KRChoksey prefer ITC, HUL, & GSK Consumer

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KRChoksey prefer ITC, HUL, & GSK Consumer

KRChoksey has come out with its report on FMCG sector and top performers- GSK Consumer, ITC, Britannia & HUL.

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KRChoksey has come out with its report on FMCG sector and top performers- GSK Consumer, ITC , Britannia & HUL .

"Strong topline growth of 20.5% y-o-y & PAT growth of 18.1% y-o-y for the sector driven by healthy volume growth & judicious price hikes. Results for our KRC FMCG Universe were inline with our estimates, registering topline growth of 18% y-o-y & PAT growth of 18.6% y-o-y. Despite price hikes, Gross margins continue to remain under pressure (down by 314 bps y-o-y) led by significant input cost inflation (high Palm oil, Coffee, Copra, LAB prices). Consequently Operating profit grew at lower rate of 14 % y-o-y for the sector & 14.6% for the KRC FMCG Universe. However effective realignment of ASP expenses curtailed the downside & EBITDA margins declined by 112 bps for the sector & 60 bps y-o-y for the KRC FMCG Universe."

Robust volumes & judicious price hikes drive topline: Despite challenging macro environment, FMCG sector continued to report healthy volume growth with GSKCHL(16%), Britannia(15%) & Marico(15%) leading the pack, followed by Asian Paints(14%), Colgate(12%), GCPL(10%), Dabur(9%) & HUL(8%).Among the FMCG majors ITC too reported strong growth of 8% in cigarette volumes & double digit growth across the key segments and HUL reported topline growth of 15% driven by 9% volume growth & 6% price growth. We believe the domestic demand for the FMCG to remain strong with good monsoons & moderation of inflationary pressures in H2FY12. This coupled with calibrated price hikes taken by the companies (HUL:3-6% in Rin & Surf, ITC:10% hike in Classic, GSKCHL:2-3% price hike, Asian Paints:4-6% hike in may & June) during the past 6 months resulted in topline growth of 18% y-o-y for the FMCG sector.

Views- We maintain our positive outlook on growth for the FMCG sector & expect domestic volumes to remain buoyant considering the significant under penetration in many FMCG categories (Food, Personal care), highly untapped rural market & emergence of newer categories. Impact of Raw material price movements & moderation in ad spends on volumes would be a key monitorable. Considering above key points, valuations coupled with presence in diversified categories, increased rural distribution network & strong product mix we prefer ITC, HUL, & GSKCHL in the FMCG pack.

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To read the full report click on the attachment