time have positions in, or options on, and buy and sell securities referred to herein. We may from time to time
solicit from, or perform investment banking, or other services for, any company mentioned in this document.
35