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We expect consumer companies in our coverage to register steady revenue growth, largely driven by volumes. With intensifying competition, we expect higher ad-spend to slightly impact margins. Further, given higher taxes, we expect yoy net profit growth in the sector to be 11%.
n Steady revenue growth. The sector is likely to register 18% revenue growth, mainly driven by volumes. The full impact of select price hikes in Aug and Sep ’10 would be felt in 3QFY11. We expect Dabur, GSK-CH, Colgate and Marico to report decent volume growth; HUL’s revenue growth will remain muted.
n EBITDA margin to be a mixed bag. With agro-product prices coming off their peaks, we expect the EBITDA margins of some consumer companies to expand. The major positive effect of lower raw material prices and price hikes would be seen from 3QFY11. We expect keener competition to push up ad-spend.
n Rising competition. With HUL spending aggressively to re-gain lost market share, P&G introducing products at lower prices and domestic players such as ITC launching new products aggressively, we expect sector revenues to be squeezed by the lower prices. Higher ad-spend and promotions would also trim margins.
n Stock calls. We retain a Buy on Colgate, Marico, GCP, GSK-CH and Emami; Hold on Asian Paints and Dabur; and a Sell on ITC, HUL, Nestlé India and Britannia.
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