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FMCG Sector Quarterly Update - Dec2010: Volume Growth Intact, Rising Input Costs A Key Concern
FMCG Sector Quarterly Update - Dec2010: Volume Growth Intact, Rising Input Costs A Key Concern
Sector Update
BSE FMCG
Sensex
Source: Bloomberg
KRC Research is also available on Bloomberg KRCS<GO>, Thomson First Call, Reuters, Factset and Capital IQ
18%
10%
6% 2%
Emami
GSK Consumer
Dabur
Britannia
GCPL
HUL
ITC
Asian Paints
Colgate
89.4%
Double digit growth registered by majority of the players driven by healthy volumes
4.0%
GSK Consumer
Emami
HUL
Britannia
Dabur
Marico
Asian Paints
Colgate
Y-o-Y(%)
Emami
GSK Consumer
Dabur
HUL
ITC
Britannia
GCPL
Asian Paints
Marico
Colgate
Y-o-Y (%)
Nestle
TGBL
GSKCHL, Nestle, GCPL & ITC registered strong EBITDA growth while HUL, Emami & Colgate saw a decline on y-o-y basis due to rising input cost & ASP expenses
1500 1000
Nestle
TGBL
GCPL
ITC
Marico
Significant increase in Copra, Palm oil led to high input costs for HUL, GCPL, Marico
Raw Material Sugar Tea Coffee Wheat Copra LAB PE Palm oil Sunflower oil Safflower oil Groundnut oil LLP
Y-o-Y Change(%) -13.7% 3.4% 3.1% -5.9% 61.9% -4.4% 4.3% 54.8% 43.5% 3.2% 16.7% 35%
High Raw material prices led to significant decline in GPM on y-o-y basis
Emami
Colgate
Dabur
HUL
ITC
GCPL
GSK Consumer
Marico
Asian Paints
Britannia
Source: Company, KRChoksey Research Exhibit 6: ASP Expenses as a % to Net Sales (Q3FY11) Company Britannia Decline in promotional expense to offset higher RM costs. We do not forsee any further decline in ASP expenses Colgate Dabur Emami GCPL GSK Consumer HUL Marico TGBL
Q3FY11 Q2FY11 Q3FY10
Q-o-Q -17 bps 731 bps 0 bps 161 bps 51 bps 12 bps 97 bps -116 bps 59 bps
Nestle
Y-o-Y -110 bps 626 bps -210 bps -66 bps 243 bps -273 bps 73 bps -164 bps -79 bps
TGBL
(320) (805)
(248) (464)
(306)
(257)
Emami
ITC
Dabur
Colgate
Marico
Source: Company, KRChoksey Research Exhibit 8: Sectoral Snaphot Q3FY11 Net Sales
Q3FY11
GSK Consumer
Asian Paints
Britannia
Nestle
14836.3 21300.0
3380.3 4366.2
2439.9 3125.8
Price hike ~11% price increase taken YTD. 3% price increase undertaken in Dec10. Hiked prices of key SKUs by ~10% in Nov-Dec 10. Recent hike of 3-4% on select SKU's. Price hike in Vatika. 10% price hike in Zandu balm 3-4% in navratana hair oil & talcum powder. 3.-5% price hike in soap segment in jan. 10% price hike in hair color in Q2FY11. ~5% hike in horlicks brand
Variant of Nutrichoice (diabetes friendly biscuits). Entered 'Ready to Cook' range of breakfast options like porridge, upma and poha mixes. Malai kesar soap,hairlifehair color,boroplus lotion
GCPL GSKCHL
Variants in Horlicks Biscuit Pepsodent Supersalt in low end toothpastes. Relaunch of Dove hair range with Fiber Actives Close-Up Fire-Freeze was launched Introduction of new brands-Lucky Strike and Players Gold Leaf. New variants under Gold Flake and Classic, Players cigarettes Increased focus in new segments like oats, packaged rice and ayurvedic hair oil to maintain long-term growth. Relaunch of nescafe & Kit Kat, neslac infant food -
HUL
12% price hike in Bristol in January 2011. 24% price hike in parachute between aug to jan. 12% price hike in saffola 3% price hike in nescafe in dec. 8% price hike in tea.
