will government's massive surge in investment ... - Myiris.com

Apr-Jun 2013 Earnings Preview
Amnish Aggarwal
amnishaggarwal@plindia.com
+91-22-6632 2233
Gaurav Jogani
gauravjogani@plindia.com
+91-22-6632 2238
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ITC
Britannia Industries
Consumer
Q1FY14 PAT to grow by 13.2%, volume growth to remain muted
We expect Q1FY14 sales to increase by 14.2% for our coverage universe, lowest
growth since Q3FY11. This is the lowest, EBITDA is expected to grow at 17% as
margins expand 51bps YoY. Higher tax rate and lower other income will curtail PAT
growth to 13.2% YoY. We expect volume growth to remain sluggish as discretionary
spending continues to remain impacted. Input costs are a silver lining as prices of
most commodities have been benign.
Discretionary spending remains subdued
Consumer demand remains impacted as high CPI inflation and low growth in
incomes impacts consumer sentiment. Spend on discretionary items like Watches,
Pizzas, Processed foods, Skin creams and Beauty products remained under pressure.
Although volume growth has been coming off since past 2/3 quarters, consumer
companies are confirming setback to premiumisation trend also. Gold jewellery
demand has seen sharp an upsurge due to decline in prices; however, sustainability
of demand remains doubtful, given the volatile price trends and bleak outlook on
prices. Rural demand continues to grow faster than urban demand and with good
monsoons the trend is expected to continue in the near future.
Depreciating rupee raises input costs
Input costs were benign for key commodities like PFAD, Tio2, Sugar and Copra for
the better part of the quarter. However, 10% depreciation of rupee in the month of
June will negate the benefits in Q2FY14. Wheat still continues to remain sideways.
Prices of PFAD are down 35% YoY and Tio2 prices are down 22% YoY. However, we
note that gains from benign input costs will tend to peter off from Q2FY14. DuPont
has increased Tio2 prices by 5%, PFAD prices have moved up by 29% from the lows
and Milk prices have been increased by 5% recently. We believe with the recent
depreciation in rupee, the gains from lower commodities prices will tend to reduce
in the coming quarters.
Ad‐spends & Sales promotion rising gradually
Segments like Detergents, Soaps and Skin creams have witnessed higher advertising
spends and sales promotion. HUL has cut the prices of Wheel by 10%, while Surf Easy
wash has seen Rs22 off on 700gm pack priced at Rs92. Most of the soap brands
across players have seen consumer offers as benefits of lower PFAD prices have
been partially passed on. Toothpaste market is witnessing 1) occupation of shelf
space 2) higher ad-spends and 3) sales promotions ahead of P&G launch of Oral B
toothpaste. Jubilant has also raised its ad spends and promotions after a continued
slowdown in SSS growth.
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