Consumers sector results preview for Q4FY12: Emkay

• Q4FY12E is expected to gain from price increases implemented in recent months. Consequently, revenue expected to grow 22% yoy to Rs175.7 bn – a lot driven by price increase (implemented in recent months) and NO improvement in volume growth momentum on qoq basis.

• Emkay pegs the volume-led growth at 9-10% yoy and balance driven by price increases. Also, non-discretionary continues to remain stronger then discretionary categories. Emkay expectation for volume growth - Titan (-7%) in Jewellery, Asian Paints (+10%), Berger (+10%), HUL (+9%), Colgate (+13%), Nestle (+7%), GSK Consumer (+11%) and Marico (+12%).

• Also, Q4FY12E reverses the price-trailing-cost inflation – gaining from correction in soft commodities and benefits from price increases alongside favorable base effects in select few companies. Emkay expects Core Ebidta margins to expand  64 bps yoy, but contract 47 bps on qoq basis - Asian Paints (74 bps), Berger Paints (72 bps), HUL (134 bps), Marico (295 bps) and Titan (243 bps).

• Favorable base effect (Asian Paints, Berger Paints, HUL, Marico, Titan) alongside expansion of Core Ebidta margins - Ebidta growth forecasted at 28% yoy to Rs26.2 bn and APAT growth at 25% yoy to Rs18.2 bn. In EMKAY universe - Weakest performance for Colgate (-4%), GSK Consumer (3%) and Best performance for Marico (3X and HUL (29%).

• With rural markets expected to stutter (refer ‘Rural Steroids Ebbing’) and urban markets already reporting moderation in growth momentum, risks to sustained volume growth has increased. Further, one-year forward valuations for our coverage universe remain at relatively higher valuations leaving little room for negative surprise.

• Themes to play consumer sector (1) avoid rural centric categories and companies – Avoid HUL and Colgate (2) avoid discretionary categories – Avoid Asian Paints & Titan Paints (3) play agri-input dependant companies and categories – Buy Nestle, GSK Consumer and Marico (4) company specific triggers – Buy Berger Paints.

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