TGBL
GCPL
HUL
Impact
Positive for all FMCG companies as rural markets account for 40% of FMCG
Budget measures to improve rural infrastructure & supply chain would lead to lower RM costs, reduced prices & higher volumes for FMCG players
general tax payers from ` 1.6 lacs p.a to 1.8 lacs p.a Marginal hike in MAT, offset by reduced surcharge No hike in standard rate of excise duty No hike in excise duty on Cigarettes Increased focus on cold storage chains & setting up of mega food parks Full exemption from basic customs duty to Crude Palm Stearin for use in the manufacture of laundry soap 1% excise duty on products like coffee, ketchup, soups, ready to eat ` 300 cr allocation on increasing palm oil cultivation Positive for all HPC companies Marginally negative for HUL, Nestle, ITC Positive for HUL Positive for Food companies(Nestle, Dabur, HUL) No major impact on GCPL, Dabur Positive for all FMCG companies Positve for ITC,VST & Godfrey Phillips Positive for all FMCG companies as discretionary spending would increase
GCPL, Nestle, Asian Paints, ITC to grow at a CAGR of 20% & above over FY10-12E
GSK Consumer
Emami
HUL
Britannia
Dabur
GCPL
Marico
Asian Paints
Colgate
CAGR (FY10-12E)
Nestle
TGBL
ITC
Category Food Biscuits Ice-cream Milk powder Chocolates Ketchup Noodles Baby Food Coffee Malted Health drinks Fruit Juice Carbonated drinks HPC Toothpaste Shampoo Balms Utensils Cleaners Menz Skin Care Talcum Powder Skin cream Deodorants Baby oils
Growth Rates 15-18% 12-15% 15-17% 15% 18-20% 15-20% 8-10% 12-15% 30% 5% 12-15% 8-10% 20-25% 20-25% 12-15% 40% 15-17%
Key Players Parle, ITC, Britannia Amul, HUL Amul, Nestle Amul, Cadbury, Nestle Nestle, HUL Nestle, GSKCHL Nestle TGBL, Nestle GSKCHL, Nestle, Cadbury Dabur, Pepsi, Coke Pepsi, Coke CPIL,HUL,P&G HUL,GCPL,P&G Emami HUL, Reckitt Bekinser, GCPL HUL HUL HUL, Emami HUL Johnson & Johnson
Source: Company Presentations, KRChoksey Research Exhibit 13: Top Picks Particulars (` Cr) Sales EBITDA PAT EPS OPM NPM PE CMP TP Key Points
ITC
25092.3 8531.4 5871.6 7.7 23.4% 34.0% 22.3 172 200 Diversified Business model Cigarette volume growth turning positive Strong revenue growth in FMCG Others Robust Distribution network Strong rural presence
Nestle
8893.7 1901.9 1214.1 125.9 21.4% 13.7% 28.5 3590 3780 Strong growth in all its key categories Market leader in key categories Robust distribution channel Product across price points Strong parent company expertise
GSKCHL
3126 522 419.1 99.7 16.7% 13.4% 21.5 2145 2392 Presence in low penetrated categories Market leader in malt based drinks Strong brand equity
9M FY11
9M FY10
Y-o-Y
9M FY11
9M FY10
Y-o-Y
19%
27%
9M FY11
9M FY10
Y-o-Y
Exhibit 17: EBITDA Margin (9MFY11 v/s 9MFY10) Margins under pressure due to higher RM & ASP expenses
200 0 (200) (400) Pa ints A n sia (125) (221) Brita nnia E a i mm C lga o te D bur a (341) (94) (193) G PL C C nsum o er (216) G SK H L U (78) (131) 44 17
Y-o-Y (bps)
9MFY10
38202 55876
33887 48052
13% 16%
8550 11267
7964 10324
7% 9%
6200 8136
5555 7260
12% 12%
Britannia
1080
-1%
23%
55.2
4%
45%
37.3
17%
5%
Strong revenue growth of 22.5% on the back oprice hike of 10% in key SKU's. Gross margins declined on the back of high cost sugar & wheat inventory OPM improved due to 110 bps y-o-y decline in ASP expenses as a % to sales High interest cost(issue of bonus debentures) & increase in effective tax rate resulted in muted net profit growth Launched nutrichoice oats & entered ready to cook segment by launch of porridge upma & poha mix under 'healthy start' brand
Colgate
558.2
1%
14%
93.1
-28%
-23%
66.24
-34%
-43%
