Consumer Goods - Resilient, but CSD plays spoilsport; sector update :Edelweiss, PDF link

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A sizeable number of consumer companies have reported March quarter numbers. We attempt to highlight a few key trends:

·       Overall robust volume growth:  Volume for 5 out of 8 companies in line or better than expectation; positive surprises—HUL, Asian Paints and Dabur.

·       CSD sales disappoint, but reasonable recovery likely: Sales in Feb and March were seriously impacted due to order freeze. GSK, Emami (across all categories) and Marico’s Saffola most impacted. We expect recovery in June quarter, but YoY growth unlikely.

·       Ad spend a mixed bag: Four companies (out of 10) cut it in terms of % of sales (v/s. 6 out of 13 inQ3FY12). Two decreased it on absolute basis (ad spends in PP for HUL softened after many quarters).

·       Strain on gross margin persists: Gross margins of eight companies (out of 13) dipped significantly (v/s 12 out of 21 in Q3FY12), and increased for Nestle, Marico, GCPL, Zydus Wellness and Agro Tech.

·       EBIDTA margin dips: EBITDA margin of 7 (out of 13) companies declined, but much lower than gross margin (Dabur, Marico, Zydus Wellness, Bajaj Corp posted dip due to high ad spends).

·       Pricing power rises: Majority took calibrated price hikes. Quality of sales growth was better with balanced blend of price and volume growth.

·       New launches on hold: Most companies have reduced pace of introducing new products.

·       Modern trade: Companies are increasing focus on widening reach of modern trade.

·       International businesses carry on good run: In most cases, businesses reported healthy growth despite global economic pressures. Africa continues to hurt Emami.

·       Q4FY12 results— Hits: HUL, Asian Paints, Emami, GCPL, Marico. Misses: Nestle, GSK Consumer

·       Top picks: Dabur, GCPL, Emami, HUL and ITC.

Consumer Goods - Resilient, but CSD plays spoilsport; sector update

Regards,