Consumer 4QFY19 Results Preview Stronger earnings growth but moderating volumes Index Returns CMP(`) 3M ret. (%) Yearly (%) Nifty 11,597 7 11 NSE FMCG 30,151-2 11 Companies HUVR 1,711-3 21 MRCO 359-6 12 DABUR 403-4 19 APNT 1,422 1 23 KANSAI 455 1-7 AKZO 1,760 2-8 BERGER 321-1 20 PARAG 248 3-1 HERITAGE 508-2 -33 HATSUN 759 12 9 MENON 85-2 -17 Rating FDEPS (`) FY20E FY21E HUVR Hold 33.5 37.1 MRCO Buy 8.6 9.9 DABUR Buy 10.1 10.9 APNT Hold 32.2 37.4 KANSAI Hold 12.3 14.0 AKZO Hold 52.0 61.8 BERGER Hold 6.4 7.6 PARAG Buy 16.4 20.2 HERITAGE Buy 18.0 22.4 HATSUN Buy 13.1 15.6 MENON Buy 6.6 8.2 Nifty vs NSE FMCG 130 120 110 100 NSEFMCG Index Nifty 90 Apr-18 Aug-18 Dec-18 Apr-19 ANALYST Tushar Chaudhari +91-22 4224 5119 tushar.chaudhari@trustgroup.co.in 4QFY19E preview FMCG companies are expected to deliver stronger results despite moderating volume growth QoQ led by weaker rural demand than anticipated earlier. Part of this performance would come from softening of few commodity prices while selective uptick in pricing and product mix benefits would aid FMCG companies earnings growth. Going into 2HFY20, demand trends would depend upon stable outcome of Lok Sabha elections and even distribution of monsoon. Although inflationary environment led by higher crude derivative raw materials is good for margin expansion, demand scenario seems to be not healthy enough to undertake sudden rise in realizations. Strong PAT growth for FMCG companies: We expect FMCG companies to report strong 10-12% revenue growth in 4QFY19 led by 7-8% UVG (underlying volume growth) and 3-5% realization growth. Effective YoY PAT growth would be 15-20% in this quarter. We expect strong double digit revenue growth for Paints companies led by strong underlying double digit volume growth. Paint companies have also undertaken pricing action to mitigate impact of rising raw material prices as TiO2 and few other derivative prices shoot up during last two quarters. Dairy companies are expected to deliver strong volumes on rising distribution network and new products. EBITDA margin improvement for FMCG cos than other universe: EBITDA margins of key FMCG players are expected to improve YoY (40-60bps) on the back of selective pricing actions undertaken, improved mix and operating efficiencies. However Paint and Dairy companies are expected to deliver flattish margins or shrinking margins YoY on account of high RM prices and stiff competition to attract volumes. Outlook for 2HCY19: (1) Investors are likely to focus on rural demand outlook, (2) any signs of recovery in rural demand during election time, (3) impact of consolidation in industry and expectation of new product launches, (4) impact of water scarcity and monsoon. Top Picks Parag Milk, Marico and Menon Bearings. Exhibit 1: Key Financials for quarter ending March 2019 (` mn) Revenue YoY (%) EBITDA YoY (%) PAT YoY (%) HUVR 99,745 9.6 23,364 14.1 16,399 21.4 MRCO 16,497 11.5 3,032 20.2 2,120 16.5 DABUR 22,271 9.6 5,191 7.1 4,385 10.4 APNT 51,976 15.7 9,914 18.0 5,756 16.1 KANSAI 12,525 13.5 1,757 4.1 1,153 8.9 AKZO 7,704 10.1 834 19.3 519 12.3 BERGER 15,190 17.0 2,246 12.2 1,301 14.6 PARAG 5,955 15.1 625 13.5 310 18.5 HERITAGE 6,234 11.0 497 19.8 233 42.9 HATSUN 12,098 14.9 870 15.1 154 520.4 MENON 457 18.3 108 15.2 59 15.8 Source: Trust
