Emkay's report on FMCG sector
Expect Urban India to lead next leg of uptick -
Growth in FMCG sector seems to be stabilising for the past few quarters, after broad-based moderation witnessed in growth since FY13.
Few indicators are flashing Green - i) Sharp fall in CPI, ii) Uptick in consumer confidence indices, iii) Auto & Durables reported strong growth in last few months and iv) Corporate comments & dealer checks signalling revival in pockets of Tier I cities
However, waning stimulus, deceleration in farm & non-farm income and moderation in MSP growth is worrying for rural India
Reading into the above signals, we feel that growth deceleration seems to have bottomed out. Moreover, we feel that any revival from hereon will be led by urban India
Our Category pecking order - We continue to like price maker categories - Oral Care, Malted Foods, Infant Nutrition, Noodles, Cigarettes, etc. Among under-penetrated categories & urban revival plays, we like Digestives & OTC, Female Hygiene, Hair Colours, Biscuits, Home insecticide & Other Foods. We assign least preference to price taker categories-Soaps, Detergents & Hair oils - given competitive intensity and high penetration levels.
What would trigger further upsides to our estimates -
Revenue Triggers - Higher consumption led by uptick in investment cycle, implementation of GST, direct cash subsidy transfer & increase in employment opportunities
Margin Triggers - Softening input cost, rising premiumisation & supply chain gains post GST implementation
Our Revenue & Earnings Expectations for Emkay Consumer Staples Universe over FY14-FY17E
Normalised - We expect 12-17% revenue CAGR & 12-20% earnings CAGR
Blue Sky (GDP rebounding >8% and inflation <5%) – We expect 15-20% revenue & 25-30% earnings CAGR
"Preferences & Avoids - Based on urban revival and category preference, our top picks in the consumer staples space are Britannia, Colgate, GSK Consumer, Nestle, Dabur & Godrej Consumer, while top avoids are Emami, HUL & Marico", says Emkay Global Financial Services research.
For all recommendations, click here
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