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Six Consumption Themes That Nikhil Vora Is Betting OnApril 30, 2018
India’s consumption market needs disruption as it has remained static for decades because of none to minimal innovation, according to Nikhil Vora, founder of consumer sector-focused investing firm Sixth Sense Ventures.
“There is no intellectual property attached to any consumer product, and yet it was symbolised by a duopoly of established brands like Hindustan Unilever Ltd. and ITC Ltd.,” said Vora. The result was that entrepreneurs were too afraid to enter the market as distribution remained controlled, he said. Times are changing fast as the next generation has better risk-taking abilities.
The world’s second-most populous nation offers a huge market as a growing economy and rising incomes mean people will consume more. Several smaller companies have come up to challenge entrenched players even as the cash ban and Goods and Services Tax drives formalisation.
There is a plethora of options in the back-end space yet to be explored, according to Vora. It’s untapped and considered “non-glamorous and non-sexy” for people to invest capital in. These companies are set to become “large and dominant”, he said. That’s why Sixth Sense invested in oral care products maker JHS Svendgaard Laboratories Ltd. and breakfast cereal maker Hindustan Foods Ltd.—both contract manufacturers.
The trick for establishing a brand name lies in identifying pockets that larger players have refrained from investing in, Vora said. Entrepreneurs should also focus on the manufacturing or back-end aspect as brands would usually let go of these as they battle it out with rivals to gain market share, he said. Also, manufacturing is a lower return-on-investment business for players like HUL, ITC and Reckitt Benckiser (India) Ltd., but a great opportunity for contracting firms, he said.
Also Read: Alpha Moguls: How To Play The Great Indian Consumption Story? Here’s Nikhil Vora’s Take
Here are the consumer pockets that Vora is bullish on:
Dips And Sauces
The category remains unexplored by the big brands and thus has ample opportunity for next generation entrepreneurs. Veeba Food Services Pvt., which has a whole range of dips, from mint mayonnaise to garlic chilli spread and a wide variety of salad dressing, has better growth prospects than HUL despite being a lesser known brand, said Vora. Over the next five-ten years, he said, Veeba is poised to evolve as market leaders have nothing to offer in the space.
It’s a basket where market leaders are omnipresent, he said. Yet, there are nooks that have been left out. Toothpaste and toothbrush brands have nothing to offer for kids, Vora pointed out. There is a complete vacuum on that front, which will eventually gain disproportionate amount of attention over the next few years, he said. Sixth Sense identified the opportunity and invested in JHS Svendgaard.
The dairy industry is a value-added category that doesn’t seem to be present as significantly as it should have been, said Vora. India is naturally endowed with resources and there is a fairly large target audience for dairy products, he said. He cited the example of ‘Go’ milk brand of Parag Milk Foods Ltd. The product has aced top spots in tier-two cities where leaders like Amul and Nestle India Ltd. failed to have as much representation, Vora said. “It’s a category that requires sustenance and will grow disproportionately.”
The liquor industry is still in “extremely early days” of its life cycle, according to Vora. The one key feature in the category is that in India, cigarette businesses are at a multiplier to the liquor. Globally, it’s the opposite. Which means, valuations of cigarette stocks like ITC are higher, leaving enough elbowroom for liquor companies to thrive, he said. “If one wants to buy into social vices, then liquor is a better vice than cigarettes for investors. Liquor still has a long way to go.”
In the case of consumer durables, 60 percent of the manufacturing is in-house, while the rest it outsourced, he explained. That 60 percent is also available now as the brands are being getting caught in a brand-battle, he said, adding that it doesn’t offer good returns for larger players but can be a potent source of revenue for contract manufacturers. That’s why Vora invested JHS Svendgaard and Hindustan Foods.
E-Commerce And Retail
It’s constantly evolving and is set to see a “fantastic run” ahead, both offline and online, according to Vora. It may seem that online retail is taking over offline, a significant alignment of the two is on the cards over the next three-five years, he said. The shades that can already be seen with Walmart Inc. vying for stake in Flipkart Ltd., he said. “This boom makes the space an attractive bet to invest in.”