Reliance Securities has come out with its sector report on FMCG dated January 09, 2018. Consumer sector coverage universe to report 11.8% and 15.8% growth in revenue and earnings, respectively in FY18E, and the growth is estimated to improve to 14%/18% in FY19E.
Reliance Securities' sector report on FMCG
Our consumer sector coverage universe comprising of 18 companies is poised to report a stellar performance in 3QFY18 albeit due to favourable base effect (Demonetisation in the base quarter). We expect the sector to report 12.1% revenue and 13.3% earnings growth in the quarter. Excluding ITC, the growth is estimated to be even higher at 12.8% for revenues and 17.8% for earnings. We expect the growth momentum to improve in the coming quarters on the back of trade channel stabilisation post GST roll-out, two consecutive good monsoons aiding rural growth, increasing premiumisation, strong pricing power and increasing share of the organised players in the GST regime. The sector currently trades at rich valuations of 35x FY19E earnings, while excluding ITC, the multiples are even richer at 40.7x earnings. We expect the current valuations to sustain, as mediumterm growth momentum is on the cusp of taking off due to above mentioned factors and hence, we remain Positive on the sector. Our top picks are: ITC, Asian Paints, Colgate-Palmolive and Kajaria Ceramics.
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