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Healthy growth led by price hike, favourable base…

In Q1FY22, consumer discretionary (CD) companies are likely to report strong YoY revenue growth of 51% on a lower base and price hikes taken during the quarter. Unlike last year (in Q1FY21), the lockdown restrictions in the current year are not very stringent. It has mostly affected May 2021 sales. Hence, on a YoY basis, the companies are expected to clock better sales.

However, the same is around 80-90% of their pre-Covid sales. Paint and fast moving electrical goods (FMEG) companies have taken a price hike in the range of 3-12%. The price hikes of piping companies are even sharper to the tune of ~55%. Pent up demand, continuance of construction activities amid lockdown, inventory build-up at dealers’ level, delayed monsoons and price hikes are expected to result in strong revenue growth for CD companies in Q1FY22. Among paint companies, we believe Kansai Nerolac is likely to report strong revenue growth of 73% YoY (slightly better than peers) led by a revival in its automotive paint segment (45% of the topline).

On the FMEG front, Crompton Greaves Consumer (CGCEL) is likely to report strong revenue growth of 46% YoY supported by stability in LED products and market share gains in the kitchen/home appliances category. For piping companies, revenue growth on a YoY basis (Supreme 45%, Astral 52%) is expected to be largely driven by price hikes as PVC prices remained high in Q1FY22 (up 100% YoY).

EBITDA margin to normalise to pre-Covid level

CD companies are likely to report a normalised EBITDA margin of ~17% in Q1FY22 against significantly lower margin of 10.5% in Q1FY21. Prices of key raw materials such as TiO2, copper, PVC are up 22%, ~76%, 100% YoY, respectively. However, companies have passed on the higher raw material prices by taking price hikes, which should support EBITDA margins. We believe the EBITDA margin will peak out during the year owing to restoration of key operating costs such as travelling and advertisement costs.

CD universe to see strong PAT growth on low base

The I-direct CD universe is likely to see ~200% YoY growth at the PAT level largely on a favourable base. However, on a QoQ basis, PAT may see a drop of 45%, tracking a sequential drop in sales and margins.

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