CPIL registered topline growth of 14% y-o-y, with underlying volume growth of 12% y-o-y The 12% volume growth was primarily driven by Toothpaste & Toothbrush categories which reported a volume growth of 13% y-o-y & 24% y-o-y
110 bps & 120bps increase in volume market share in the Toothpaste & Toothbrush
Despite 409 bps y-o-y increase in Gross margins on the account lower RM, OPM declined by 805 bps yo-y on the back of steep rise in ASP expenses Net Profit declined by 43% y-o-y on the back of higher effective tax rate (27% in Q3FY11 compared to 5% in Q3FY10), increase in depreciation.
Dabur
1079.9
11%
17%
216.4
9%
21%
154.4
-4%
11%
Consolidated sales up by 11% y-o-y led by 9.5% volume growth & realizations growth of 4% International business reported 15% volume growth & 14% value growth, impacted by 5% due to translational losses Topline growth was driven by Health supplements, digestives & Home care segment which grew by 13%,11% & 24% respectively Muted performance in Hair care(4%) with hair oil growing by 12%.Oral Care grew by 10% led by 15% rise in toothpaste revenue. CHD & Food division registered revenue growth of 14% & 42% y-o-y Input cost inflation lead to 280 bps y-o-y decline in GPM, however OPM improved by 76 bps on the back of lower Ad Spend & Other expenses. EBITDA improved by 21% y-o-y to ` 216 crores Net profit up by only 11% y-o-y due to lower other income, higher interest expense & effective tax rate
Company Q3FY11
Key Comments
Emami
406.0
49%
15%
101.8
76%
-3%
85.5
60%
10%
Net sales up by 15% y-o-y,led by 12% volume growth Strong growth across key Oil brands (20%), : Zandu Boroplus balm(20%), Navratna
cream(6%,impacted by delayed winter) Higher Methanol prices (cost up 75%) & LLP prices(up 35%) lead to decline in GPM by 550 bps y-o-y. Operating profit declined by 3% y-o-y to ` 102 crores. Company has taken a price hike of 10% in Zandu balm & 3-4% in boroplus cream Net profit up by 10% y-o-y on the back of higher other income & lower interest expense Net sales up by 15% y-o-y,led by 12% volume growth
GCPL
980.4
3%
89%
167.81
-1%
65%
118.82
-9%
40%
GSK Consumer
524.2
-17%
21%
74.9
-35%
45%
53.4
-32%
59%
Home care business drive topline with 24% & 27% y-o-y growth in GHPL & Megasari Subdued revenue growth of 9% in domestic personal care with soaps & Hair colors growing by 6% & 9% respectively. Margins for the segment were impacted by higher palm oil prices Weak overseas performance with keyline reporting 15% sales decline on the back of high base & unfavorable currency movement. Rapidol & KINky performance was not impressive. Megasari reported robust 27% topline growth, however margins declined. Price increase of 3-5% in the soaps to mitigate rising palm oil costs Home care business drive topline with 24% & 27% y-o-y growth in GHPL & Megasari Net sales driven by strong volume growth of 18% & 13% in its key brands Boost & Horlicks respectively and price growth of 7% in Q4CY10. Horlicks maintained its dominant position with a market share of 53% & Boost improved its share by ~100 bps to 15% in CY10. Foodles continues to penetrate strongly with market share of 6% in South & East and pan India share of 3% Operating profit was up by 45% y-o-y to R 74.9 crore on the back of y-o-y decline in ASP & Other expenses as a % to sales, partially offset by higher raw material costs. Consequently gross margins declined by 144 bps y-o-y, however OPM improved by 239 bps y-o-y Net profit increased significantly by 58% y-oy to R 53.4 crore on the back of strong operating performance & higher other income, partially offset by higher tax rate Net sales driven by strong volume growth of 18% & 13% in its key brands Boost & Horlicks respectively and price growth of 7% in Q4CY10.
