Indias demographic pyramid has traditionally meant that consumer staples would remain evergreen in any investment basket.
That script now seems to be changing, and changing rather quickly.
Business models that have largely been commoditised no longer offer the margin of safety they once did.The cement sector is one such example, wherein leadership in crucial micro-markets in a highly regional industry structure holds the key to differential valuations and investment returns.
So, investors should look at companies with distinctive moats, strong cashflows, and predictable profits.HINDUSTAN UNILEVERHindustan Unilevers (HUL) diverse portfolio, covering categories such as homecare, personal care and foods, offers the company a distinct edge among consumer companies.
The company is known for brands such as Lifebuoy, Dove, Lux, Knorr, and Wheel.Two factors work in HULs favour.
One, its product portfolio is aspirational in nature.
Two, these brands are sold at a premium to products from the unorganised segment.
In the past 10 years, the company has increased prices of its products at a CAGR of 12%, which has ensured superior volume growth than peers.ITCITC has a dominant market share in Indias cigarette market.
It is known for its brands Wills Navy Cut, Gold Flake Kings and Gold Flake Premium lights.
It commands 75% total cigarette volumes in India.
This dominant position works in ITCs favour as it provides comfort of earnings growth.
It serves as a huge entry barrier for other consumer staples companies to replicate.
Analysts believe that the company's cigarette volumes are expected to stabilise and increase in the coming quarters.ASIAN PAINTSAsian Paints has more than 50% market share in the decorative pain segment.
Its large distribution network, which is almost two times that of its nearest competitor, wide product offerings which cover most price points, robust franchise and strong demand work in favour of Asian Paints.COLGATE-PALMOLIVEColgate-Palmolive India is the leader in Indias toothpaste industry.
It has close to 53% volume share in the toothpaste category and 45% market share in the toothbrush category.
The company has better free cash flow generation compared to its peers in consumer staples, thanks to its strong brand, prompt efforts at innovating products and a deep distribution network.PIDILITE INDUSTRIESPidilite Industries has a monopolistic position in Indias adhesive (known for its brand Fevicol) and industrial chemicals.Post the implementation of the Goods and Services Tax (GST), the company has shown better resilience than its peers in terms of sustained volume growth.Besides, the management's attention to expansion without resorting to high debt --- seen in its recent acquisitions --- shows that it believes in steady and sustained earnings growth.PROCTER GAMBLE HEALTH HYGIENEProcter Gamble Health Hygiene (PGHH) is the largest player in the sanitary pads segment which is still an underpenetrated market and is growing rapidly.Through its brand Whisper the company controls over 50% market share.
PG HH is also present in health space through brands like Vicks.In the listed space, the company has no peer which itself gives it an edge over other companies in consumer staples space.