One of the Most Important Themes Playing out in the Indian Stock Market

Apr 16, 2024

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One of the Most Important Themes Playing out in the Indian Stock Market

Ethos, Brand Concepts, Titan, and DLF.

Can you spot a common factor among these stocks?

Ethos is India's largest retail luxury and premium watch firm with brands like Rolex, BVLGARI, Longines, OMEGA, and Rado under its belt.

Brand Concepts is a microcap, a multi brand retailer that makes trendy laptop bags, wallets, belts, women's handbags, and other fashion and lifestyle accessories. It has exclusive brand licenses for Tommy Hilfiger and UCB.

And DLF.

While the name has been long in existence, it has been making waves for selling over 1,100 flats at Rs 70 m in Gurgaon just three days. As per the tweets doing rounds, there were at least 4,500 interested buyers.

The rise of middle class in India and the shift from rural to urban has for long been a key theme in the India's growth story.

And the corporates are latching on to it.

FMCG companies in recent years have launched more and more products in high price segment. Economically, it makes sense too. Afterall, there is only so much profit one can make at the bottom of the pyramid in an inflationary scenario.

While the shift from massy to premium has been in force for some time now, post Covid era has been marked by shift to luxury. If not a direct leap, Indians are crossing the bridge to luxury.

Mumbai has overtaken Beijing with the number of billionaires.

The rich are getting richer and we are seeing a premiumisation trend.

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Consider this...

iPhones' (Apple) share in the domestic mobile market used to be 1% in 2019. It's expected to be 6% by the end of this year and projected to rise higher.

Four wheelers i.e., passenger cars (PV) are growing at a faster clip than two wheelers.

And while the entry level vehicles share is hitting an all time low in the PV category, SUVs have captured 52% of India's PV market in the month of September 2023, from up 43.6% last year, and from just 28% in 2018-19.

This is a classic case of value migration unfolding in India.

Frugality is outdated. Have wealth? Why not flaunt it and enjoy it is the new mantra.

Now I'm not urging you to indulge. Or spend on high priced depreciating assets.

But there is indeed a case of getting wealthy by capitalising on the trend. And I'm keen on the watchlist for premiumisation trend.

A lot of examples above were consumers shifting to premium products and services. There are also cases where businesses are in an upgrade mode.

In simple words, they are adding value to what they are offering, and commanding a higher price for it.

It's good for their revenue and profits, and indeed positive for the stock.

One such case is Pricol Ltd.

Pricol is an auto ancillary player that offers Driver Information and Connected Vehicle Solutions (DICVS).

These are products like speedometer, sensors, telematics, e cockpits, TFT clusters, heads up displayers, and instrument clusters. The segment accounts for 65% of its revenues.

The remaining 35% comes from Actuation, Control and Fluid Management Systems (ACFMS). This includes products like fuel pump module, oil pumps, electrical coolant pumps etc.

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However, within this segment, a significant share comes from CVs, offroad and tractor vehicles, which is at less risk from EV disruption.

The company is a market leader in its niche. It enjoys a 50% market share in domestic two wheelers, 58% in commercial vehicles and 96% in the off-road segment.

Due to an earlier non-binding agreement, Pricol has been a late entrant in PV with only 7% contribution to the revenue from this segment.

But that agreement came to an end in 2019. And the company aims to grow in that segment in PVs too.

Premiumisation Play

In 2-wheelers, under the DICVS segment, the average value of its products has moved up from under Rs 300 to Rs 1,200.

It has been migrating from mechanical driver information system to electromechanical and then further to LCD and TFT (thin film transistor), and touch screen-based systems.

In AICDS also, the average value of it's products is going up.

From being just another auto component manufacturer and supplier, Pricol is evolving into automotive tech solution provider.

The company has strong tech tie ups and R&D in place to make this shift. Its R&D budget for product and process development stands at 4.5-4.8% of its revenues.

Its recent partnerships include one with Sibros, a Silicon Valley firm founded by ex-Tesla members and backed by Google and Qualcomm.

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Sibros' cloud-based platform will complement Pricol's products in driver information systems and telematics to offer complete solution range to OEMs.

To further deepen its presence in the EVs, the company has entered an international licensing agreement with BMS PowerSafe, a part of Startec Group, to manufacture and sell Battery Management System (BMS) for Indian market.

Even if growth in the auto sector remains muted, the growth drivers will come from premium range of products in the existing and new launches of vehicles.

All in all, Pricol seems well poised to ride the premiumisation story, while gaining from tech integration in the auto industry. It makes the cut to be in a watchlist for the premiumisation theme.

Stay tuned for updates on more such interesting themes and stocks.

Warm regards,

Richa Agarwal
Richa Agarwal
Editor and Research Analyst, Hidden Treasure

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1 Responses to "One of the Most Important Themes Playing out in the Indian Stock Market"

Mahesh B Naik

Apr 17, 2024

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