Volume growth to aid revenue: We estimate revenue growth of 11.0% in Q3FY19E for our coverage universe led by (a) stable demand environment, (b) entire festive season falling in Q3FY19, and (c) price hikes in certain categories on account of raw material inflation. Excluding ITC, sales growth is similar at 11.1%. Highest sales growth is expected in Marico, at 14% yoy, primarily driven by price hikes taken in Parachute in previous quarters, followed by Britannia and HUL at 13.4% and 12.8% yoy, respectively. Companies in our coverage universe that are expected to witness pressure include GCPL (currency devaluation in LatAm), TGBL (weakness in international tea, plantations business), and Emami (delayed winter).
Healthy revenue growth coupled with price hikes to aid EBITDA: EBITDA for the coverage universe is expected to grow 12.2% yoy (ex-ITC at 13.6% yoy). EBITDA margin is expected to expand marginally by 30bps yoy (44bps ex-ITC) for the coverage.
As crude witnessed inflation at the start of the quarter, companies took price hikes in relevant categories. However, with crude prices correcting sharply mid-quarter, prices of most crude-related derivatives (LLP, HDPE, LAB) had cooled off significantly towards the end of Q3FY19. We believe companies would have increased promotions and passed on the benefits and the benefits of crude deflation are expected to be seen in Q4FY19E.
The highest EBITDA growth is expected in Varun Beverages (VBL) at 27.7% yoy, Britannia (20.2% yoy), and HUL (19.0% yoy). A combination of benign input costs (crude derivatives, copra, sugar etc.) and strong sales growth momentum are expected to aid healthy EBITDA of most of the companies. TGBL is expected to witness EBITDA decline owing to pressure on gross margins and one-off costs in Eight O’Clock due to the Keurig renegotiation. Other companies that would witness weak EBITDA growth this quarter are Bajaj Corp (higher staff costs) and GCPL (currency devaluation in LatAm).
PAT to grow 14.5% yoy for the sector: Net profit growth for the sector is expected at 14.5% yoy (ex-ITC 17% yoy). Healthy growth would be seen in Nestle, HUL, JLL, and GSKCH. However, TGBL is the only company expected to report PAT decline (down 10.8% yoy) on account of higher tax rate and EBITDA pressure. GCPL, Bajaj Corp, and Emami are the other companies that are likely to witness a subdued PAT due to weak EBITDA performance.
Top picks: ITC, Emami, and JLL.
Quarterly consensus estimates (Source: Bloomberg, IIFL Research)
|Bajaj Corp||Q3FY19E||yoy (%)||qoq (%)|
|Sales (Rs cr)||225.5||8.4||9.6|
|EBITDA (Rs cr)||69.2||2.0||14.2|
|EBITDA margin (%)||30.7||-370bps||124bps|
|PAT (Rs cr)||57.9||5.0||12.1|
Bajaj Corp had witnessed a muted Q2FY19 due to drying of trade channels prior to a nationwide re-staging of Bajaj Almond drops. Thus, we expect Q3FY19 to witness some positive impact of trade up-stocking post the relaunch. Revenue is estimated to grow at 8.4% yoy. However, due to raw material pressure, EBITDA, and PAT are expected to grow by' 2.0% and 5.0% yoy respectively.
|Britannia Industries Ltd.||Q3FY19E||yoy (%)||qoq (%)|
|Sales (Rs cr)||2,900.7||13.4||1.6|
|EBITDA (Rs cr)||479.0||20.2||5.4|
|EBITDA margin (%)||16.5||94bps||60bps|
|PAT (Rs cr)||317.2||20.3||4.7|
Britannia is expected to report 13.4% yoy growth in revenue led by volume growth. With inflation in check for the key commodities -- sugar and milk -- EBITDA is expected to clock 20.2% yoy growth. PAT is expected to register 20.3% yoy growth.
|Colgate-Palmolive (India) Ltd.||Q3FY19E||yoy (%)||qoq (%)|
|Sales (Rs cr)||1,116.0||8.7||-3.8|
|EBITDA (Rs cr)||311.5||10.3||-5.5|
|EBITDA margin (%)||27.9||41bps||-49bps|
|PAT (Rs cr)||187.5||9.9||-4.5|
Colgate is expected to report revenue growth of 8.7% yoy led by ~6% yoy volume growth. With crude prices falling towards the end of the quarter and other input costs largely benign, we expect gross margin to remain flat. Consequently, we forecast EBITDA and PAT growth of 10.3% yoy and 9.9% yoy, respectively.
