Buy Havells India, Sell Jubilant FoodWorks: Emkay
Emkay Global Financial Services has come out with its report on FMCG space. According to the research firm, Havells India's domestic business continues to remain healthy, despite industry moderation. The management has maintained 15-20% topline growth guidance in FY13E.
September 05, 2012 / 18:45 IST
Emkay Global Financial Services has come out with its report on FMCG space. According to the research firm, Havells India's domestic business continues to remain healthy, despite industry moderation. The management has maintained 15-20% topline growth guidance in FY13E, which would be led by new product, market share gain & rising distribution network.
Agro Tech FoodsThe company is constantly focusing on high margin packaged food category (ACT II popcorn, peanut butter, chocolate pudding, convenience foods etc). Also, due to its affiliation with ConAgra we expect the company to enter into newer categories that ConAgra is present in. As per the management, revenue share from foods to catapult to 50% of sales (current 17%) over the long term. However, sales growth to remain muted as Sundrop (contributes 83% to sales) is not witnessing growth.Akzo NobelAkzo Nobel targets USD 1bn revenue (incl. inorganic growth) by FY15, though next 2 quarters to witness muted volume growth. Price hikes difficult to initiate. However, if there is easing in RM costs, the companies plan to pass on the benefit to consumers to boost demand. RM pressure persists with crude again trading upwards of $100 (up from $90). Also since 40% of RM is imported, depreciating rupee further impacts RM cost. Company indicated that no acquisition opportunity exists in decorative paint company. But acquiring chemical or industrial paint company, might lead to further de-rating.DFM FoodsCrax nationally known brand amongst kids despite its predominant presence only in Northern India. The company plans to take DFM brand pan India in next 2 years. Capacity more than doubled to meet rising demand. Also, DFM is also gaining distribution strength and is now present in close to 1.5lac retail outlets in India. We are enthused as we expect the growth momentum to continue (FY12: 40% sales growth) led by expansion in reach and strong brand recognition amongst kids.Godfrey PhillipsWe expect pan masala and chewing tobacco to be the next growth driver. Evident from jump in contribution from this chewing category from Rs. 200 mn in FY11 to Rs. 1200mn in FY12. In cigarettes, company is getting pro-active however the company is facing severe competiton from ITC. Also, Marlboro not gaining significant traction. We are enthused by attractive operating cashflow that the business continues to generateHavells IndiaDomestic business continues to remain healthy, despite industry moderation. The management has maintained 15-20% topline growth guidance in FY13E, which would be led by new product, market share gain & rising distribution network. Domestic appliances would be the new growth driver; initial response has been upbeat. Management expects this segment to be a Rs 5bn business in next 3-4 years. In Sylvania, subdued demand environment in Europe has impacted operations. Management has guided for flat sales and 7% EBIDTA margins for FY13E. Havells has increased its payout ratio to 25%, which further reiterates our positive stance. Valuations at 13.4x FY14E earnings of Rs 40.7/share and 7.8x FY14E EV/EBIDTA. Retain Buy with TP of Rs 600Jubilant FoodWorksSSG would continue to witness downward trend (SSG growth has moderated from 37% in Q1FY12 to 22% in Q1FY13). We expect SSG growth to be in the range of 18-20% till Q4FY13E. With Donuts being a new category for India, Dunkins will require more time to stabilize and won’t contribute significantly to sales in near term. With further deterioration in volume growth, JFL is likely to increase promotional spends. This certainly would impact Ebidta margins. Maintain SELL with price target of Rs1000/Share (30X FY14E Earnings).Nestle IndiaVolume growth under pressure however RIG stood at 9.8% yoy in H1CY12. 40 bps one-off in Ebidta margin expansion in H1CY12 was a negative surprise. Confectionary, Milk & Nutrition and Prepared Dishes reported weak volume growth which demonstrates inherent weakness across categories. Nestle is likely to report lower growth (~15%) in the short term (until Q3CY12). Also, risks to margins and earnings performance remain alleviated. We retain our positive bias, despite short term hiccups on account of peak asset spends undertaken and consistent performance alongside value growth possibility.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 
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