naveen trivedi (fmcg, appliances) … - 3qfy18... · overall ebitda margin to expand by 103bps to...

Consumer

3QFY18E Results Preview

12 JAN 2018

Naveen Trivedi (FMCG, Appliances) [email protected],+91-22-6171 7324

Siddhant Chhabria (FMCG, Appliances) [email protected],+91-22-6171 7336

Vishal Rampuria (Aviation) [email protected], +91-22-6171-7325

Basanth Patil (Lubricants, Building Materials) [email protected], +91-22-6171-7319

Himanshu Shah (Alco-Bev) [email protected], +91-22-6171 7315

2

Mean Reversion Coming Volume led growth: FMCG & Appliance universe in 2HFY18 is

expected to recover primarily aided with a low base, recovering trade channels and buoyant consumer offtake (Urban & Rural). Our checks with channels and companies’ management suggest healthy recovery in the business. Trade channels (including Wholesale and CSD) have begun to normalize, witnessed a minor blip post GST rate revision (Nov’17) for few products. International business is expected to recover due to improving consumer confidence index for key geographies and favorable base (geo-political issues, unfavorable currencies). We expect EBITDA growth of our universe to outpace revenue growth driven by soft commodity inflation, favorable base and operating leverage. We expect the FMCG and Appliance universe to register revenue/EBITDA growth of 11/16% and 16/25% YoY, respectively during 3QFY18.

Optimism continues: We are encouraged by a sustainable healthy underlying demand in the last six to eight months. Improving consumer offtake, favourable base of the next three quarters and more populist measures from the govt. would result into healthy operating performance in the ensuing quarters.

Outliers in FMCG: We expect operational performance of Jubilant FoodWorks, HUL, Britannia and Colgate in 3QFY18 to be better than others.

Outliers in Appliances: We expect operations performance of V-Guard, Havells and Voltas in 3QFY18 to be better than others.

Interglobe & Spicejet are expected to report strong results driven by pax growth, improvement in yield and stable rupee despite surge in crude. Elevated crude prices ($69/bbl) remain a risk to the sector.

Our top picks in FMCG: ITC, Marico and Dabur Our top picks in Consumer Appliances: Havells, V-Guard, Crompton

FMCG: Expect 11% Sales And 16% EBITDA Growth

Appliances: Expect 16% Sales And 25% EBITDA Growth

Source: Company, HDFC sec Inst Research Note: Havells excluding Lloyd consumer biz

CONSUMER: 3QFY18E RESULTS PREVIEW

-

10.0

20.0

30.0

40.0

ITC

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GCP

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Bri

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Mar

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Colg

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Emam

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Jub

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Sales Gr. (%) EBITDA Gr. (%)> 40.0

-

11.0

22.0

33.0

44.0

Hav

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Vol

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Crom

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Sym

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V-G

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TTK

Pres

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Sales Gr. (%) EBITDA Gr. (%)

3

FMCG: Anticipate Volume Acceleration

COMPANY 3QFY18E

OUTLOOK WHAT’S LIKELY KEY MONITORABLES

ITC AVG

We expect Cigarette revenue growth of 7% YoY, while volumes would contract by ~2% YoY (-6% in 2QFY18 and -0.5% in 3QFY17). Price hike would support the cigarette revenue growth. Non-Cigarette business is expected to grow by ~10% with FMCG/Hotel/Agri/Paper business to register 12/6/8/11% growth, respectively

We expect Cigarette EBIT growth of 8.5% YoY

Overall EBITDA margin to expand by 103bps to 39.4%. EBITDA to grow by 11% YoY

Cigarette volume growth

FMCG business EBIT margin

Outlook on Agri and Hotel businesses

HUL GOOD

We expect revenue growth of 11%, with domestic volume growth of 8.5% (4% in 2QFY18 and -4% in 3QFY17)

We model 11/11.5/13/10.5% growth in Home Care/PC/Foods/Refreshment segments, respectively

EBITDA margin to expand by 161bps YoY to 19.2% (favorable base as margin had contracted by 83bps in 3QFY17)

Improvement in rural and wholesale channels

Commentary on competition, especially in Shampoo, Oral Care And Detergent categories

Pricing actions and new launches strategy

Godrej Consumer Products

AVG

We model 10% (6% in 2QFY18 and 9% in 3QFY17) revenue growth, with 13% domestic growth driven by 15% revenue growth in PC and 10% in HI. International business to grow by 8%.

