FMCG Sector Update - Earnings preview: September 2012 quarter:: Brics

FMCG
September 2012 quarter earnings preview


Expect  16% revenue growth in Q2: We expect the growth of FMCG companies in
our  coverage  universe  to  be  driven  by  volumes and price in Q2. BRICS
consumer  universe  would record 16% yoy growth to Rs.138.8bn in Q2. Marico
and  GCPL  will benefit from acquisitions, while volumes will drive revenue
growth  for most companies. Recent price hike (9-10%) will accelerate APL’s
performance.

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Gross  margins  expected  to improve: Some softening in prices of inputs is
likely  to  result  in  an  expansion  in  the  GM.  We estimate 140bps yoy
expansion in the GM for BRICS consumer universe. Marico is likely to record
the  maximum  500  bps  expansion,  while  Colgate  to  record  the maximum
contraction of 50bps.

A&P  spending expected to rise: In Q2, A&P spend is expected to increase by
140 bps yoy, led by 450, 250, 160 and 120 bps increase in the A&P spends of
Dabur,  Marico,  GCPL  and Marico respectively. The expansion in the GM and
focus on maintaining volume growth will aid increase in A&P spend.

Operating  margins  to  expand 40bps yoy: Expansion in GM will be partially
offset by the increase in A&P spends in Q2. Marico and Colgate are expected
to  record  the  maximum  expansion of 190 and 170 bps yoy in the operating
margin, while Dabur is likely to witness a contraction of 190bps yoy.

Earning to grow 19% yoy: Marico and GCPL are expected to record the highest
growth  at  38%  yoy  and 23% yoy in earnings, driven by a higher operating
growth.  APL, Colgate and HUL are likely to record a yoy growth of 22%, 21%
and  18%  respectively,  Dabur  is  expected  to record the lowest earnings
growth of 11%.