* Aggregate revenue/EBITDA to fall by 16/19%: COVID-led lockdown will bear heavy on revenues in 1QFY21 as several companies have faced supply chain disruptions. Our FMCG coverage universe is expected to deliver a decline of 13/17% YoY (ex-GSK 16/19%) in revenue/ EBITDA in 1QFY21 (vs. -6/-9% in 4QFY20 and +4/+13% in 1QFY20). Packaged foods, health, and hygiene categories are expected to deliver superior growth. Besides, companies that had missed out channel filling opportunity in March, despite a healthy consumer offtake, will deliver strong growth in 1Q.
* Liquor, cigarette and OOH categories most impacted: Consumption sentiment remained weak for discretionary amid extending lockdown and consumers’ prioritised essential categories. Delayed reopening of liquor stores and COVID taxes by many states have impacted consumer offtake for liquor. While the allowance of home delivery will provide a boost to the liquor industry, the loss of on-premise consumption and lower discretionary expenditure by consumers will continue to affect revenue mix in 1HFY21. Cigarette and QSR are also expected to be weak due to the lockdown, limited consumption frequencies, and weak discretionary spend. OOH categories (beauty care, juices, and ice cream) will also be impacted owing to lesser instances of going out.
* 1QFY21 outliers: Britannia and Nestle
* Recommendation: We believe companies with higher revenue mix from essential commodities and rural will benefit in the near term (1HFY21). Ecommerce will continue to gain pace as consumers remain vary about venturing into crowded MT stores. Hence, companies with a strong presence and diversified offerings in ecommerce will do well. While sector does not offer value bargains yet, we see better opportunities in select stocks where business models are strong, and valuations have normalised in the past 12-18 months. We adjust our estimates and target multiples (link) to reflect slower near-term growth and lower cost of capital with falling bond yields. We roll forward our target prices to June-22. We maintain our ratings except downgrade for Radico from BUY to ADD due to limited upside.
* We have a BUY rating on ITC; ADD rating on UNSP, Colgate and Radico
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