KRC Equity Research
Company Q3FY11
Key Comments
HUL
5027.01
7%
12%
725
12%
-8%
637.5
13%
-2%
Double digit volume growth of 13% y-oy in the domestic consumer business, resulting in robust topline growth of 11.6% to ` 5027 crores Domestic HPC segment grew by 11.6% y-o-y to ` 3847.6 crores led by 20% & 6% y-o-y growth in Personal products and Soaps & Detergents respectively while growth in Food Business was 13% y-o-y on the back of robust performance in Processed foods (19%), Beverages (9%) & ice-cream categories (31%) Operating profit de-grew 7.9% y-o-y on account of increase in key raw material prices (Palm oil, crude derivatives).The impact of input cost inflation & brand investments was seen in the EBIT margins for Soaps & Detergents(down 572 bps y-o-y) & Personal Products(down 313 bps y-o-y) segments Net profit declined marginally by 1.8% y-o-y on the back of exceptional income of ` 64.3 crores from sale of properties & long term trade investments
Net sales increased by 20% y-o-y largely driven by Cigarette & FMCG-Others categories which grew by 19% & 24% y-o-y respectively. The Hotel, Agri & paper business grew by 14%, 18% & 8 % y-o-y respectively. Cigarette business which registered a positive turnaround in volumes (up by 23% v/s 2% decline in Q2FY11). EBIT margins also improved by 69 bps y-o-y.
ITC
5453.49
8%
19%
1969.04
5%
19%
1389.08
11%
21%
10
Company Q3FY11
Key Comments
Marico
817.7
5%
22%
99.7
0%
1%
69.5
-5%
12%
Nestle
1671
2%
24%
334.3
3%
64%
221.7
1%
66%
Net sales up by 225 y-o-y on the back of 15% volume growth.Realization up by 7% due to price hike in Parachute & Saffola Healthy performance across key brands with Saffola, hair oils & Parachute registering a volume growth of 13%,31% & 5% due to strong festive demand GPM contracted by 530 bps on the back of high input cost (Copra & Edible oil).However lower ad spends led to lower contraction in EBITDA margins Subsidiaries (international business and Kaya) registered topline growth of 26% and margins expanded 540bp, leading in PAT growth of 95%. Nestles double digit topline growth was on the account of strong domestic business performance which grew by 27% y-o-y to ` 1596.1 crores. Domestic sales improved on the back of robust volume growth, better product mix & price hikes taken by the company Exports declined by 17% y-o-y to ` 74.9 crores on the back of diversion of capacity for Domestic markets. Gross margins improved by 72 bps y-o-y on the back of price hikes taken to offset input cost inflation. Also employee expense & Other expenses declined on y-o-y basis resulting in OPM expansion by 493bps y-o-y Net profit increased by 66% y-o-y to ` 221.7 crores on the back of 99% y-o-y increase in other income partially offset by higher effective tax rate.
Muted topline growth of 4% y-o-y due to subdued performance in the tea business Standalone EBITDA declined by 50% due to high raw material costs Gross margins for TATA GB improve ddue to decline in RM cost as a % to sales JV with pepsi & MOU with kerala ayurveda to be key for growth going forward
TGBL
1602.4
11%
4%
184.0
42%
-6%
71.9
39%
-22%
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Co-Head Institutional Equities Co-Head Institutional Equities Head-Institutional Broking Research Head
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