We modeled EBITDA margin growth of 16% YoY with 105bps of expansion driven by favorable operating leverage

Commentary on recovery in trade channels and rural demand

Outlook on Indonesia and other geographies

Competitive intensity across categories

FMCG: 3QFY18E RESULTS PREVIEW

4


COMPANY 3QFY18E


Dabur GOOD

Consolidated revenue to grow by 13%, with domestic business growth at ~17%. We modeled double digit growth for all categories due to favorable base.

International business would also recover with favorable base. We expect 5% YoY growth in international revenue

EBITDA margin to expand by 82bps YoY to 18.8% (favorable base as margin had contracted by 114bps in 3QFY17). EBITDA to grow by 18.5% YoY

Commentary on rural growth and wholesale channels

Commentary on competition, especially Patanjali

New launches strategy

Britannia GOOD

We model 12% revenue growth with volume growth of 9% (6% in 2QFY18 and 2% in 3QFY17)

Input price softening and cost-control initiatives would result in expanding EBITDA margin by 171bps YoY to 15.4%. EBITDA to grow by 26% YoY

Change in competitiveness post GST, especially after a rise in taxes in the value segment

Commentary on new launches

Scope for further cost control

Marico AVG

We model 16.5% domestic revenue growth, with volume growth of ~11% (8% in 2QFY18 and -4% in 3QFY17)

International business to grow by 8%, with healthy growth from Bangladesh

Copra inflation remained high during the quarter, up 65% YoY. Marico has taken ~10% price hike on Parachute during the quarter. Still we model 180bps fall in gross margins

EBITDA margin can be down by 82bps to 18.4%. EBITDA to grow by 10% YoY

Commentary on copra prices

Outlook on youth product category and strategy on new launches

Pricing strategy for the next few quarters

CSD channel improvement

Improvement in the international business


5


COMPANY 3QFY18E


Colgate GOOD

We expect 16% revenue growth. Volume growth of 13.5%, driven by favorable base (-12% in 3QFY17 and -1% in 2QFY18)

Gross margin would continue to expand, with 62bps YoY expansion to 64.5%

We model 22% increase in ASP (down by 21% in 3QFY17)

EBITDA margin to expand by 114bps YoY to 25.6%. EBITDA to grow by 21%

Change in market share

New product launches

ASP spends, especially with increased competition from Patanjali

Emami GOOD

We expect 16.7% revenue growth, with domestic business to grow by ~16%. We build 11% domestic volume growth

International performance to improve, and we expect 18% growth (2QFY18/3QFY17 registered +22/-16% growth

We expect gross margin to stable at ~68%. While operating leverage should support the expansion of EBITDA margin by 42bps to 36.1%. EBITDA to grow by 18% YoY

Outlook on Mentha oil

Kesh King growth outlook

Price hike strategy

Commentary on new launches

Commentary on international business

Jubilant FoodWorks

GOOD

We model 16% revenue growth, driven by 11% SSG (excluding the menu price increase post GST rate revision ). SSG was at +5.5% in 2QFY18 and -3.3% in 3QFY17. ‘Everyday value offers’, with improvement in the taste of pizzas should support the SSG. We model 10 stores net addition

We built ~14.3% EBITDA margin, up by ~450bps YoY

Customer feedback on change in pizza taste

Strategy of the new management team

Outlook on store addition in FY19-20

Competitive intensity, pricing strategy

Outlook on SSG post GST rate revision


6

Appliances: Anticipate Volume Acceleration

COMPANY 3QFY18E


Havells India AVG

We expect Havells (ex-Lloyd ) to register ~13% revenue growth. Cables, Fan and Switchgears to benefit from GST rate revision (Nov’17). We model 12/12/18/13% for Switch gears/Cables/Lighting/Consumer durables

We model EBITDA margin (ex-Lloyd) up by 77bps YoY to 13.4%, while with Lloyd, we expect margins expansion of 45bps to 13.2%

Outlook on housing activities

GST rate revision impact on Cables and Fan

Updates on Lloyd’s Consumer business particularly post change in energy efficiency norms

Voltas GOOD

We expect net revenue growth of 16%, led by 20% growth in UCP owing to pre-buying (change in energy efficiency norms) and favorable base of 5% decline. We expect EMPS segment to grow by 14%.

