BRICS Research: FMCG Sector Update - earnings preview for quarter ended December 2011

FMCG - Earnings preview for quarter ended December 2011

Volume and price led growth: We forecast volume and price-led growth in Q3FY12. We expect our consumer universe to record 17% yoy revenue growth to Rs124.8bn. Dabur and GCPL will benefit from acquisitions whereas volume growth will lead revenue growth for Marico, APL and HUL.

Gross margins to continue to remain under pressure: Firm input costs are likely to dent gross margins further in Q3. We forecast 250 bps yoy and 40 bps qoq contraction in gross margins for our consumer universe. Dabur and HUL are expected to record highest contraction.

A&P spends expected to remain low: In line with our view in the recent report 'No speed breakers to fast moving' we expect a 250bps yoy contraction in A&P spends (as % of revenues). Colgate (favourable base) and HUL (normalization in A&P spends) would record highest contraction in A&P spends at 520bps and 290bps in Q3.

Operating margins to contract 10bps yoy: Driven by the mixed impact of contraction in gross margin and lower A&P spends, we forecast 10bps contraction in operating margins. We expect Colgate, HUL and GCPL to record operating margin expansion whereas APL, Dabur and Marico are expected to record contraction due to escalating input prices.

Earning to grow at 16.5%: We forecast 16.5% yoy earnings growth for the BRICS consumer universe in Q3. Colgate is expected to record highest earning growth due to last year's favorable base.

Source : Equity Bulls

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