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Why Indian Packaged Food Market Is Becoming Interesting

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The lifestyle of Indian people is changing in line with the economic changes within the country and outside. There is an urge among the people to take advantage of the current market conditions to make the most. However, that could cost working women some discomfort at the domestic front. The hiring of household women is also witnessing a steady increase. Therefore, working women and small families will not have any alternative but to resort to consuming packaged food in the country. However, it could take another decade for the industry to see expanded consumption from the present level.

Structural Drivers

Significantly, Credit Suisse believes that these structural drivers would be crucial factors for the long-term. The trend for packaged food has already commenced though not vigorously within the segment. As far as the immediate term is concerned, it comes from mainly improved cold storage. That is primarily because of affordability, power supply, and investments. This would drive the packaged food market to fivefold in the next one decade from the current level. That would mean the industry is hitting a turnover of $200 billion.

Within the segment, the brokerage picked up baby food, biscuits, chocolates, juices and baked products as the most profitable opportunities. This also emphasized that people are concerned about healthier snacks and beverages. This would be fueled mostly by consumption as temperatures would increase. This is also evident from the way companies are launching their healthy products and at lower prices. ITC Ltd, Britannia, and Nestle are among the companies that are meeting the changing habits of the consumer, BloombergQuint reported.

Companies like Britannia and ITC have launched newer products in the last five to ten years. They have also expanded their presence during the period. For its part, Nestle also launched fresh products following the management changes after the Maggi safety fiasco. ITC has been investing heavily in growing its packaged brands like wheat flour apart from salted snacks and cream biscuits. There are also challenges being faced by the industry like price sensitivity, lower shelf life, and taste.

The brokerage has identified three primary factors to drive sustained growth in the packaged food industry. The first is about a better power supply that has improved refrigeration facilities at the retail outlets. Aside from that, modern retail stores could be seen even in smaller towns and cities. The second is in respect of affordability as price increase pace is lower than the inflation rate. The third lies in greater investments to expand categories.

Top Picks

Credit Suisse expects Nestle India and Britannia to have strong potential for growth. While the former enjoys category mix apart from a diversified product portfolio, the latter is a leader in biscuits. Britannia could also expand its market share by widening its product range. As far as ITC is concerned, packaged foods is not a big contributor to its profit.

Therefore, the brokerage maintained its Outperform rating on Nestle with a price tag of Rs.10,500. Similarly, Britannia shares were maintained with an outperform rating and a price target of Rs.5,850 while GSK Consumer shares are retained with an outperform rating and a target price of Rs.5,850.

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