Short-term fears of a slowdown are a
buying opportunity
The long-term structural growth story is
still very attractive
Prefer ITC, Colgate, Titan and HUL
Keep the faith. After a stellar performance in 2012 consumer
sector stocks have pulled back this year. This is partly because
of the macro outlook and partly for stock-specific reasons. We
expect companies to resort proactively to aggressive
promotions to keep volume growth from falling, so expect
price cuts, which may hurt margins. But don’t worry – we still
like the long-term Indian consumer growth story. We believe
this is a buying opportunity.
Long-term gain. What was a discretionary purchase in India is
increasingly becoming today’s necessity. Significant shifts in
consumption patterns caused by the rise of the middle class and
favourable demographics mean the fast moving consumer
goods (FMCG) landscape is changing rapidly. Growth will
continue and the cost economics will benefit those with scale,
brand power and the best distribution networks the most.
The ones we like and why.
HUL faces a slowdown in volume growth for at least the next
two quarters. Royalty increases and a rise in tax may hurt
near-term earnings growth, but a 20% correction since October
last year factors this in.
Titan faces potential regulatory issues and gold price concerns
but this is priced in; earnings should remain strong and should
be key catalyst for stock performance.
ITC faces concerns about volume growth given a series of price
increases. We anticipate 1Q volumes to be weak (in part
because of price increases, but also due to some overstocking in
Q4), which should weigh on stock price over next two quarters,
creating buying opportunities. On the full year basis, we expect
earnings growth to stay resilient in FY14.
Colgate is set for a share price rebound in our view, as volume
growth improves q-o-q in 4Q FY13 and A&P spend normalises.
No comments:
Post a Comment