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Last Updated : Oct 08, 2012 03:54 PM IST | Source: Moneycontrol.com

Hold Dabur, Marico, Tilaknagar Industries: AnandRathi

AnandRathi has come out with its report on consumer sector. The research firm recommend`s buy on ITC, Nestlé India, Colgate, GSK Consumer, Emami, Pidilite, Agro Tech Foods, Bajaj Corp., Lovable Lingerie, Zydus Wellness, and Tilaknagar Industries. Dabur, Marico as Hold, and have Sell on HUL, Asian Paints, Britannia, and VST Industries.

 
 
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AnandRathi has come out with its report on consumer sector. The research firm recommend`s buy on ITC, Nestlé India, Colgate, GSK Consumer, Emami, Pidilite, Agro Tech Foods, Bajaj Corp., Lovable Lingerie, Zydus Wellness, and Tilaknagar Industries. Dabur, Marico as hold, and have sell on HUL, Asian Paints, Britannia, and VST Industries.


Consumer companies are expected to report 17% revenue growth, led by higher volumes and prices. We expect stable EBITDA margins, despite rise in raw material costs (up 7-8%) and reduced weights. With tax rates likely to rise 50-150bps, we expect net profit to increase only 15% yoy.



  • Revenues on the rise: We expect sector revenues to grow 17%, led by volume and price. Offtake from the Canteen Stores Department, comprising 8% of sales, would be subdued. However, rupee depreciation of 10-12% will benefit companies with more than 15% in exports (Asian Paints, Marico, Dabur).
  • Stable EBITDA margin: Though crude prices have trended up (10%) and rupee depreciation has raised input costs, price hikes of 7-8% would arrest any slide in margins. Ad-spending (as a percentage of net sales) might also fall 50-150bps yoy.
  • Net profit to grow 15%: Owing to investment on capacity expansion (by ~50-100%) and acquisitions, other income is likely to be lower yoy. On exhaustion of some tax breaks, effective tax rates should increase ~100bps. Net profit will, thus, grow lower than revenues, at 15% yoy.

Our take: We have Buy on ITC, Nestlé India, Colgate, GSK Consumer, Emami, Pidilite, Agro Tech Foods, Bajaj Corp., Lovable Lingerie, Zydus Wellness, Radico Khaitan, and Tilaknagar Industries. We rate Dabur and Marico as Hold, and have Sell on HUL, Asian Paints, Britannia, VST Industries and Jyothy Laboratories.


2QFY13e-Result Preview:

AnandRathi has come out with its report on consumer sector. The research firm recommendes  buy on ITC, Nestlé India, Colgate, GSK Consumer, Emami, Pidilite, Agro Tech Foods, Bajaj Corp., Lovable Lingerie, Zydus Wellness, and Tilaknagar Industries. Dabur, Marico as Hold, and have Sell on HUL, Asian Paints, Britannia, and VST Industries.

We expect the consumer sector to report 17% revenue growth, with volumes and prices rising equally. Most companies hiked prices 7-8%, in line with inflation. Though prices of premium products were raised, products of less than Rs10 saw a 10-15% weight reduction. Revenue from the Canteen Stores Department (CSD, 8% of consumer sales) would be subdued because of inventory correction by the CSD. Asian Paints, Marico, Dabur and Pidilite, with export revenues of over 15%, would benefit from the 10-12% rupee depreciation.


Stable EBITDA margins, 15% net profit growth:


Consumer companies’ costs have escalated due to the 10% rise in international crude oil prices. The 10-12% rupee depreciation has added to rising costs. However, the 7-8% price hikes would arrest any fall in EBITDA margins. Also, with no major launch/re-launch, ad-spend (as percent of net sales) is expected to fall 50-150bps. Other income is expected to be lower as cash was utilised by consumer companies to expand manufacturing capacities 50-100% and, by some, for acquisitions. Moreover, exhaustion of some tax breaks would raise 2QFY13 effective tax rates 50-150bps. Hence, net profit would rise not more than 15% yoy.


