Amendments to packaging norms a breather: PLilladher

Prabhudas Lilladher has come out with its report on consumer sector. The research firm sees Britannia Industries as the key beneficiary of this amendment.

Amendment to Packaging Norms: The Government has notified amendments to the Legal Metrology (Packaged Commodities) Rules, 2011 (consumeraffairs.nic.in) effectively deferring the implementation of the norms to November 1 v/s July 1 and allowing nonstandard pack sizes for SKU’s<= Rs10. It has also made concessions by allowing new pack sizes in certain categories, thus, providing additional degree of freedom to consumer companies to manage price points and grammage. We view this as a short term positive, especially, the removal of grammage restrictions on sub-Rs10 skus. However, government’s increased involvement in the packaging/grammage function underlines the continued risk. In the past (till CY04), only standardized packaging was allowed. Britannia seems to be the clear beneficiary of this amendment as its core Biscuits category was most impacted by the new rules. More pack sizes allowed; more flexibility to operate: The amendment has improved the ability of consumer players to manage price points and grammage by allowing more pack sizes in different categories viz. Toilet Soaps, Detergents, Tea, Coffee, Biscuits, Baby Foods and Edible Oil. Specifically in Soaps, it allows 15gm and 60gm packs as against earlier allowed sizes of 25g, 50g, 75g, 100g, 125g, 150g and multiples of 50g. In Detergents, it adds 75gm, 150g, 250g and 750gm against earlier allowed sizes of 50g (no restriction below 50gm), 100g, 200g, 500g, 700g, 1kg, 1.5kg, 2kg and multiple of 1kg. From Nestle’s viewpoint, in Baby Foods now 25g, 50g, 350g and 450g are allowed as against the earlier practise of 100g, multiples of 100g till 1 kg, 2kg, 5kg and 10kg. HUL may need to juggle its Toilet Soaps and Detergents portfolio to work around the new price points/grammage combination. It should not pose much problems now, given the new grammage points. Allowance of non-standard packs for sub-Rs10 sku is a key positive: Nonrestriction of pack sizes for sub-Rs10 skus is a key positive for the sector as it would have impacted the price point strategy of driving penetration via trial purchases, especially in Food and Personal Care categories. Any price increase in low grammage packs would have impacted volumes, given the higher price sensitivity in those packs. Secondly, coinage problems would have posed major threat to the trade, given the prevalent shortage of coins (chocolates being used as an alternative to 50 paise, Re1 coin in many places). It would have also led to some margin sacrifices, given the volume growth focus of most of the players. Addition of new grammage points for some of the key categories mentioned above allows more room for players to operate in market place by doing minor tweaking to their respective portfolios. We see Britannia as the key beneficiary of this amendment, especially, the removal of packaging restriction for SKUs below Rs10. However, increased government/regulatory involvement will continue to pose as a threat in the medium/long term, in our view. Non-Institutions holding more than 90% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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