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India – FMCG (Personal care: Cost levers to cushion EBITDA margins; GCPL, HUL least impacted):
Raw-material costs across personal-care categories have seen a significant run-up, with some commodities crossing the peaks they had hit in 2008. The insufficient quantum of price hikes and timing mismatch between price hikes and raw-material cost increases will lead to gross margin contraction in the near term. The biggest near-term impact will be on Marico and Emami, while HUL and GCPL are likely to be the least affected, as less than a quarter of their revenues is currently affected by commodity inflation and they carry forward covers. However, we expect gross margins to start recovering from 4QFY11, as more price hikes would likely come through. Also, EBITDA margin contraction would be much lower than gross margin contraction, as companies would use margin levers such as rationalising ad spends and other overheads, in a similar way as they did in FY09.
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