ICICI Securities is upbeat on the consumer non-durables sector: “The FMCG industry would likely sustain robust growth momentum driven by expansions in rural and urban markets, increased realisations across most categories and acquisitions. We expect the operating profit margin to expand for most FMCG companies and net profits to grow 21% YoY.
Colgate: The company improved its market share in toothpaste to 48.4% in February 2007, up 105 basis points (bps) from February 2006. We expect a significant margin expansion of 400 bps YoY in Q4, 2006-7 earnings. Godrej Consumer Products: Sales are likely to accelerate to 22% YoY in Q4, 2006-7 earnings on the back of price hikes taken in hair dyes and toilet soaps. We expect acceleration in volume growth and a significant 100bps YoY improvement in profitability.
Tata Tea: Driven by a robust volume growth in India, increased realisations and the acquisition of Jemca as well as a sharp YoY depreciation in the Indian rupee versus the pound, we expect consolidated sales to grow 38% YoY to Rs 1,130 crore. Operating profits would likely grow 44% YoY, the increase in interest costs to fund acquisitions and higher share of minority interest would lead to a 33% YoY decline in net profits. With the entire adverse impact of the Glaceau acquisition being reflected in half year 2006-7 and the stock having significantly underperformed, this would be an opportune time to buy.
ITC: As ITC hiked prices 10-25% in most of its cigarette brands to offset the tax hikes, we expect the cigarette volume growth to be affected in 2007-8. The key aspect to watch out for over the next quarter is the extent of volume decline in cigarettes. The current declines should be used as an opportunity to buy.
