Consumer - Q4FY15 Results Preview - Expect healthy operating performance :: Centrum

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Expect healthy operating performance

We believe strong pricing will continue to help large FMCG companies post healthy

topline growth with volume growth below 5%. However, smaller consumer

companies will grow at a faster pace. Revenues for our coverage universe will

continue to grow by 13.7% YoY in Q4FY15. We expect operating margin expansion

of 108bps with all companies (except Speciality Restaurant) posting margin

expansion. Operating profit and PAT are expected to grow 20% YoY and 19%

respectively. We expect positive surprise from IFB Industries and Talwalkars but

negative surprise from Speciality Restaurants.

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Bank Nifty has risen sharply in the last two sessions :: HDFC Sec

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BSE FMCG daily chart indicates a positive bias for the short term: HDFC Securities

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Consumer Products: Month in review - December 2014: RM tailwinds strengthen :: Kotak Securities

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Month in review – December 2014: RM tailwinds strengthen. The KIE consumer
universe delivered negative 1% returns performing in line with the broader market in
the past one month. Promotional intensity has picked up in detergents (led by HUL) and
hair oils, RM tailwinds continue to strengthen and Nestle has taken price hikes yet again
(in Maggi and baby foods despite benign input cost environment). Sector valuations at
34X FY2016E earnings (ex-ITC) remain rich. We retain our ‘tread selectively’ view. Our
preferred picks are ITC, Dabur, Marico and Colgate; we also like HUVR, Britannia,
Pidilite and Bajaj Corp but would advise buying on dips.

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FMCG Sector Preview – Q3FY15 :: HDFC Securities

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ƒFMCG ƒ Steady volume revival; largely price driven growth :Q3FY15 Result Preview : ICICI Securities, report

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Consumer Goods - Demand Deceleration Ebbing; Margins to Improve - Result Preview Q3FY15 :: Edelweiss

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FMCG 3QFY15E Results Preview :: HDFC Securities

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Consumer Products: Baking in RM tailwinds :: Kotak Sec, report link

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Baking in RM tailwinds. We have upgraded our EPS estimates by ~2-14% for most
companies under KIE consumer universe (barring JUBI, SRL and ITC) as we bake in
benefits from input costs correction adjusted for (1) currency depreciation, (2) higher
A&SP spends and (3) lower price-led growth. Resurgence of unorganized competition
also remains a risk to volumes. RM tailwinds and roll-over to December 2016E (from
September 2016E) drive a ~3-17% upgrade in our target prices; upgrade HUVR to ADD
(from REDUCE) and downgrade PIDI a notch to ADD (from BUY).

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Consumption Recovery Yet to Materialise ::Edelweiss, link

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Consumer Products: Pernod India's annual report, 2014 - another good year Energy: Here to stay :Kotak Sec,link

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Pernod India’s annual report, 2014—another good year. Pernod India (PI) reported
a good year with gross sales, EBITDA and PAT growing by 19%, 25% and 18%,
respectively. Post-tax RoCE was 129%. As per our estimates, EBITDA margins increased
by ~130 bps yoy, in a year in which margins for rest of the industry were under
pressure due to RM inflation and subdued volumes. Cash flows were robust; FCF to PAT
conversion was 70% in FY2014. PI’s consistent outperformance implies that even in a
consumer-oriented business, heavily regulated by the government, companies that
focus on building strong brands do well in short/long term.

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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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FMCG - Sector Update - Prefer midcaps to large caps :: Centrum

Prefer midcaps to large caps



Q1FY15 results are expected to be moderate for our coverage universe
with mere 8.7% topline growth. Weak volume growth will continue to
impact all categories as consumers continue to cut discretionary
spends. While category leaders Colgate andGSK Consumer will expand
margins, Nestle’s margins will contract on the back of negative volume
growth. Midcap companies will continue to outperform large caps.
Operating profit and PAT are expected to grow by 7.9% YoY and 6.6%
respectively. We expect positive surprise from Colgate and La Opala
and negative surprise from Nestle.

$ Moderation in sales growth: We expect 8.7% YoY sales growth for our
coverage universe. Large cap MNC companies, Colgate and GSK Consumer,
are expected to report 9% volume growth while Nestle could report
negative volume growth. We believe midcap companies will grow faster
than large cap players with strong volume growth. La Opala would have
~20% volume growth while Speciality Restaurant and Talwalkars 17% &
21% growth respectively.

$ Operating margin to decline: We have modeled operating margin
compression of 15bps YoY for companies under coverage. GSK Consumer
and Colgate would post margin expansion despite high A&P spends on the
back of healthy volume growth while Nestle’s margins could compress on
the back of cost inflation and low single digit topline growth. La
Opala and Talwalkars’s margin will expand while Speciality Restaurants
will post a decline on the back of high RM and employee costs.
Operating profit will grow by 7.9% YoY for the coverage universe.