EBITDA margin to expand by 120bps to 8.7% during the quarter

Update on change in energy efficiency norms

GST implementation and channel restocking updates

Outlook on EMPS revenue and margin

Crompton Consumer

GOOD

We expect 15% revenue growth, driven by 17% growth in the Lighting and 15% growth from ECD segment. Full restocking in fans (Post GST) is expected during peak season (2HFY18)

We model 117bps EBITDA expansion to 12.3% driven by continued operational excellence

Growth in premium fans

Distribution expansion

Performance of new launches

Symphony GOOD

We expect net revenue growth of 25% (22.5% in 2QFY18 and 11% in 3QFY17) driven by 26% domestic growth (favorable base of 10% in Q3FY17) and 17% export growth

We model in-line EBITDA margins of 37.5%. Domestic EBIT growth of 26% and export EBIT growth of 21%

Performance of new product launches

Inventory levels in trade channels

GST impact on unorganised players

Outlook on exports and IMPCO

APPLIANCES: 3QFY18E RESULTS PREVIEW

7

Appliances: Anticipate Volume Acceleration

COMPANY 3QFY18E


V-Guard Industries

GOOD

We model 16.6% revenue growth for the quarter. We expect healthy growth across the products.

We expect 13/14/15/18/18/16% growth for Stabilisers/UPS/Pumps/Cables/Water Heaters/Fans

We expect 163bps increase in EBITDA margin to 10% due to a low base of last year as the company had to give higher discounts during demonet

GST rate revision impact on Cables and Fan

Non-south performance

Performance of new launches

Outlook on input cost inlfation

TTK Prestige GOOD

We expect net revenue growth of 19%, led by 16/26/19/20% growth in Cookers/Cookware/Appliances/Others respectively

EBITDA margin to expand by 128bps to 12% due to favorable base (contracted by 248bps in Q3FY17) and better product mix

Performance of new product launches

Commentary on recovery in trade channels

Witnessing any green shoots in rural demand

APPLIANCES: 3QFY18E RESULTS PREVIEW

8

Aviation: Good Quarter With Stable Cost Environment

COMPANY 3QFY18E


Interglobe GOOD

ASKM growth of 13% and PLF of 88% to boost revenue; Yield to improve by 7.5% on favorable market dynamics, base impact and revenue mgt as noticed in 2Q;

Delivery has been slow as it added 4 A320Neos in Oct And Nov’17

Expect EBITDAR margin to increase YoY owing to an improvement driven by positive currency movement and yield improvement, though ATF prices are up 11.2% YoY for the quarter

PAT to improve y-o-y owing to higher revenue and other income

Trend in yield and ancillary revenue Capex guidance for new aircraft addition plans

SpiceJet GOOD

Strong ASKM growth of 17.9% and 6.5% improvement in yield to boost revenue ; Load Factor to be strong at 93.8%

Expect EBITDAR margin to drop YoY owing to lower other operating income

PAT to improve sharply y-o-y, owing to higher revenue and lower interest cost

Trend in yield and ancillary revenue New aircraft addition guidance

AVIATION: 3QFY18E RESULTS PREVIEW

9

Lubricants: New capacity to drive growth

COMPANY 3QFY18E


Gulf Oil GOOD

We expect revenue growth of 26% YoY, driven by 20% YoY volume growth and 5% YoY realization growth

EBITDA margin expected to higher by 349bps on YoY to 18.6%, led by operating leverage, and higher B2C contribution

APAT to grow strongly by 51.6% YoY, owing to higher operating profit

Volume growth

Realization and product mix trend

Capacity utilization of new capacity

LUBRICANTS AND BUILDING MATERIALS: 3QFY18E RESULTS PREVIEW

Building Material: Pressure on realization to continue

COMPANY 3QFY18E


Finolex Industries AVG

We expect revenue growth of 5.2% YoY, driven by 16% YoY de-growth in Pipes & Fittings realization and 2% YoY drop in PVC Resin realization

Except for pressure on EBITDA margins (-804bps YoY), led by drop in realization

APAT to be lower by 30.2% YoY, owing lower operating profit

Target Price includes the value of holding in Finolex Cable, assigned holding company discount at 30% (Target Price = Core business value per share Rs 811 + Finolex Cables value per share Rs 89)

Volume growth

Realization and product mix trend

Status of capacity expansion plans

10

Alco-Bev: Volume growth and premiumisation to drive earnings

COMPANY 3QFY18E


United Spirits STRONG

Adjusted for franchising model in several states from 1st Jan’17, we expect underlying volume growth of 5% YoY and revenue growth of 8%