Exhibit 2: Results preview for quarter ending March 2019 ` Mn Mar 19 Mar 18 YoY (%) Dec 18 QoQ (%) Comments Revenues 99,745 90,970 9.6 95,580 4.4 We expect 10% revenue growth in domestic FMCG business led by 7% UVG and ~3% price-led growth. On a segmental basis, we estimate 12-13% YoY revenue growth for Home Care and Personal Care. Hindustan Unilever Marico Dabur Asian Paints EBITDA 23,364 20,480 14.1 20,460 14.2 PAT 16,399 13,510 21.4 14,440 13.6 Revenues 16,497 14,801 11.5 18,610-11.4 EBITDA 3,032 2,523 20.2 3,489-13.1 PAT 2,120 1,819 16.5 2,327-8.9 Revenues 22,271 20,329 9.6 21,992 1.3 We expect EBITDA margin to expand 91 bps YoY aided by improved mix and operating cost leverage efficiencies. PAT to grow at 21% YoY. Commentary on urban and rural demand scenario ahead of upcoming elections and monsoon quarter. We expect 8-9% domestic FMCG volume growth led by rigids (10% on low base) and better volumes in Saffola and VAHO. Expect 5% realization growth. We expect EBITDA margin to improve by 133 bps YoY to 18.4% aided by softened RM and pricing action. PAT to grow at 16.5% YoY. Commentary on copra prices and rural demand outlook. We expect 9.6% YoY growth in domestic FMCG business, with ~8% volume growth and 2% mix/realization improvement. Weak commentary. EBITDA 5,191 4,852 7.0 4,454 We expect consolidated EBITDA margin to shrink 56bps YoY led by higher 16.6 A&SP spends and weakness in international business. PAT 4,385 3,972 10.4 3,672 PAT to grow at 10% YoY. Commentary on rural demand and outlook on 19.4 global business. We expect 15.7% YoY growth in domestic decorative business led by ~13% Revenues 51,976 44,923 15.7 52,940 volume growth and rest by price hikes/mix-led growth. Commentary on -1.8 volumes and inventories. EBITDA 9,914 8,399 18.0 10,430-4.9 We expect gross margins to improve QoQ. EBITDA margin to improve 38bps YoY to 19.1% as RM headwinds would be offset by tight cost control and operating leverage. PAT 5,756 4,959 16.1 6,472-11.1 PAT to grow 16.1% YoY Revenues 12,525 11,036 13.5 13,507-7.3 We expect 13.5% YoY growth in revenue led by double digit volume growth and price hikes/mix-led growth in decorative. Look for management commentary on price hikes in Industrial business and volume growth. Kansai Nerolac EBITDA 1,757 1,689 4.0 1,770-0.7 Higher input costs and weak transmission in industrial would impact gross margins. EBITDA margin to shrink 128bps to 14.1% on YoY basis despite price hikes in decorative business. PAT 1,153 1,058 8.9 1,127 2.3 PAT to grow 9% YoY. Revenues 7,704 7,004 10.1 7,833-1.6 We expect 10% YoY growth in revenue led by stronger volume growth and price hikes/mix-led growth in decorative. Akzo Nobel India EBITDA 834 699 19.3 1,012-17.6 Impact of higher input costs to subside a bit. EBITDA margin to improve 84bps to 11% on YoY basis led by price hikes during the quarter. PAT 519 462 12.3 604-14.1 PAT to grow 12.3% YoY. Revenues 15,190 12,983 17.0 16,167-6.0 We expect 17% YoY growth in revenue led by ~14% volume growth and price hikes/mix-led growth in decorative. Berger Paints EBITDA 