$ Profitability under pressure: PAT for our coverage universe is
expected to grow by mere 6.6% YoY. Colgate and GSK Consumer are
expected to post healthy PAT growth of 14.9% and 22.1% respectively on
the back of strong topline growth coupled with margin expansion.
Nestle’s PAT will decline by 4.4%YoY.  Among small cap stocks,
Talwalkars is expected to grow by 25.3% while La Opala will grow by
42.4%YoY. Speciality Restaurant will continue to disappoint with PAT
decline of 10.7%.

$ Valuation & Risk: We downgrade GSK Consumer to Hold on the back of
steep valuations and believe the upside from healthy volume growth is
factored in the current stock price. We maintain Sell rating on
Colgate and Nestle due to increasing competitive intensity and down
trading by customers could impact volume growth and hence valuations.
In the current situation, we prefer midcap companies La Opala RG,
Talwalkars and Speciality Restaurants as they are market leaders in
their respective categories and any upswing in the economy will
benefit them first. Key risks to our call would be slowdown in rural
demand and higher than expected A&P spends impacting margins.



Thanks & Regards

India Consumer - Global read across: JPMorgan

India Consumer - Global read across L'Oreal sustains growth momentum; SAB Miller posts weak vols; Coca-Cola/Pepsi register MSD-HSD growth & MORE

L’Oreal India – 15% LFL growth in Q1

In its 1Q14 sales release, L’Oreal (covered by JPM analyst Celine Pannuti) reported 15% Like for Like sales growth for India, broadly inline with the growth reported in the past four quarters.

L’Oreal India LFL Sales Growth

Source: Company

SAB Miller posts 3% revenue decline in FY14 led by -7% volume decline

In its Q414 trading update, SAB Miller (covered by JPM analyst Mike Gibbs) noted that India group FY14 revenue declined by 3% due to a volume decline of 7%, partially offset by robust realisation growth of 4%. Volumes were impacted by regulatory changes made in the earlier part of the year in several key states, coupled with the prolonged monsoon season during the year.

Coca Cola registers 6% volume growth in Q1; Pepsi posts HSD revenue growth

Coca Cola reported 6% volume growth for its Indian operations in Q1CY14 impacted to some extent by a prolonged monsoon season. PepsiCo delivered high single digit organic revenue growth for its India operations in Q1. Coca-Cola and Pepsi are covered by JPM analyst John Faucher.

Coca Cola India Volume Growth

Nestle – Weak trading conditions in India

Nestle SA (covered by JPM analyst Celine Pannuti) in its Q114 sales release highlighted that trading conditions in India remained weak due to the weaker economy and consumer sentiment.

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FMCG - Q3FY14 Results Preview - Poised for strong performance :Centrum

Poised for strong performance



We expect strong Q3FY14 results for our coverage universe with topline
growth at 14% on the back of steady price hikes coupled with volume
growth. Operating margins are expected to compress by 21bps with
operating profit growth at 12.8%. Despite gross margin expansion, we
expect operating margin compression for Colgate and Nestle. PAT should
grow by 10% YoY. We expect positive surprise from GSK Consumer and
negative surprise from Colgate.

$ Double digit topline growth expected: We expect 14% YoY sales growth
for our coverage universe. Large cap MNC companies, Colgate and GSK
Consumer, are expected to report 11% and 8% volume growth while
pricing growth would be 7% and 8% respectively. Nestle will continue
to have price-led revenue growth. For Talwalkars, value added services
will add traction to sales growth while Speciality Restaurants will
post marginal pricing growth on the back of price hikes taken in the
month of August and December.

$ Operating margin to be under pressure: We have modelled operating
margin compression of 21bps YoY for companies under coverage. Despite
gross margin expansion of 57bps and 85bps for Nestle and Colgate
respectively, we believe operating margins will compress on the back
of higher A&P and other expenses. Among large cap stocks, GSK Consumer
is expected to expand operating margins by 200bps on the back of lower
other expenditure. Talwalkars will post operating margin expansion of
26bps on the back of significant operating leverage from the launch of
Zumba & Reduce while Speciality Restaurants will post a decrease of
136bps due to high A&P and lease expenses during the quarter.
Operating profit will grow by 12.8% YoY for the coverage universe.

$ Profits to grow at a slower pace: PAT for our coverage universe is
expected to grow by 10% YoY. While Colgate and Nestle are expected to
post single digit PAT growth, we expect a healthy 34% growth for GSK
Consumer.  Among small cap stocks, Talwalkars is expected to grow at
19.7% while Speciality will decline by 7%YoY.

$ Valuation & Risk: We upgrade Nestle to Hold and believe the worst is
behind for the company and it can expect volume growth in H1CY14. We
are increasing our target price for Speciality Restaurant on the back
of two menu price hikes and traction in restaurant opening. We
continue to retain Hold rating on Colgate and GSK Consumer and Buy on
Talwalkars Better Value Fitness and Speciality Restaurant. In large
caps, we prefer Glaxo Consumer followed by Nestle and Colgate. Key
risk to our call would be cut in discretionary spends due to the
economic slowdown and gross margin compression.



