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Consumer and agriculture (Prasad Deshmukh)
Underweight
Key drivers of sector outlook
Volume growth for organized players is expected to remain robust despite price
hikes led by rural demand as well as growth in modern trade.
Raw material costs are expected to stabilize. A strong correction in raw material
costs can provide upside to margins.
While competitive intensity will remain high, margin-destructive competition will
likely be limited as per channel checks. Companies can adopt scaled price hikes
which will be a key margin driver.
Personal care products and packaged food will be high growth areas led by
improving penetration.
Premiumisation and product innovations will remain key revenue drivers.
Regulatory changes can augur well for companies, especially in the case of
introduction of GST. However, sharp increase in excise on cigarettes is also a
likely possibility, which can be a near-term negative for ITC.
A&P spends will remain high in high growth categories like personal care products.
However, it can moderate as a percentage of revenue in mature categories such
as soaps and detergents.
Top Buy: ITC, HUL, Dabur
Top stock pick: ITC
While increase in excise on cigarettes is highly likely in FY13 budget, ITC has
effected pre-emptive price hikes in its cigarette portfolio. It has increased prices
of about 40% of its portfolio by 10% in the last three months.
Losses in FMCG are expected to decline as ITC gains market share, led by
aggressive pricing and A&P support.
While the hotels business can witness a cyclical downturn, impact on earnings
will be limited as hotels form <5% of ITC earnings.
Earnings visibility remains high as cigarettes contribute about 80% of EBIT. A
positive margin surprise possible due to price hikes.
BofAML estimates 19% EPS CAGR over FY11-13 for ITC, led by 17% sales
CAGR.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Consumer and agriculture (Prasad Deshmukh)
Underweight
Key drivers of sector outlook
Volume growth for organized players is expected to remain robust despite price
hikes led by rural demand as well as growth in modern trade.
Raw material costs are expected to stabilize. A strong correction in raw material
costs can provide upside to margins.
While competitive intensity will remain high, margin-destructive competition will
likely be limited as per channel checks. Companies can adopt scaled price hikes
which will be a key margin driver.
Personal care products and packaged food will be high growth areas led by
improving penetration.
Premiumisation and product innovations will remain key revenue drivers.
Regulatory changes can augur well for companies, especially in the case of
introduction of GST. However, sharp increase in excise on cigarettes is also a
likely possibility, which can be a near-term negative for ITC.
A&P spends will remain high in high growth categories like personal care products.
However, it can moderate as a percentage of revenue in mature categories such
as soaps and detergents.
Top Buy: ITC, HUL, Dabur
Top stock pick: ITC
While increase in excise on cigarettes is highly likely in FY13 budget, ITC has
effected pre-emptive price hikes in its cigarette portfolio. It has increased prices
of about 40% of its portfolio by 10% in the last three months.
Losses in FMCG are expected to decline as ITC gains market share, led by
aggressive pricing and A&P support.
While the hotels business can witness a cyclical downturn, impact on earnings
will be limited as hotels form <5% of ITC earnings.
Earnings visibility remains high as cigarettes contribute about 80% of EBIT. A
positive margin surprise possible due to price hikes.
BofAML estimates 19% EPS CAGR over FY11-13 for ITC, led by 17% sales
CAGR.
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