|Dabur India Ltd.||Q3FY19E||yoy (%)||qoq (%)|
|Sales (Rs cr)||2,153.3||9.5||1.3|
|EBITDA (Rs cr)||440.9||9.3||-2.2|
|EBITDA margin (%)||20.5||-4bps||-74bps|
We expect Dabur to report sales growth of 9.5% yoy, driven by volume growth of 9% in the domestic business and 9% sales growth in the international business. The domestic performance would be driven by foods, health supplements, hair care, and digestives while mass-end oral care will see some pressure. Higher employee costs would be offset by lower growth in ad-spends and other expenses, resulting in EBITDA growth of 9.3%. Led by higher other income, net profit would report 11.2% yoy growth.
|Emami Ltd.||Q3FY19E||yoy (%)||qoq (%)|
|Sales (Rs cr)||832.3||10.2||32.5|
|EBITDA (Rs cr)||289.9||9.5||53.0|
|EBITDA margin (%)||34.8||-16bps||467bps|
|PAT (Rs cr)||204.8||3.9||147.7|
Emami is expected to report revenue growth of 10.2% yoy on a muted base. We expect the performance of the winter product portfolio to be impacted by a delayed winter. Inflation in mentha oil will put some pressure on gross margin; EBITDA is expected to grow 9.5% yoy.
|GSK Consumer Healthcare Ltd.||Q3FY19E||yoy (%)||qoq (%)|
|Sales (Rs cr)||1,152.4||11.0||-9.4|
|EBITDA (Rs cr)||241.3||16.3||-31.8|
|EBITDA margin (%)||20.9||95bps||-687bps|
|PAT (Rs cr)||203.9||21.9||-26.0|
GSKCH is estimated to report 11% yoy revenue growth led by ~9% volume growth (supported by improvement in rural demand and in affordability post-GST rate cut in November 2017). Led by benign input cost and cost rationalization, the EBITDA margin is expected to expand by 95bps yoy. PAT growth is estimated at 21.9% yoy.
|Godrej Consumer Products Ltd.||Q3FY19E||yoy (%)||qoq (%)|
|Sales (Rs cr)||2,818.7||8.3||6.7|
|EBITDA (Rs cr)||633.6||5.8||30.2|
|EBITDA margin (%)||22.5||-52bps||406bps|
|PAT (Rs cr)||461.1||7.3||-20.2|
GCPL is expected to report sales growth of 8.3% yoy led by domestic sales growth of ~7.5% (with a pick-up in soaps category and improvement in HI category). Though Indonesia and Africa are expected to report decent growth, macro challenges in Argentina would impact the performance of the international segment (estimated growth of ~6% yoy). EBITDA and PAT are expected to clock 5.8% and 7.3% yoy, respectively.
|Hindustan Unilever||Q3FY19E||yoy (%)||qoq (%)|
|Sales (Rs cr)||9,387.3||12.8||2.7|
|EBITDA (Rs cr)||2,000.0||19.0||-0.9|
|EBITDA margin (%)||21.3||112bps||-79bps|
|PAT (Rs cr)||1,483.6||23.8||-2.7|
HUL is expected to report sales growth of 12.8% yoy led by volume growth of ~9% yoy on a high base. We estimate a blended price hike of ~3% (primarily in shampoo and detergents on account of raw material inflation). EBITDA is expected to grow 19% yoy with 112bps yoy improvement in EBITDA margin on account of operating leverage and cost-saving initiatives. PAT is, thus, expected to witness 23.8% yoy growth.
|ITC||Q3FY19E||yoy (%)||qoq (%)|
|Sales (Rs cr)||10,704.3||10.7||-5.0|
|EBITDA (Rs cr)||4,313.8||10.5||2.6|
|EBITDA margin (%)||40.3||-7bps||299bps|
|PAT (Rs cr)||3,137.4||11.5||6.2|
We estimate ITC to report 10.7% yoy growth in revenue led by growth across segments. We forecast cigarette sales growth at 10% aided by 6% yoy volume growth (4% volume decline in Q3FY18). We estimate 12% yoy growth in FMCG business (12.7% in Q2FY19), 20% yoy growth in hotels (21% in Q2FY19), 10% yoy growth in agro business (13% in Q2FY19), and 8% in paperboards, paper & packaging (9% in Q2FY19). Cigarette EBIT margin was impacted by one-off costs (Kerala floods, change in packaging norms) in Q2FY19, which are expected to reverse during Q3FY19 and report an expansion of 128bps yoy. Net profit is expected to grow by 11.5% yoy.
