SHAREKHAN SPECIAL
Q2FY2008 FMCG earnings preview
-
Backed by a pick-up in demand in the semi-urban as well as rural areas, the fast moving consumer goods (FMCG) sector has seen the volume growth getting better every quarter. The revenue growth for the current quarter is likely to be driven by volume growth as well as improved pricing power of the FMCG companies.
-
Rising input prices is a concern for the industry. In the past quarters the FMCG companies had been able to combat this issue with price hikes, innovative products with higher realisations and prudent advertising spend.
-
We expect the earnings of the market leader in the segment, Hindustan Unilever Ltd (HUL), to grow by 17.2% year on year (yoy) backed by a 13% growth in the home & personal care (HPC) segment. We expect HUL's margin to improve from 13.1% in Q3CY2006 to 14.2% in Q3CY2007, primarily due to the price hike taken in many of its products as well as improved product mix.
-
ITC's growth is expected to be broad based with the reduction in the magnitude of the losses in the non-FMCG businesses. The imposition of the value added tax (VAT) and the price hike taken by the company in the first quarter of FY2008 had affected the growth of its cigarette business in that quarter and the second quarter is expected to witness a trailing effect of the same. Despite this, we expect higher realisations to boost ITC's bottom line by 11.2%.
-
In our past reports we had always opined that the implementation of VAT might have a dampening effect on the stock price of ITC but the same would likely be a temporary aberration. The recent spurt in the stock price substantiates our opinion. We continue to be bullish on the stock with a long-term perspective.
-
The long-term prospects of the FMCG sector appear favourable with the rising disposable income of Indians and the increased spending by them. We believe with strong free cash flows, high return on capital employed (RoCE) and sustainable growth, the sector still has considerable upside potential compared with the other sectors.
Disclaimer
This Document is subject to changes without prior notice and is intended only for the person or entity to which it is addressed to and may contain confidential and/or privileged material and is not for any type of circulation. Any review, retransmission, or any other use is prohibited. Kindly note that this document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction.
The information contained herein is from publicly available data or other sources believed to be reliable. While I would endeavour to update the information herein on reasonable basis, I am under no obligation to update or keep the information current. Also, there may be regulatory, compliance, or other reasons that may prevent me from doing so. I do not represent that information contained herein is accurate or complete and it should not be relied upon as such. This document is prepared for assistance only and is not intended to be and must not alone betaken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. I do not undertake to advise you as to any change of my views. I may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject me to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. I may have used the information set forth herein before publication and may have positions in, may from time to time purchase or sell or may be materially interested in any of the securities mentioned or related securities. I may from time to time solicit from, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall I or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind.
No comments:
Post a Comment