Published on 4/12/2020 12:19:27 PM | Source: Emkay Global Financial Services Ltd

Consumer Goods and Retail Sector Update - Q2 Preview: Bouncing back By Emkay Global

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Q2 Preview: Bouncing back

* We estimate a good recovery for our consumer goods universe with sales/EBITDA/PAT growing by 6%/7%/-3% (vs -18%/-30%/-22% in Q1FY21), led by a strong recovery in paints and improvement in staples. Low ETR in the base quarter due to the adjustment pertaining to the tax rate cut in Sept’19 and earnings decline for alcobev companies weighed on PAT growth in Q2FY21 (PBT growth at 8%). We expect staples to see continued recovery with sales growth in high single digits to low teens. Paints have seen a strong bounce back and we expect close to double-digit sales growth. Rural recovery, share gains from small players and increased consumption of food and hygiene products during Covid-19 continue to drive growth momentum. Margin outlook remains largely positive, with low crude prices and softening in agri prices, which offer good earnings visibility. With the further unlocking, we expect a strong pick-up in other discretionary names as well. We prefer BRIT, TTAN, UBBL, UNSP and ITC in large-caps, and VBL, RDCK, ABFRL in mid-caps.


* Staples likely to post stronger growth led by rural: We expect most staples to record growth in high single-digit to low teens, led by stronger performance in rural markets. We estimate BRIT, GCPL and MRCO to report strong sales growth of 10-14% followed by DABUR, HUVR and CLGT in mid-to-high single digits. We also expect ITC performance to improve with overall sales/EBIT being largely flat led by 0%/2% growth in cigarettes and 8%/66% in FMCG. Margin outlook remains positive for BRIT as the softening in agri prices should help it post a 28% EBITDA growth. Despite a fall in crude prices, margins in HPC remain mixed due to a steep rise in palm oil and tea prices. We estimate HUVR to report sales/EBITDA/EPS growth of 19%/21%/7%, led by the GSK merger (ex-GSK, sales growth of 5%). Recovery seems to be stronger in GCPL (led by HI and soaps) and Marico (led by Saffola). While Dabur is also expected to post a double-digit growth in the domestic business; overall growth is impacted by a decline in international.


* Paints also surprisingly bounce back to growth; slower recovery in alcobev: Paints have seen a strong bounce back led by channel stocking on attractive trade schemes and pent-up demand. We estimate APNT and BRGR to report double-digit volume growth, however, lower realization on account of weak mix and discounts will result in high single digit sales growth. Low crude prices should drive margin expansion, leading to strong growth in EBITDA at 22%/15% for APNT/BRGR. Alcobev companies, however, have seen a slower recovery due to the shutdown of bars & restaurants, tax increases and restrictions on operations. We expect sales/EBITDA to decline 13%/25% for UNSP and 30%/69% for UBBL. RDCK is likely buck the trend with marginal growth aided by favorable state mix with stronger EBITDA growth of 18%. VBL also to report a low-single-digit revenue decline, aided by ~25% growth in in-home consumption


* Decent recovery in Retail sector led by Titan/Jubi/Page: We expect the unlocking process to drive a significant recovery in revenues of the retail sector (~24% fall YoY in Q2FY21E vs. 70% YoY decline in Q1FY21). Among segments, Jewelry (Titan), QSR (Jubilant) and Innerwear (Page) are expected to lead the recovery, with the revenue decline being lower at 4%/15%/11%. Fashion retailers shall see a slower recovery in Q2FY21E, albeit remaining on an improving trajectory. Channel filling and better revenue mix should help PAGE (~11% YoY decline). Key things to watch out for: 1) inventory and debt position 2) October/November recovery trends.



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