Credit Suisse sees moderate sales growth for FMCG cos in Q3
Investment bank Credit Suisse expects fast moving consumer goods companies to report moderate revenue growth in the third quarter (Oct-Dec) as pricing-led growth diminishes, even as volumes remain strong.
January 03, 2013 / 17:30 IST
Moneycontrol Bureau
Investment bank Credit Suisse expects fast moving consumer goods companies to report moderate revenue growth in the third quarter (Oct-Dec) as pricing-led growth diminishes, even as volumes remain strong. "We expect most companies to witness moderation in revenue growth in Q3 as price growth tapers down. However, volume growth is likely to be sustained," said analysts Arnab Mitra and Akshay Saxena. Even if revenue growth moderates, consumer goods companies are expected to see margins expand, as cost of several raw materials has come down in last few months."Various input costs like palm oil, skimmed milk powder, menthol and copra have come off significantly in the past 6-12 months and the impact should partially start being reflected in margins for companies in Q3, though the full impact should be in Q4," they analysts said, adding part of these savings will be used on advertising spends.Among particular companies, the Credit Suisse analysts expect GlaxoSmithKline Consumer Healthcare, Marico, Emami and Godrej Consumer Products to clock over 20 percent earnings growth. However, Nestle India will likely struggle with low volume growth and Hindustan Unilever's earnings could be impacted by lower other income and higher tax rate."HUL will likely see a moderation in volume growth to 6-7 percent as the decline in the canteen stores division of the army and in some segments of personal care continue to play out. However, we believe other income will be significantly lower sequentially due to lower cash on the books given the special dividend payout last quarter. We also expect an
increase in the tax rate," Mitra and Saxena said.ITC, meanwhile, will continue to see flat growth in cigarette volumes, but other consumer goods will deliver more than 20 percent revenue growth. Other FMCG losses are also expected to decline by 25-30 percent, on track to breakeven in the next financial year, they said.Elsewhere, Godrej Consumer will see strong domestic revenue growth, following the re-launch of the Cinthol brand and introduction of the creme hair colour sachets. Marico's margins will expand due to lower prices of copra, a key raw material for its coconut oil. Prices of other raw materials like coffee and edible oil too have come off in the past six months, and that will boost Nestle India's margins, but volumes will likely remain weak since Nestle hasn't had any major launch in the quarter and has not taken any price corrections.FMCG stocks have outperformed the broader markets over the last one year. Since September-end, the CNX FMCG index has gained 8 percent, compared with Nifty's 5 percent rise.Credit Suisse has an "outperform" rating on HUL, ITC, Godrej Consumer, Marico, GSK Consumer and Emami. It expects Nestle, Dabur and Colgate to "underperform."
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