Stable EBITDA margins, 15% net profit growth:


Consumer companies’ costs have escalated due to the 10% rise in international crude oil prices. The 10-12% rupee depreciation has added to rising costs. However, the 7-8% price hikes would arrest any fall in EBITDA margins. Also, with no major launch/re-launch, ad-spend (as percent of net sales) is expected to fall 50-150bps. Other income is expected to be lower as cash was utilised by consumer companies to expand manufacturing capacities 50-100% and, by some, for acquisitions. Moreover, exhaustion of some tax breaks would raise 2QFY13 effective tax rates 50-150bps. Hence, net profit would rise not more than 15% yoy.


ITC (Price-Rs275, Buy):


ITC is expected to report 16% yoy revenue growth following 1% cigarette volume growth. Its launch of 64mm cigarettes at Rs2 would drive offtake at the entry level. Its agri business would be boosted by the 10-12% rupee depreciation. However, weaker business sentiment would hamper its hotels business. Its EBITDA margin is expected to move up slightly, by 40bps. With stable tax rates, net profit would grow a moderate 16.5% yoy.


Hindustan Unilever (Price-Rs556, Sell)


 HUL’s revenue growth is expected to be 16%, with volumes growing 7% yoy. Soaps and detergents is expected to register 23% revenue growth whereas personal products should grow 17% yoy. The fall in palm oil prices as well as price hikes in detergents (~10%) should drive up margins of soaps and detergents. The EBITDA margin and tax rate are expected to be stable yoy and net profit should improve 15% yoy.


Asian Paints (Price-Rs3,875, Sell)


The slowdown in the economy is proving to be rough for the paints segment. Asian Paints is expected to report subdued figures in 2QFY13. Its revenue is expected to be up 15% yoy, with volumes growing just 7%. Its EBITDA margin should be a stable 14.3% yoy. The 7-8% price hikes could offset the crude-oil-price rise. Net profit could move up 14% yoy.


Nestlé India (Price-Rs4,591, Buy)


Nestlé should report 18% revenue growth, led by 6% volume and 12% realisation growth. The sale of premium products should boost revenues 100-200bps. As most of its production capacities are coming on-stream, we believe domestic growth will be ~20%, whereas exports will post low single-digit growth. We also anticipate its EBITDA margin to be 50bps lower yoy due to higher raw material prices. Higher prices of food products would result in a lower gross margin and EBITDA margin. Interest cost might move up this quarter, and other income might be lower due to capex in the past 18 months. The effective tax rate could be 30%, and net profit growth would come at 12% yoy.


Zydus Wellness (Price – Rs420, Buy)


Zydus Wellness is expected to report 5% revenue growth. We expect its EBITDA margin to move up 60bps on the larger share of Sugarfree and smaller share of institution sales of Nutralite. Due to more cash on its balance sheet, we expect ‘other income’ to move up ~50% yoy. We expect its effective tax rate in 2QFY13 to be at the MAT level, i.e., 20%, up from 9.3% in 2QFY12. We expect 3% net profit growth yoy.


Jyothy Laboratories (Price – Rs160, Sell)


Jyothy Laboratories is expected to report 30% revenue growth yoy. Jyothy’s and Henkel’s distribution-networks merger would have driven volume off-take. The EBITDA margin is expected to improve sharply, to 9%, from 4.8% a year ago. We expect Rs140m in interest expenses, against Rs20m yoy. The tax rate is expected to fall sharply to the MAT level of 20%. PAT is expected to grow 16% yoy.


Lovable Lingerie (Price – Rs382, Buy)


Lovable’s revenue growth is expected to be 15%. As the company had launched products at a 10-15% discount to its base products, an increase in sales of these products has resulted in lower realisations. Volume growth is expected at 15% and price hikes would add hardly anything to revenue growth. Despite a 30% fall in prices of cotton, a major raw material, a change in the revenue mix is expected to result in a stable, 18.6%, EBITDA margin. With the tax rate expected at 30%, as in 2QFY12, net profit might grow 19% yoy.


VST Industries (Price – Rs1,790, Sell)


VST Industries’ revenue growth is expected to be 12%, with cigarette volumes growing 1-2%. Its launch of 64mm cigarettes is expected to contribute to revenue growth in 2QFY13. Its EBITDA margin is expected to fall 90bps due to the sharp rise in excise and sales taxes. The company has not yet passed on the entire price increases to end-consumers. Its net profit is expected to grow 9% yoy. 


Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment 

First Published on Oct 8, 2012 02:57 pm
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