We model 430 bps YoY expansion in EBITDA margin aided by 470 bps expansion in GM due to lower input costs and partly due to franchising of lower margin Popular segment in several states

Outlook on recovery in volumes post demonetization, GST and highway ban and margins

Update on premiumisation

Regulatory environment especially punitive actions by any state government in light of upcoming budget and elections in several states

ALCO-BEVERAGE: 3QFY18E RESULTS PREVIEW

11

Financial Summary

Source: Company, HDFC sec Inst Research # EBITDA is EBITDAR * Includes Lloyd consumer


Company NET SALES (Rs bn) EBITDA (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS (Rs/sh)

3Q FY18E

QoQ (%)

YoY (%)

3Q FY18E

QoQ (%)

YoY (%)

3Q FY18E

QoQ (bps)

YoY (bps)

3Q FY18E

QoQ (%)

YoY (%)

3Q FY18E

2Q FY18

3Q FY17

FMCG

ITC 100.0 2.4 8.1 39.4 4.7 11.0 39.4 84.6 102.5 29.0 9.9 9.6 2.4 2.2 2.2

HUL 83.2 1.5 10.7 16.4 (2.4) 21.2 19.2 (104.0) 161.4 11.2 (10.3) 20.5 5.2 5.8 4.3

GCPL 26.4 5.7 10.4 6.0 10.3 15.8 0.2 94.8 107.0 4.1 13.6 14.8 12.2 10.7 10.6

Dabur 21.0 7.2 13.4 4.0 (5.8) 18.5 18.8 (259.9) 81.6 3.4 (5.2) 17.1 2.0 2.1 1.7

Britannia 25.6 0.0 12.0 3.9 4.3 26.0 15.4 56.8 170.8 2.7 4.0 23.1 22.6 21.8 18.4

Marico 16.2 5.6 14.5 3.0 15.2 9.6 18.4 153.7 (82.3) 2.1 12.6 8.7 1.6 1.4 1.5

Colgate 10.1 (6.6) 15.9 2.6 (13.6) 21.3 25.6 (209.1) 114.2 1.6 (10.9) 23.8 5.8 6.5 4.7

Emami 8.5 34.9 16.7 3.1 51.7 18.1 36.0 398.4 42.4 2.3 53.4 19.8 10.0 6.5 8.3

Jubilant Food 7.6 5.2 16.0 1.1 6.8 70.3 14.3 20.0 460.0 0.5 7.7 138.8 7.2 7.4 3.0

Aggregates 298.6 3.2 10.7 79.4 3.8 15.5 26.6 16.4 109.4 56.9 4.8 14.3

Consumer Durable

Havells* 20.2 13.6 34.1 2.7 3.5 39.4 13.2 (129.4) 49.5 1.8 9.3 20.4 2.6 1.9 2.2

Voltas 13.7 32.5 16.3 1.2 39.5 34.4 8.7 44 117 1.1 11.6 31.7 3.2 2.9 2.4

Crompton 10.2 6.6 15.1 1.3 4.6 27.2 12.3 (23.6) 117.0 0.8 (5.7) 31.9 1.2 1.3 0.9

Symphony 2.2 21.8 24.6 0.8 31.0 25.2 37.5 262.1 16.2 0.7 35.2 23.9 9.9 7.2 8.0

V-Guard 5.4 (4.3) 16.6 0.5 (19.8) 39.2 10.0 (194.4) 163.0 0.4 (16.1) 39.5 1.5 1.4 1.2

TTK Prestige 5.1 (1.0) 19.0 0.6 (1.7) 33.2 12.7 (9.3) 134.6 0.4 (3.1) 32.1 35.1 36.2 26.4

Aggregates 56.9 13.0 22.5 7.1 8.2 33.9 12.6 (56.2) 107.0 5.1 6.5 27.0

Lubricants

Gulf Oil 3.4 6.8 26.0 0.6 3.8 55.0 18.6 (52) 349 0.4 3.5 51.6 8.4 8.1 5.6

Building Material

Finolex Ind 6.0 28.3 5.2 0.9 82.9 (31.7) 14.9 444 (804) 0.5 83.0 (30.2) 4.2 2.3 6.0

