Lockdown Winners

A peculiar fallout of the lockdown has been the sudden flurry of Maggi recipes. Publications of every stripe are doling out combinations to try with the instant noodle. Lifestyle magazine GQ, for instance, did it twice, once listing seven recipes and then again, one with mushrooms. Pinkvilla, a popular webzine, had five recipes for quarantine. Republic TV’s website taught you how to make a ‘Maggi sandwich’ and also ‘Maggi fritters’. A Twitter user got his 15 minutes of fame when he combined Maggi with Makki di Roti, and it became viral. Nestle, the company that produces Maggi, this week decided on a campaign that would curate and bring order into this wave of recipes in a website. A medical student in Mangaluru, who found supplies thinning, tweeted to the Prime Minister for Maggi and eggs and an additional chief secretary who noticed it, got six packets sent over in half-an-hour. Originally a Swiss product, ever since it entered India in 1983, Maggi has been a favourite in kitchens here. In a lockdown, it even comes under essential products. Combine the two and what you have is a surge in demand that is hard to meet. The economy might be going into a tailspin, but there are a few for whom the lockdown might actually be good for business.

Maggi is one of them.

The survival of some sectors, common sense tells you, is going to hang by a thread because of the pandemic. Any business that has to do with crowds and closed spaces—theatres, restaurants, airlines, etcetera—can only hope for a miracle cure or vaccine because until then any decision by the consumer to spend money on them is weighed against the possibility of death. There are then other companies who might not be directly destroyed but will experience the fallout of other businesses going bust. Banks and finance companies, for instance. If a multiplex chain owes a bank Rs 1,000 crore, then it can’t repay and so the cash flow of the bank takes a beating. Or if airlines shut down, they won’t advertise and that means media companies take a hit in their revenues. If people won’t fly by airlines, then that also means the end of tourism, which in turn means that in a state like Kerala, all those businesses that catered to tourists, from hotels to handicrafts, will be affected. In a post in the IMFBlog, Gita Gopinath, chief economist of the International Monetary Fund, called the ‘great lockdown’ the ‘worst economic downturn since the Great Depression’, an event that happened 90 years ago. She wrote, ‘This is a truly global crisis as no country is spared. Countries reliant on tourism, travel, hospitality, and entertainment for their growth are experiencing particularly large disruptions…For the first time since the Great Depression both advanced economies and emerging market and developing economies are in recession.’

A month ago, the pandemic’s impact became starkly clear to the world and stock markets nosedived. The Nifty, the National Stock Exchange index that makes up the best companies of India, went to 7,700 on March 23rd. About a month earlier, it had been at more than 12,000. No analyst could have predicted such a tanking. Since then, there has been a small bounce but most of the companies in the index are deep in the red. There are a few exceptions. In mid-February, you could buy one share of Hindustan Unilever for around Rs 2,300. It too got swept in the sell-off and fell to Rs 1,838, a 20 per cent drop. In another time, that would have been bad news for investors but they weren’t complaining. Perpetual stock market darlings had taken a much worse beating. HDFC Bank, which has a tremendous investor fan base because it has been a steady growth and compounding machine, fell from Rs 1,200 to Rs 750, a 37 per cent drop. Then something remarkable began to happen to Hindustan Unilever’s stock. Its price started to shoot up with each passing day until it had crossed even its earlier highs before the pandemic. HDFC Bank, on the other hand, still remains 20 to 30 per cent below pre-pandemic levels. The market is saying that it expects Hindustan Unilever to do good from a pandemic. It doesn’t have any such faith in HDFC Bank or most of the other companies. Similarly, Nestle India is trading at much higher levels than what it was before the pandemic struck. Both Hindustan Unilever and Nestle produce fast moving consumer goods. They have super brands, painstakingly built over decades embedded in the minds of Indians using them in daily life—from food to hygiene products. These are the first things anyone wants to get their hands on when in isolation. Take soap that kills the coronavirus. Unilever owns brands like Pears, Lux and Lifebuoy. Nestle’s Maggi is both comfort food and staple. Business India reported analysts of investment bank Spark Capital expecting ‘Nestle India’s revenue to grow 5 per cent year-on-year (y-o-y) in the March quarter (Q1CY20) led by robust growth in Maggi portfolio and decent growth in nutrition segment. “Despite a mid-single-digit volume growth, operating margins are expected to contract by more than 100bps due to price inflation of most agri commodities. Lower other income due to contraction of treasury book on account of capex and special dividend payment to result in 4 per cent decline in profit before tax (PBT),” the brokerage firm said in its March quarter results preview report.’

If FMCG companies have been negatively affected in sales, then it is only because of supply chain disruptions. They don’t have to deal with the demand shock. As soon as the supply side is sorted out, they will ride the lockdown with cheer. Similarly, pharmaceuticals, a sector that has been underperforming for some time, has suddenly got a breath of fresh air after the pandemic. HDFC Securities came out with a report in early April in which they said that though there would be some immediate disruption because of plant shutdowns and issues related to raw material supply and logistics, the profit margins of the sector would be resilient over the next two years. It said, ‘Our positive stance on Indian pharma is premised on the sector’s relative resilience to Covid disruption, favorable currency tailwinds and a stable outlook for India and US business. India growth has picked up and we forecast 11% growth for covered companies over the next two years.’ Another set of businesses profiting directly as a result of the pandemic are path labs that have permission to test for Covid-19. As a result, listed companies like Thyrocare, Metropolis, Dr Lal Path Labs, are all looking at secure revenue streams. While their market capitalisation shot up enormously after the first announcement that private labs would be allowed to test, there has however been some tempering to how much they can charge. A Supreme Court order making it compulsory for them to test for free had led to a brief moment of panic that it might make it unfeasible altogether but then the order was modified. There is now realisation that tests will have to be priced for nominal profits but these companies expect to make a lot of revenues in volumes as the pandemic staggers on.

How well a business does in future will be correlated to how much its product can be consumed in isolation. No one is going to go watch a movie in a theatre, but people will be watching even more movies and shows at home. Which is good news for streaming services. On April 21st, Netflix reported its numbers of the first quarter and they had added 1.6 crore new subscribers worldwide. This was in the face of a large number of new competitors with deep pockets like Disney and Apple entering the streaming services territory. In its letter to shareholders, they wrote, ‘At Netflix, we’re acutely aware that we are fortunate to have a service that is even more meaningful to people confined at home, and which we can operate remotely with minimal disruption in the short to medium-term. Like other home entertainment services, we’re seeing temporarily higher viewing and increased membership growth.’

Online businesses providing services directly to the consumer as a replacement for offline services have a ready worldwide market to capture. For example, with reopening of schools uncertain, e-learning startups are benefitting. And doctors, even though reluctant to reopen their clinics, are finding a lucrative alternative revenue source in consulting online, often facilitated by medical startups like 1mg and Practo. Online marketplaces, like Amazon and Big Basket, are already on a recruitment drive at a time when unemployment is rising to record highs. Activities that keep people entertained in isolation, like gaming services, are doing good. And while the sales of equipment they do it on, like mobiles and laptops, are at a pause, when permission to sell them is resumed, they might see a huge uptick. If isolation is going to be a state of existence, then catering to it is the short route to survival and profit.

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