See stable growth for FMCG cos; FY16 outlook key: Nomura

Moneycontrol BureauBrokerage house Nomura sees FMCG companies’ earnings growth stabilizing in the March quarter. Nomura also expects margins to improve on revival in urban demand and soft commodity prices."After a couple of quarters of earnings disappointment, we expect Q4FY15F to be a quarter where growth would finally stabilise driven primarily by some recovery in the urban consumption even as rural growth remains slack," says Nomura report.According to the report, the average net sales for the consumer sector are expected to rise by 9.9 percent (Y-o-Y), EBITDA by 15.6 percent on the back of operating margin expansion of 115 basis points year-on-year (Y-o-Y) and net profit by 16% Y-o-Y.The house would keenly watch for the demand commentary by companies like Asian Paints, Jubilant Foodworks, Nestle, Bata, Titan and GSK Consumer and also watch out for the growth in the premium portfolio of HUVR and other staple companies“We expect companies in the mid-cap staples space, e.g. Godrej Consumer, Dabur, Marico and Emami to report stable revenue growth with some improvement in top-line growth on a sequential basis,” says THE Nomura report.Excerpts from the report“Key things to watch from the earnings season would be:1. Demand commentary: Management commentaries on how FY16F is shaping up in terms of demand and would look for how urban and rural demand has shaped up in 4QFY15. It expects a more constructive commentary on demand in this quarter versus in the past couple of quarters. 2. EBITDA margins outlook: Nomura thinks while EBITDA margins should improve Y-o-Y in 4QFY15F, the competitive intensity continues to be high. A&P investment across the sector is likely to remain at elevated levels.  They also expect company management commentaries on the operating margins outlook into FY16F.”The brokerage expects positive surprises from Asian Paints and Godrej Consumer. However, it expects Jubiliant Foodworks and ITC to surprise negatively.

(posted by Vaishali Karulkar)