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http://www.icicidirect.com/mailimages/ICICIdirect_ConsolidatedResultPreview_Q4FY12E.pdf
FMCG
ƒ Topline growth intact but dominated by prices rather than volumes
Sales growth for FMCG companies is expected to remain healthy.
However, it would be driven by an increase in prices with volume
growth remaining subdued. Due to relentless increase in commodity
prices in 2011, companies witnessed a slowdown in volume growth
from double digits to single digits. The industry witnessed ~8% volume
growth in 2011 compared to 12% in 2010. Hence, with the full impact of
price increases taken in 2011 being visible in Q4FY12 and hardly much
increase in this quarter, we expect topline growth across the industry to
be largely price led.
ƒ Higher taxes announced in Budget for FY13
The Government of India in its FY13 Budget increased excise duty by
2% (from 10% to 12%) and introduced an ad valorem tax on cigarettes
(of more than 65 mm length) of 10% to existing specific rates. The ad
valorem duty would be chargeable on 50% of retail sales price declared
on the pack. We believe the increase in excise duty will impact
companies like HUL, Nestle, Colgate and Asian Paints, for having
relatively highest share of production in the non-excise free zones.
Hence, a calibrated price increase to pass on this impact by companies
is expected in the coming quarter. We also expect cigarette leader ITC
to pass on the burden of higher duties to consumers by increasing
prices by ~8% in FY13E.
ƒ Margins to sustain despite cost pressures
With raw material (RM) costs continuing to pressurise margins, FMCG
companies were constrained to take a second round of price hikes in
2012 after taking hikes across all products in 2011 and minor (~3%) hike
in the first half of 2012 (due to excise duty hike by 2%). Increase in
prices of raw materials on a QoQ basis, mentha oil (used in cooling hair
oils) up by 28.3%, pthalic anhydride (RM used by paint companies) up
by 12.3%, barley (key input for malted beverages) up by 3.3% and palm
oil (expected to rise further due to supply constraints) already up by 6%
would compel companies like Godrej Consumer, HUL, Marico, Dabur,
GSK Consumer, Nestle and Asian Paints to pass on the impact to
consumers in the coming quarter also.
Company specific view (FMCG)
Company Remarks
Asian Paints With the full impact of price hikes visible from this quarter and international business
sales remaining robust, we expect topline growth of ~23%. Margins would improve
~110 bps YoY to 15.8% with no further increase in RM prices. Subsequently, we
expect PAT to jump to |246.9 crore (~33% rise)
Dabur India Both domestic sales & international business growth is expected to be robust at
~34% & ~40%, respectively, led by full impact of price hikes taken in past three
quarters. Sustained high commodity prices would keep margins lower by ~360 bps
ITC Topline growth of 16.4% YoY would be contributed by ~12% growth in cigarettes,
~22% growth in agri, ~16% growth in paper & paperboards and robust growth in
FMCG (others). Margins would improve ~600 bps YoY but would be lower by 120
bps QoQ to 36.4%. Higher EBITDA margins would improve PAT margin ~250bps YoY
to 24.8%.
Jyothy Lab Moderate sales growth (6.4% YoY) to be dominated by better performance in soaps &
detergents (~12% higher YoY) with homecare growth remaining subdued. We
expect margins to be a tad lower at 16.7% (16.8% Q3FY12) due to higher A&P
expenses. Lower dep. would improve earnings by ~|2 cr in Q4FY12 over Q3FY12 .
Kansai Nerolac Increasing its reach in the decorative segment and being the leader in the industrial
paints, sales growth of ~20% was contributed largely by the impact of price
increases taken during the fiscal. Higher realisation would help margins to improve by
~130 bps YoY to 12.6% in Q4FY12
Marico Robust sales growth YoY is expected to be seen both in international and domestic
(~25% YoY) businesses led largely by price increases taken during previous quarters.
Hence, we expect margins to improve ~60 bps QoQ and ~160 bps YoY to 12.1%.
There were no new launches during the quarter
Nestle India With ~11% price increases in CY11 and no hikes in Q1CY12, we expect sales growth
in Q1CY12 to be 23% YoY (~10% volume led). In spite of passing on the impact of
higher costs, margins would be slightly lower at 20.3% (declining 80 bps YoY). Higher
interest cost would pull down PAT margin by ~100 bps YoY to 13.2%
VST Industries Volume growth of ~9% YoY & price hikes of ~6% YoY would lead to 15% increase in
sales. Increase in price realisations by 6% would lead to improvement in margins by
280 bps to 30.7% compared to 27.9% in Q4FY11. This would result in ~32% growth in
earnings
Source: Company, ICICIdirect.com Research
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