Strengths Bharti Airtel has more than 65 million customers July It is the largest cellular provider in India, and also supplies broadband and telephone services — as well as many other telecommunications services to both domestic and corporate customers. Opportunities The company possesses a customized version of the Google search engine which will enhance broadband services to customers.
Are consumption stocks invincible? Indian investors seem to think so, but going ahead the consumer industry faces big disruptions Every bull market has its superhero stocks. In the dotcom boom oftechnology stocks were credited with superhuman abilities to deliver scorching growth rates for eternity.
Inreal estate and infrastructure developers were put on this pedestal.
But when sectors that are market heroes face unexpected challenges to their growth, their stocks suffer setbacks. The sectors that have attained superhero status in this bull market are the entire set of consumer-facing businesses. In the last seven years, with the investment leg of the economy limping and export growth muted, consumer-facing companies are the only ones to have managed predictable earnings growth.
This is perhaps why stock market investors have become die-hard fans of consumption plays — lapping up not just FMCG, durables and automobile manufacturers, but also fruit drink, ceramic tile, paint and inner-wear makers.
Blue-sky assumptions Earnings growth rates of listed consumer companies provide little justification for their stock price performance. In the last five years, companies in the Nifty Consumption index have grown their sales at an annual rate of 7 per cent, while their operating and net profits have expanded at 12 per cent a year.
A bulk of the gains in consumption stocks have clearly come from the markets taking a rose-tinted view of their prospects. These multiples indicate that the markets are perhaps assuming that these companies will continue to enjoy a blue-sky scenario of strong pricing power, high margins and an unassailable market position while rapidly adding to their sales.
But it would be a mistake to assume that consumption stocks are immune to disruption. There are at least four big disruptors on the horizon which can pose a challenge to listed companies over longer horizons. Strong pricing power is a key aspect of Indian consumer companies that has endeared them to investors.
Branded consumer goods players have always enjoyed the ability to peg up their prices to compensate for rising input costs, and then some more.
Price increases have thus contributed at least as much to the sales growth of these companies as volume increases. While this pricing power is partly a function of their big brands and ad budgets, it is also a function of overall inflation rates in the economy.
On this count, consumer companies in India already face threats to their pricing power. CPI inflation, after averaging With food prices deflating and the RBI watching like a hawk, inflation rates appear unlikely to shoot up beyond the single digits. Inflation rates also determine income growth which has a direct bearing on consumer spends.
Employee costs for India Inc after expanding at per cent between FY11 and FY14, have grown by just per cent in the last couple of years. This may require consumer companies to rely more on volume growth than pricing power.Would you like a lesson on SWOT analysis? Strengths. Bharti Airtel has more than 65 million customers (July ).
It is the largest cellular provider in India, and also supplies broadband and telephone services – as well as many other telecommunications services to both domestic and corporate customers. Business Today 5th March strategic analysis of bharti airtel is maintained by many companies like Nokia, Ericssion Siemens Network Huawei.
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