FMCG No dichotomy, an ideal quarter:: ICICI Sec

We believe EBITDA margin expansion with steady revenue growth shall be the
theme in our FMCG universe for Q3FY13. We see a revenue growth of 16% YoY in
the companies under our coverage, with gross margin expanding by 88bps to
53%. We expect the EBITDA margin to expand by 63bps to 22.7%, supported by a
stable advertisement-to-sales (A:S) ratio. We expect Dabur to report EBITDA
margin expansion by 125bps in Q3FY13, after seven quarters of decline. GSK
Consumer, Marico and Dabur should post outstanding earnings growth.
􀁦 EBITDA margin to expand across companies: Q3FY13 will see EBITDA margin
expansion for all FMCG companies under our coverage. Moderation in raw material
prices and price hikes taken during the year will enable margin expansion while
sustaining volume growth. Companies to report significant EBITDA margin expansion
include: Marico (+172bps), Dabur (+125bps) and ITC (+94bps), while Godrej
Consumer (GCPL) is the only company where we expect EBITDA margin to decline
slightly by 32bps.
􀁦 Steady revenue growth: We expect steady revenue growth of 16% for our FMCG
coverage universe. We see personal care companies reporting a better revenue
growth at 17% for Q3FY13, in line with the 17% revenue growth in Q2FY13,
sustaining the volume growth momentum. GCPL should lead revenue growth, with a
25% rise for the quarter, supported by inorganic growth.
􀁦 What to look for in Q3FY13 results: Key things to look out for in Q3FY13 numbers
are: trend in volume growth, and the A:S ratio. While Q2FY13 saw certain
discretionary categories witnessing demand deceleration, we believe the festive
season has supported growth in the discretionary segment, while onset of early
winter supports growth in personal products like skincare and seasonal health
supplements like Chyawanprash. As we expect gross margin to expand across
companies, the key metric to watch out for is the trend in A:S. We expect gross
margin to expand by 88bps in Q3FY13 for the companies combined, in line with the
94bps expansion seen in Q2FY13. However, we expect the A:S ratio to expand by
only 24bps YoY in contrast with the 54bps expansion in Q2FY13.
􀁦 BUY Dabur, GSK Consumer and Marico: We expect GSK Consumer, Dabur and
Marico to lead the FMCG pack in earnings growth. We believe on-the-ground
strategic actions taken by Dabur will enable Q3FY13 to mark the revival of the
company’s EBITDA margin trend, with domestic business volume growing at ~10%.
While we expect GSK Consumer to report 46% PAT growth, driven by 17% revenue
growth and 85bps EBITDA margin expansion, we expect Marico to report another
quarter of strong margin expansion along with a 20% revenue growth. Trade
interactions underline revival in Dabur’s performance and maintenance in Marico’s
growth momentum (Paras’ portfolio witnesses strong demand though there is supply
constraint). We reiterate our BUY call on Dabur, GSK Consumer and Marico

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