Consumer Goods - Moderate musings; Q2FY15 Result Preview: Edelweiss PDF link

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We expect marginal pick up in Edelweiss Consumer Goods pack’s revenue, EBITDA and PAT growth at 12.2%, 12.2% and 10.2%  YoY, respectively, in Q2FY15 (11.3%, 10.2%, 9.3% growth in Q1FY15). Growth continues to remain moderate in most categories. Volume growth has maintained earlier trajectory in urban areas; gap between urban and rural growth continues to shrink as the latter has been moderating. However, innovation and distribution will help garner decent volume growth for Emami, Marico and Dabur. International business sales will see translational impact (INR depreciated to INR68 in base quarter versus INR61 currently). Some benefit of benign raw material (palm oil, crude, LAB) prices will help gross margins (full benefit to flow in Q3FY15). Gross margin benefit coupled with high competitive intensity is likely to prompt companies to step up promotions (soaps, detergents, toothpaste).

Result expectations for stocks under coverage

Asian Paints is likely to clock ~7% volume growth (on high base of 12%), which is likely to moderate QoQ due to inventory restocking in Q1FY15 on account of price hikes and rainfall in Q2FY15, though early Diwali will provide some relief to volumes. Nestle and United Spirits are likely to be laggards in volume growth while EBITDA growth of Colgate, HUL and Asian paints are likely to be ahead of sector average. Media intensity picked up QoQ (but remains soft YoY) led by benign raw material prices and heightened competitive intensity. In our consumer pack, EBITDA margins of GSK Consumer, Nestle, Emami, Dabur and United Spirits are likely to be under pressure.

Key highlights of the sector during the quarter

HUL launched Axe Signature, hair spa rejuvenation range under TRESemme; Dabur launched wearable mosquito repellent products; Colgate launched Charcoal toothbrush; GCPL launched Cinthol Confidence+,hair care products under B:Blunt,; ITC launched premium cigarette variants and e-cigarette. Soaps sales staged a turnaround led by activations; cooling palm oil prices bodes well for margins. Demand for hair oil has improved slightly. Uneven monsoon impacted the household insecticides category.

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LINK
https://www.edelweiss.in/research/Consumer-Goods--Moderate-musings;-Q2FY15-Result-Preview/27178.html