Thanks & Regards

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India consumer sector: The last bastion rolling over?:: Credit Suisse,

■ China and Thai consumer sectors have rolled over. India consumer
next? We are generally not fans of the expensive Consumer stocks,
particularly those associated with consensus EPS downgrades. Figure 2
under focus charts highlights that the MSCI China Consumer Staples has
been underperforming the MXASJ (MSCI Asia ex-Japan) since November
2011. Figure 3 highlights that the MSCI Thai Consumer Staples has been
underperforming the MXASJ since April 2013. In both these instances, the
sectors started to underperform as EPS downgrades started. We wonder
whether the India Consumer sector is next as we are starting to see
consensus EPS revisions roll over. Figures 1, 8 and 9 highlight that the peak
for 2013E consensus EPS for Hindustan Unilever was in January 2013 and
for ITC in February 2013.
■ We continue to OVERWEIGHT stocks with US exposure and FX tailwind.
As highlighted in our report of 4 July—Cheap stocks with US exposure, we
continue to suggest switching into and/ or OVERWEIGHT cheap stocks with
US exposure and FX tailwind such as Indian IT and Korean autos.
■ Top picks in India. The price-to-book gap between cyclicals (defined as
Tech, Consumer Cyclicals, Energy, Industrials, Materials) and defensives
(defined as Consumer Staples, Telcos, Utilities) in India is -6.9x. With the
gap in India the biggest in the region, top stock picks in India from a regional
perspective are HCL Tech, Wipro, Tata Motors and Reliance Industries

India Consumer Two to Buy and Two Less ::Morgan Stanley Research

India Consumer
Two to Buy and Two Less
Preferred
Stock selection has proved important in the Indian
consumer segment to generate outsized returns. As
macro tailwinds wane, we believe the key is to
remain focused on earnings growth and the
visibility thereof. We expect investors to pay a
premium for operating margin expansion hereon.
Industry fundamentals are deteriorating… The
tailwinds of past 18 months seem to be waning. These
include input costs, competitive intensity, share gains for
large consumer companies in India vs. regional players,
pricing power and product mix improvement. Our F14
bear case for the consumer segment incorporates low
pricing growth amidst sluggish volume growth driving
single-digit revenue growth. This suggests lower-
than-expected margin expansion as gross margin
flexibility is offset by higher ad-spends/promotions.
…ITC (OW) and Dabur (OW) are stocks to own…
where consensus has increased earnings estimates
YTD, albeit marginally. We expect ITC and Dabur to be
key beneficiaries of our stock selection criteria, with
F14e earnings growth likely above the industry average.
Although multiple expansion may be limited hereon,
both stocks should track earnings growth, in our view.
…Titan (UW) and JUBI (EW) are less preferred: YTD,
consensus earnings estimates for Titan have been cut
by 9% and for JUBI by 19% – and both have
underperformed the Sensex by 13-14% YTD. We
remain concerned about revenue growth (sluggish SSG
for F14e), low productivity of new stores added, and
operating margins that may be materially weaker than
consensus estimates (inferior product mix, weak operating
leverage, and increased sales promotions). We believe
that recent sluggish growth trends in the case of JUBI,
and policy changes in the case of Titan, may compel
long-term investors to re-think their investments

Consumer: Shopping Cart Deep dive into the laundry care market :: JPMorgan

We take a deep dive into the Indian laundry market in this report and
discuss emerging trends in this category. The laundry segment remains
one of the largest HPC categories in India in terms of size and, despite
high levels of penetration, consumer uptrading and higher per capita
usage, would still enable low double-digit growth (mid single digit vol
growth) for this category (for branded players) in our view. This category
has seen huge volatility in margins owing to history of price wars and
severe competition, however of late we have seen recovery in profitability
led by more rational price competition and easing commodity prices.

Credit-Suisse -India Consumer Sector

FMCG outlook remains positive; discretionary
weakness to continue
The FMCG sector continues to demonstrate resilience in volume growth despite
the slowdown in the economy. Our analysis of results and management
commentary of a wide array of 30 consumer companies, reveals only marginal
moderation in overall FMCG revenue growth, with most companies seeing
stable or accelerating volume growth. In contrast there is a clear slowdown in
discretionary consumption, with management commentary indicating no
recovery in the near term..

A closer look at Raw Material trends and impact on staples :: JPMorgan

 Raw material price trends. Most of the raw materials that we follow
have been either stable or moderating over 3m/6m/12m period. Palm oil
and Crude, however, have started to inch up over the past month. Agri
commodities like sugar and wheat have been benign. On a y/y basis,
most commodities (wheat being an exception) are either stable or lower.