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FMCG Sector: Q3FY18 results preview -
FMCG Sector: Q3FY18 results preview
Reliance Securities | Published: 10 Jan, 2018  | Source :
Our consumer sector coverage universe comprising of 18 companies is poised to report a stellar performance in 3QFY18 albeit due to favourable base effect (Demonetisation in the base quarter). We expect the sector to report 12.1% revenue and 13.3% earnings growth in the quarter. Excluding ITC, the growth is estimated to be even higher at 12.8% for revenues and 17.8% for earnings.

We expect the growth momentum to improve in the coming quarters on the back of trade channel stabilisation post GST roll-out, two consecutive good monsoons aiding rural growth, increasing premiumisation, strong pricing power and increasing share of the organised players in the GST
regime. The sector currently trades at rich valuations of 35x FY19E earnings, while excluding ITC, the multiples are even richer at 40.7x earnings. We expect the current valuations to sustain, as mediumterm growth momentum is on the cusp of taking off due to above mentioned factors and hence, we remain Positive on the sector. Our top picks are: ITC, Asian Paints, Colgate-Palmolive and Kajaria Ceramics.

Outlook & Valuation

We expect our consumer sector coverage universe to report 11.8% and 15.8% growth in revenue and earnings, respectively in FY18E, and the growth is estimated to improve to 14%/18% in FY19E. While valuations at 40.7x FY19E earnings ex-ITC are rich, we expect the sector to command high multiples on visible improvement in growth trajectory in coming years. Key risks for the sector are: delay in recovery in consumer demand, sharp increase in input costs and delay in implementation of E-Way bill system. In that case, the sector is likely to go through a prolonged time correction than price correction, in our view.
Our top picks are: ITC (muted expectations and attractive valuations), Kajaria Ceramics (strong brand and increasing market share post GST roll-out), Asian Paints (double-digit volume growth and reasonable time correction) and Colgate-Palmolive (renewed efforts to recover market share loss and benefits of lower GST rates).   Read full report Click here to read the full report

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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.