Review of FMCG Stocks By Nirmal Bang Institutional Equities

Decent Top-line Growth Seen, But PAT Performance May Be Mixed For the seven companies in our FMCG sector coverage universe, we expect a moderate YoY net sales growth of ~14% YoY for Colgate-Palmolive (India) or CPIL, P&G Hygiene and Healthcare (PGHH) and Britannia Industries (BIL). While Jubilant FoodWorks is likely to report more than 21% sales growth, same-store sales (SSG) growth is likely to be muted at ~2%. Sales are likely to be tepid for Nestle India, GlaxoSmithKline Consumer and United Breweries. CPIL is also likely to report healthy EBITDA and PAT growth of 28.6% YoY each led by ~300bps gross margin improvement because of a low base and also continuous premiumisation and moderation in advertising and promotion (A&P) costs. BIL is also likely to report ~30% EBITDA and PAT growth YoY each, mainly because of a low gross margin base. However, with gross margin benefit already on the base going forward, extremely low A&P spending in 1HFY15 and increased advertisement expenditure going forward, earnings growth is likely to be under pressure. For P&GHH, as indicated earlier, because of extremely high margin in the base period (partly because of one-offs), higher A&P spending on Vicks in the current year and relative moderation in sales, EBITDA and PAT are likely to decline YoY in 3QFY15E as well as 4QFY15E (June year-end). We regard this as a small blip in what is a tremendous long-term earnings growth story. United Breweries is expected to report YoY decline in PAT, while Jubilant FoodWorks is likely to post single-digit PAT growth. Nestle India and GSK Consumer are expected to report a healthy PAT growth - in excess of 20% YoY.

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