|Jyothy Laboratories Ltd.||Q3FY19E||yoy (%)||qoq (%)|
|Sales (Rs cr)||456.1||9.0||6.6|
|EBITDA (Rs cr)||76.8||8.6||5.0|
|EBITDA margin (%)||16.8||-6bps||-27bps|
|PAT (Rs cr)||46.9||25.7||3.4|
JLL’s performance for Q3FY19 is expected to be impacted by untimely rains due to cyclone Phethai in Andhra Pradesh (especially Ujala performance). We estimate revenue growth of 9% yoy. While the company continues to invest behind brands, leverage in other expenses would result in stable EBITDA margin. We forecast EBITDA growth of 8.6% yoy. Further, leverage in interest costs would result in 25.7% yoy PAT growth.
|Marico Ltd.||Q3FY19E||yoy (%)||qoq (%)|
|Sales (Rs cr)||1,851.7||14.0||0.8|
|EBITDA (Rs cr)||354.4||17.3||20.5|
|EBITDA margin (%)||19.1||54bps||313bps|
|PAT (Rs cr)||251.9||14.2||17.6|
Marico is expected to clock 14% yoy growth in revenue. We estimate a volume growth of 8% yoy in Parachute, 5% yoy in VAHO, and 2% yoy in Saffola. The international business is expected to grow 10% yoy. Deflation in copra prices (down ~26% yoy) is expected to result in gross margin expansion. Leverage in other expenses and staff costs would aid EBITDA growth of 17.3%. A higher tax rate would result in a lower PAT growth at 14.2%.
|Nestle India||Q4CY18E||yoy (%)||qoq (%)|
|Sales (Rs cr)||2,860.3||10.4||-2.1|
|EBITDA (Rs cr)||673.3||13.8||-7.8|
|EBITDA margin (%)||23.5||69bps||-146bps|
|PAT (Rs cr)||422.7||35.6||-5.2|
Nestle is expected to report 10.4% yoy revenue growth led by volume as the company’s focus remains on driving volumes and penetration through its cluster-based approach. Benign milk prices would aid gross margin. EBITDA and PAT are expected to report 13.8% and 35.6% yoy growth, respectively.
|Tata Global Beverages Ltd.||Q3FY19E||yoy (%)||qoq (%)|
|Sales (Rs cr)||1862.3||7.6||5.8|
|EBITDA (Rs cr)||223||-5.1||33.8|
|EBITDA margin (%)||12.0||-161bps||251bps|
|PAT (Rs cr)||159.7||-10.8||-13.2|
TGBL is expected to report muted sales growth of 7.6% yoy driven by growth in Eight O’çlock coffee and plantation segment. Inflationary pressure on tea prices in India and higher other expenses on a lower base would result in EBITDA decline of 6% in the India tea business. EBITDA and PBT are expected to decline by 5% and 3.5% yoy, respectively. PAT is expected to decline 10.8% yoy due to a higher tax rate (base quarter included deferred tax liability related to the lowering of taxes in the US).
|Varun Beverages Ltd.||Q4CY18E||yoy (%)||qoq (%)|
|Sales (Rs cr)||580.1||10.0||-50.2|
|EBITDA (Rs cr)||28.5||26.7||-86.5|
|EBITDA margin (%)||4.9||65bps||-1321bps|
|PAT (Rs cr)||-85.1||NA||NA|
VBL is expected to report 10% yoy revenue growth driven by an 8.5% volume growth (acquisitions of different territories are now in the base). Led by healthy revenue growth, benign raw material costs, and an improvement in the margin profile of acquired territories, EBITDA for the quarter is estimated to report 26.7% yoy growth. Higher depreciation costs would result in net loss of Rs85.1cr against loss of Rs72.8cr in Q4CY17. Note that this is seasonally the weakest quarter for VBL and negative leverage on depreciation and interest costs usually results in losses in this quarter.
|Jubilant FoodWorks Ltd.||Q3FY19E||yoy (%)||qoq (%)|
|Sales (Rs cr)||910.0||14.4||3.2|
|EBITDA (Rs cr)||158.7||15.9||7.6|
|EBITDA margin (%)||17.4||23bps||70bps|
|PAT (Rs cr)||83.6||26.6||7.6|
JFL is expected to report a healthy 14.4% yoy growth in revenue led by ~18% SSS growth (aided by festive season in Q3FY19 and traction in supply to railway stations). Higher discounting during the festive season is expected to keep EBITDA margin expansion under check. EBITDA is expected to grow 15.9% yoy, while PAT is expected to report growth of 26.6% yoy aided by higher other income.