Prefer ITC, HUL, Marico: Kotak Institutional Equities

Manoj Menon, senior analyst at Kotak Institutional Equities told CNBC-TV18 that the FMCG companies are in for a challenging times. As demand decelerate, volume growth of FMCG companies will take a hit. He feels HUL will continue to gain rural market share and ITC will benefit from the steps taken to create a buffer before excise duty is hiked in Budget 2012.

For FY13, he expects HUL to register 14% sales growth, but ITC remains the preferred stock in the sector. Below is an edited transcript of his interview. Watch the accompanying videos for more. Q: There is talk about packaging changing and how that may be a game changer for FMCG companies in a negative context. Would you expect this to be a tougher year for FMCG companies?
A: Yes, indeed. It seems to be a year when you look at CY12, January to December as one period and if you look at one-year forward, it seems to be a year which is going to challenging from a business point of view compared to what they have faced not just in the last year but in the last three years. Packaging change in my view is possibly only one event which is yet to happen but its still six months away.
But it may not necessarily happen in the same form, we just need to wait and watch. The way the proposals have to be implemented, the way it is there currently it is going to be significantly negative for two reasons; one is it would make many products knocked out of the carnage currently which could impact the affordability and the number of transactions etc. It also takes away one of the significant leeway