Wednesday, September 19, 2012


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 firm’s estimation for market growth and that reported by leading companies.

■ Volume growth remains resilient in branded S&D category but value growth to moderate owing to cap on further price hikes and base effect kicking in. Growth could normalize to 16-17% in laundry category and 10-12% in soaps category

 Branded players’ gained share at the expense of small/fringe regional players. Significant presence of regional players still exists (players with strong brand recall), but any incremental
share gain would be at higher associated costs

■ Southern and Eastern India have received sufficient rainfall, thereby dealers/sales managers from South and East were fairly confident of limited impact of deficient monsoon. Whereas, North and West were unable to guess the course of growth

 Laundry: New product launches will drive higher ad spends. Renewed vigor witnessed in Tide naturals. However, not much change witnessed in market share differential between HUL and P&G. Also, Ghadi detergents have deepened their penetration in Maharashtra

 Soaps: Lux and Rexona are witnessing de-growth and losing out to Santoor and Godrej No.1. HUL plans to refocus on Rexona and Lux - initiate trade promotions. Godrej Consumer reactivated Cinthol portfolio and also launched rosewater and almond variant in Godrej No. 1 soap

 On a positive note, soaps and laundry category is not witnessing downtrading like personal product category n Positive in S&D category is offset by negatives brewing in PP category - earning upgrades for companies like HUL and GCPL unlikely

 We might have underestimated the consumer buoyancy (or bit early) as consumer demand continues to be robust – until August 2012. We intend to repeat this exercise in October
(around festive season)

 Until then, retain negative bias as valuations do not offer comfort and earnings upgrades unlikely. We maintain HOLD rating on HUL and GCPL with price targets of Rs415/Share and
Rs580/Share respectively

To read report in detail: SOAPS & DETERGENT SECTOR