The FMCG sector will continue its growth momentum in Q1 FY12. We expect revenue growth to remain strong though margin expansion will be lower due to firm key raw material prices. Most of the players took sharp price hikes in the range of ~5-35% during the quarter to mitigate the input cost impact; this is likely to have curtailed volume growth. In addition to the price hikes, players have also lowered adspend to protect their margin.
HUL is expected to register 13.8% yoy growth in revenues led by strong growth in its HPC business. We expect operating margin to remain flat (lower adspend to mitigate input cost impact) at 12.6% and HUL to witness 15% yoy growth in net profit during the quarter. The impact of recent correction in palm oil prices will be seen in Q2 FY12 results.