ITC’s Entry into Skin Care – Shiny Analysts Opinion

ITC’s launch in personal cream under the barand name – Vivel Active Fair is positive for ITC as fairness cream segment is worth ~INR 16 bn and growing at ~15% per annum.

Fairness cream is the largest part of skin cream (worth ~INR 43 bn) and we expect ITC to eventually enter other parts of skin care category. Vivel brand is doing quite well and ITC has launched the fairness cream as a brand extension which means marketing costs are not going to be very high. The product formulation of this cream is a result of R&D efforts over 3 years and is priced competitively. We expect this product to do well. This is potentially negative for HUL, Dabur, Emami.

The pricing of the 9 gm sachet at the coinage-important Rs5 (versus HUL’s Fair & Lovely at Rs7) could induce trial purchases (similar to HUL’s market share losses in shampoo sachets in 1990s when competition introduced 50 paisa sachets versus HUL’s Re1 offering).
Improving profitability in extant FMCG will likely support personal care investments.

ITC’s FMCG is the driving factor for profitability improvement (1) focus on value sales (Aashirwad atta), (2) mix improvement (Sunfeast biscuits), (3) likely lower (yoy) distribution investments (Bingo salty snacks) and (4) better brand traction (in stationery). While ITC is well-positioned to reduce losses in FMCG segment by ~25% in FY2011E and flat PBIT in FY2012E, we highlight that the brand investments in personal care will likely accelerate.

Key factors favoring ITC is likely stability in regulation as most of the penal actions are behind it (including threat of indiscriminate increase in VAT by states—current effective VAT rate of ~14.5%). Analysts continue to value ITC stock at the last three years’ average PE of 23X and have set a taarget of Rs 315.