2,246 2,002 12.2 2,360-4.8 Gross margins to improve marginally YoY, EBITDA margins to remain flattish YoY at 15%. PAT 1,301 1,135 14.6 1,348-3.5 PAT to grow ~15% YoY. Parag Milk Foods Revenues 5,955 5,178 15.1 6,006-0.8 EBITDA 625 551 13.5 620 0.8 PAT 310 262 18.5 307 0.9 We expect strong volume growth in milk products during the quarter leading to 15% revenue growth. We expect 10bps decline in EBITDA margin YoY to 10.5% on rise in procurement cost. Commentary on procurement prices and milk pricing scenario over next few quarters. 2
` Mn Mar 19 Mar 18 YoY (%) Dec 18 QoQ (%) Comments Revenues 6,234 5,616 11.0 6,188 0.8 We expect traction to continue QoQ for better volume growth in milk products leading to 11% revenue growth. Heritage Foods Hatsun Agro Menon Bearings EBITDA 497 414 19.8 450 10.5 PAT 233 163 42.9 207 12.4 Revenues 12,098 10,516 15.1 11,545 4.7 EBITDA 870 756 15.0 946-8.0 PAT 154 25 520.4 185-16.9 Revenues 457 387 18.0 408 12.1 EBITDA 108 94 15.2 93 15.7 We expect 59bps increase in EBITDA margin YoY to 8% on improved volumes and prices. PAT to grow 43% YoY on a weak base. Commentary on milk pricing scenario and volume across India over next few quarters. We expect better volume growth in milk products leading to ~15% revenue growth. We expect 23bps increase in EBITDA margin YoY to 7.3% (but 90bps decline QoQ) on improved volumes and mix. PAT to grow 520% YoY on a weak base. Commentary on milk pricing scenario and volume across Southern states over next few quarters. We expect strong growth in revenue led by commissioning of new machine at Alkop and decent MHCV volumes during quarter. We expect EBITDA margin to decline 60YoY to 23.6% as new plant has been commissioned at Alkop. Volumes set to improve. Source: Company, Trust PAT 59 51 15.8 57 3.7 PAT to grow 16% YoY on strong volume growth from Alkop. 3
Exhibit 3: Valuation matrix PER (x) EV/EBITDA (x) RoE (%) Rating FY20E FY21E FY20E FY21E FY20E FY21E HUVR Hold 51.0 46.0 35.0 31.3 66.6 61.4 MRCO Buy 41.9 36.4 28.0 23.8 30.2 28.8 DABUR Buy 39.7 36.8 30.8 26.9 22.9 21.4 APNT Hold 44.2 38.1 28.0 23.9 26.3 25.6 KANSAI Hold 37.1 32.5 23.8 20.7 16.4 16.6 AKZO Hold 34.3 28.9 20.5 17.0 15.9 17.2 BERGER Hold 50.9 42.9 29.6 24.9 20.8 20.9 PARAG Buy 15.2 12.4 8.5 7.2 15.0 16.3 HERITAGE Buy 28.0 22.5 7.4 6.1 9.2 10.4 HATSUN Buy 58.0 49.0 25.5 22.7 34.9 32.8 MENON Buy 13.0 10.4 8.0 6.3 32.2 32.3 Source: Trust estimates 4
Institutional Equity Team Names Designation Sectors Email ID's Desk-Number Naren Shah Head Of Equity naren.shah@trustgroup.in +91-22-4084-5074 Sales Trading & Dealing Rajesh Ashar Sales Trader rajesh.ashar@trustgroup.in +91-22-4224-5123 Dealing Desk trustfin@bloomberg.net +91-22-4084-5089 Sales Vijay Shah Sales vijay.shah@trustgroup.in +91-22-4084-5090 Mayur Joshi Sales mayur.joshi@trustgroup.in +91-22-4084-5028 Research Team Binyam Taddese Analyst Rates & Credit Research binyam.taddese@trustgroup.in +91-22-4224-5037 Naushil Shah Analyst Technology, Media & Telecom naushil.shah@trustgroup.in +91-22-4224-5125 Tushar Chaudhari Analyst Consumer, Commodities & Mid-caps tushar.chaudhari@trustgroup.in +91-22-4224-5119 5
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