Aviation

Interglobe# 61.5 23 16 19.2 33 23 31.3 190 240 7.3 49 32 19.0 41 32

SpiceJet # 20.5 25 13 4.9 18% 24% 24.0 210 (140) 1.7 16 57 2.8 16 57

ALCO-BEV

UNSP 24.1 23.4 (2.0) 3.9 23.8 34.1 16.3 6 439 2.2 34.8 52.3 15.5 11.5 10.2

12

Valuation Summary

# EBITDA is EBITDAR Source: Company, HDFC sec Inst Research NR: Not Rated TP is fair value for GCPL, Symphony, TTK Prestige since we don’t have coverage


Company MCap (Rs bn)

CMP (Rs) Reco. TP

(Rs)

EPS (Rs) P/E (x) EV/EBITDA (x) Core RoCE (%)

FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E ITC 3,068 269 BUY 358 9.3 10.3 11.5 28.8 26.2 23.5 18.5 16.7 14.8 35.6 35.8 37.5

HUL 2,976 1,375 BUY 1,514 24.1 29.7 35.9 57.1 46.2 38.3 39.2 32.4 27.4 72.1 81.0 83.6

GCPL 669 982 NR 995 21.7 25.4 29.0 45.2 38.7 33.8 33.1 28.4 24.8 17.2 19.5 21.8

Dabur 632 359 BUY 401 8.1 9.7 11.6 44.6 36.9 30.9 37.0 30.9 25.9 50.6 59.5 69.6

Britannia 566 4,720 BUY 5,312 85.8 106.9 131.6 55.0 44.2 35.9 35.9 29.6 24.4 42.9 50.9 54.4

Marico 407 315 BUY 374 6.9 9.1 10.9 45.9 34.7 28.9 32.5 25.8 21.9 49.5 66.9 75.8

Colgate 306 1,125 NEU 1,139 24.4 28.9 34.0 46.1 39.0 33.1 28.4 24.2 21.0 59.5 74.3 91.7

Emami 298 1,300 BUY 1,429 27.7 33.6 40.4 46.6 38.5 32.0 34.9 29.5 24.7 27.4 33.8 41.4

Jub. Food 127 1,927 BUY 2,124 24.6 38.1 47.8 78.3 50.6 40.3 32.6 23.4 19.0 26.1 44.9 62.6

Havells 309 550 BUY 616 11.5 14.6 18.1 48.0 37.8 30.4 31.7 25.4 20.9 31.2 30.0 36.7

Voltas 207 626 BUY 687 17.8 20.5 23.9 35.2 30.5 26.2 26.1 22.4 18.9 43.9 44.0 46.3

Crompton 174 270 BUY 300 5.3 7.1 8.7 50.7 38.3 31.0 31.4 24.3 19.7 48.3 62.5 75.8

Symphony 148 2,111 NR 2,328 30.5 40.7 51.7 82.6 69.2 51.9 67.1 56.2 41.5 117.1 107.6 116.1

V-Guard 100 236 BUY 260 4.3 5.9 7.5 55.4 40.3 31.6 39.4 29.5 23.6 29.6 37.1 41.9

TTK Prestige 92 8,000 NR 8,095 135.8 167.5 207.3 58.9 47.8 38.6 36.6 30.1 24.5 15.0 16.8 18.9

Gulf Oil 48 977 NEU 958 32.8 35.7 39.2 25.0 23.0 20.9 16.4 14.0 12.8 29.6 28.4 27.9

Finolex Ind 83 665 BUY 900 24.0 29.6 35.2 27.7 22.5 18.9 17.0 14.0 11.8 22.4 26.2 28.9

Interglobe 474 1,236 BUY 1,395 65.2 76.3 104.6 19.0 16.2 11.8 10.8 8.6 5.8 43.1 36.2 43.4

Spicejet 78 133 NEU 145 8.8 8.1 11.7 15.1 16.3 11.4 9.9 8.2 4.5 N.A. 90.1 61.7

United Spirits 558 3,828 SELL 2,550 38.8 55.4 66.5 99.0 69.3 57.8 47.7 37.9 33.4 27.3 29.2 26.6

13


Rating Definitions

BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period

NEUTRAL : Where the stock is expected to deliver (-) 10% to 10% returns over the next 12 month period

SELL : Where the stock is expected to deliver less than (-) 10% returns over the next 12 month period

Disclosure: We, Naveen Trivedi , MBA, Siddhant Chhabria, PGDBM, Vishal Rampuria, CA, Basanth Patil, MBA & Himanshu Shah, CA authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock –No HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. 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14

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naveen trivedi (fmcg, appliances) … - 3qfy18... · overall ebitda margin to expand by 103bps to...

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