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Consumer
Higher contribution of price hikes to revenue growth amidst rural volume
slow down should be the theme for this quarter across most of the
companies in the Consumer space. However, the winter portfolio should
see robust volume growth, benefiting companies like Hindustan Unilever
and Dabur. Price hikes taken during the quarter and improvement in
portfolio mix should support sequential improvement in gross margins but
should still be lower YoY. Dabur will likely witness the highest EBITDA
margin decline, by 181bps, while Colgate will likely witness 633bps
EBITDA margin expansion.
Better realization amidst rural volume slowing down, to support revenue
growth: We believe the divergent trend of consumption – slowdown in rural
volume growth and strong premiumisation across categories will be reflected in
the quarterly performance of all FMCG companies. However, winter portfolio
should provide some support for the 3QFY12 performance. We expect price hikes
driven by inflation in raw material prices to provide impetus to the revenue growth.
Gross margins to see sequential improvement: Calibrated price hikes taken
by companies during the quarter and moderating raw material prices should
enable companies to post sequential improvement in gross margins. We expect a
few companies to report EBITDA margin expansion – Marico (+48bps), HUL
(+165bps) and Colgate (+633bps), while Dabur will likely report EBITDA margin
contraction of 181bps YoY.
Preparing for upcoming results
We expect management commentary post results to warn of rural volumes slowing
down, and remain upbeat about the premiumisation trend. Furthermore, we
expect the companies to caution the street that competitive environment will get
intense as we enter FY13. We have released our thematic Exit Rural India, Enter
Premium India on December 23, 2011 and recommend buying GSK Consumer,
Nestle, Marico, Agrotech Foods and Godrej Consumer, while we are Sellers on
Dabur, Colgate and HUL.
Ambit v/s consensus
Our estimates are higher than consensus for companies such as ITC, GCPL,
HUL, Dabur GSK Consumer and Colgate. In the case of Dabur, we believe
winter portfolio sales would support 8% volume growth while in the case of
Colgate, the low base of 3QFY11 should support earnings growth. We believe
earnings growth will again be impacted from 4QFY12, and therefore remain
Sellers on these stocks. We are below consensus on Pantaloon, Titan, Nestle
and Marico. However, with limited estimates available on Bloomberg until now,
we believe the consensus estimates do not reflect the larger street opinion.
Recommendation
ITC, GSK Consumer and ITC are our top recommendations as we believe
their dominant position in their business categories will continue to enable them to
report robust earnings growth. We recommend a SELL on Dabur and Colgate
as we believe current valuations do not factor in growth headwinds, and they will
see impact of rural slowdown on their earnings growth in FY13.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Consumer
Higher contribution of price hikes to revenue growth amidst rural volume
slow down should be the theme for this quarter across most of the
companies in the Consumer space. However, the winter portfolio should
see robust volume growth, benefiting companies like Hindustan Unilever
and Dabur. Price hikes taken during the quarter and improvement in
portfolio mix should support sequential improvement in gross margins but
should still be lower YoY. Dabur will likely witness the highest EBITDA
margin decline, by 181bps, while Colgate will likely witness 633bps
EBITDA margin expansion.
Better realization amidst rural volume slowing down, to support revenue
growth: We believe the divergent trend of consumption – slowdown in rural
volume growth and strong premiumisation across categories will be reflected in
the quarterly performance of all FMCG companies. However, winter portfolio
should provide some support for the 3QFY12 performance. We expect price hikes
driven by inflation in raw material prices to provide impetus to the revenue growth.
Gross margins to see sequential improvement: Calibrated price hikes taken
by companies during the quarter and moderating raw material prices should
enable companies to post sequential improvement in gross margins. We expect a
few companies to report EBITDA margin expansion – Marico (+48bps), HUL
(+165bps) and Colgate (+633bps), while Dabur will likely report EBITDA margin
contraction of 181bps YoY.
Preparing for upcoming results
We expect management commentary post results to warn of rural volumes slowing
down, and remain upbeat about the premiumisation trend. Furthermore, we
expect the companies to caution the street that competitive environment will get
intense as we enter FY13. We have released our thematic Exit Rural India, Enter
Premium India on December 23, 2011 and recommend buying GSK Consumer,
Nestle, Marico, Agrotech Foods and Godrej Consumer, while we are Sellers on
Dabur, Colgate and HUL.
Ambit v/s consensus
Our estimates are higher than consensus for companies such as ITC, GCPL,
HUL, Dabur GSK Consumer and Colgate. In the case of Dabur, we believe
winter portfolio sales would support 8% volume growth while in the case of
Colgate, the low base of 3QFY11 should support earnings growth. We believe
earnings growth will again be impacted from 4QFY12, and therefore remain
Sellers on these stocks. We are below consensus on Pantaloon, Titan, Nestle
and Marico. However, with limited estimates available on Bloomberg until now,
we believe the consensus estimates do not reflect the larger street opinion.
Recommendation
ITC, GSK Consumer and ITC are our top recommendations as we believe
their dominant position in their business categories will continue to enable them to
report robust earnings growth. We recommend a SELL on Dabur and Colgate
as we believe current valuations do not factor in growth headwinds, and they will
see impact of rural slowdown on their earnings growth in FY13.
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