Markets
Four stocks that could benefit from India's pet food boom
Summary
- Investing in pet-food stocks seems like a potentially attractive opportunity, given that the industry is fairly recession-resistant.
MUMBAI : The pet-food market in India is growing at an astonishing pace due to the increase in pet ownership. According to a Statista report, the number of households with pet dogs and cats has risen from 12.85 million in 2014 to more than 25 million in 2023, growing at a compound annual growth rate (CAGR) of 7.7%.
Moreover, a Mordor Intelligence report estimates that India's pet-food market will grow from ₹7,130 crore in 2024 to ₹15,685 crore in 2029, indicating a CAGR of over 17%.
Compare this with the US, where pet spending touched ₹15.43 trillion ($186 billion) in 2023, and we can see that India’s pet market is still in its very nascent stage. Notably, Mars Inc., a company famous for its variety of chocolates, generated over 65% of its sales from pet care in 2023, according to a report from The Economist. Mars is the largest pet-food company in the world. It owns the Royal Canin brand and operates thousands of veterinary clinics.
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Now, the rise in pet owners in India will drive pet-food industry sales higher in the upcoming decade. Notably, several trends are shaping the country's pet-food landscape, including:
Premiumization: There is a noticeable shift towards quality and organic pet-food products as owners prioritize pet care and nutrition.
E-commerce demand: The rise in digital platforms has made pet food accessible to consumers across India and will be a crucial driver of growth going forward.
Pet humanization: Similar to the Western world, pet owners in India are also treating pets as family members, which results in higher expenditure on premium and other specialized products.
Given these factors, let's see which pet-food stocks in India should benefit from an expanding addressable market and other secular trends.
Nestlé India
Valued at ₹2.61 trillion by market capitalization, Nestlé is among the most recognizable brands in the world. Nestlé India is a subsidiary of its Switzerland-based parent company, primarily involved in the consumer food business. It is among the top two players in most product categories, including milk products and nutrition, beverages, chocolates and confectionery.
With more than 10,000 distributors, Nestlé recently acquired Purina Petcare India for ₹125.3 crore to enter the pet-food business. The acquisition has allowed Nestlé India to establish a growing presence in India's pet-food market. Moreover, the Purina brand is known for its diversified portfolio of premium dog and cat food products, allowing Nestlé to benefit from higher-margin sales and customer loyalty.
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An extensive distribution network enables Nestlé India to penetrate multiple markets efficiently, which results in growing brand awareness. Nestlé has increased its sales from ₹9,101 crore in 2012-13 to ₹24,394 crore in 2023-24. With an operating margin of 23%, Nestlé's stock has more than doubled in the last five years.
Given Nestlé’s massive size, its pet-care segment currently accounts for a tiny part of the business and is unlikely to move the needle in terms of revenue or earnings. However, if the fast-moving consumer goods (FMCG) giant gains traction in the market, pet food could be a key driver over time. For instance, Nestlé India's parent company generates a fifth of total sales from its pet business.
Mankind Pharma
Founded in 1995, Mankind Pharma Ltd has a market cap of ₹1.03 trillion. It develops, manufactures and markets formulations across several acute and chronic therapeutic verticals. With 25 manufacturing facilities in India, Mankind Pharma has a total installed capacity of 42 billion units. These products are sold through 13,000 stockists and 75 clearing and forwarding agents.
In 2022, Mankind Pharma disclosed plans to enter the pet-food business and launched a new product called PetStar Dog Food. Mankind is focused on building a pet-care ecosystem by offering products such as pet food, supplements and grooming merchandise to cater to the evolving needs of India's growing pet community.
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According to a Business Insider report, PetStar products will be manufactured in the UK and will be produced as per the Brigs Retail Consortium Global Standards.
Mankind Pharma's sales increased from ₹3,918 crore in 2017-18 to ₹9,212 crore in 2023-24.
With an operating margin of 25%, Mankind Pharma stock has surged over 85% since its initial public offering (IPO) in May 2023.
Emami
Valued at ₹32,897 crore, Emami Ltd manufactures and markets personal-care and healthcare products, with a portfolio of popular brand names such as BoroPlus and Zandu Balm.
It is among the leading companies in the personal-care segment, with a portfolio of more than 450 products. With seven manufacturing facilities in India, Emami also has 35+ third-party manufacturing tie-ups in the country.
Earlier this year, Emami acquired a 30% stake in Cannis Lupus Services India Pvt. Ltd, a pet-care startup, to enter the pet-food segment. The investment should allow Emami to leverage Cannis Lupus' expertise and brand and align with the growing demand for organic pet food options, allowing the consumer giant to gain traction in this market.
Emami now plans to launch a portfolio of chemical-free products and ayurvedic formulations for pets and tap into growing consumer interest in all-natural pet-care solutions. Here, Emami will target a niche market and gain popularity among pet owners looking at alternative medications for pet health issues.
Emami is an established player in the FMCG sector and is well-positioned to leverage its brand equity and distribution network to facilitate the acceptance of new pet-food products.
Emami sales have risen from ₹1,595 crore in 2012-13 to ₹3,578 crore in 2023-24. The FMCG stock went public in 2006 and has since returned 1,650% to shareholders.
Avanti Feeds
The final pet-food stock on the list is Avanti Feeds Ltd, valued at ₹8,487 crore by market cap. Avanti Feeds manufactures and sells shrimp feed and exports processed shrimp. It is the largest producer of shrimp feed and commands a 45% share in the country.
Avanti Feeds processes shrimp from two manufacturing facilities in Andhra Pradesh and exports it to various countries.
In 2023, Avanti Feeds announced plans to expand into the manufacturing and trading of pet-food and pet-care products. The company explained: "The subsidiary company shall inter-alia deal in manufacturing and trading of pet foods and feeds, pet healthcare products like medicines, shampoo, soaps, creams, grooming and other grooming-related pet-care products, including pet equipment related to pet care. This is an identical product as the existing shrimp feed."
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Avanti Feeds has increased its sales from ₹626 in 2012-13 to ₹5,369 crore in 2023-24. The stock went public in early 2010 and has since returned 38,000% to shareholders.
The bottomline
Investing in pet-food stocks seems like a potentially attractive opportunity, given that the industry is fairly recession-resistant. For instance, similar to groceries and other basic utilities, pet owners are unlikely to reduce pet-food spending during economic downturns. Moreover, the rise in pet ownership, India's growing middle class, and higher spending on premium products indicate the growth potential is massive.
Investors should understand that the pet-food business for the companies on the list is a new business, with limited size. However, it has massive potential. If the international trends are anything to go by, these companies have a long runway ahead of them.
Note: We have relied on data from www.screener.in throughout the article. Only in cases where the data was not available have we used an alternative but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Aditya Raghunath has over 15 years of experience in finance and financial writing. His interest extends to global stocks. He studied commerce at Mumbai University and did his management in finance at the prestigious T.A. Pai Management Institute.
Disclosure: The writer does not own stocks in any of the companies discussed here.
