Consumer staple companies are likely to witness a decent earnings growth in the quarter ended June 2021 led by high in-home consumption, hygiene product sales, spurt in healthcare products and continued rural demand.
In the case of discretionaries, on-trade sales numbers would be a long way off from Q1FY20 because of store closures. Consequently, while discretionary companies would show extremely strong revenue growth YoY, this would still be far below Q1FY20 sales, brokerage firm Motilal Oswal said in a report.
The brokerage house expects the topline of consumer goods companies to see a strong cumulative growth of around 19 percent in Q1FY22. Net profit is likely to rise 25 percent, while operating profit or EBITDA is expected to increase by 23 percent.
A large portion of this growth is likely to be the result of the low base – cumulative sales/EBITDA/PAT had collapsed to 17/29/23 percent due to regional lockdowns affecting both the supply chain and manufacturing.
"While the second wave impact this year was more pervasive, these critical factors held up well for staples – companies are likely to report revenue growth not just v/s 1QFY21 but 1QFY20 as well," Motilal Oswal said.
With the ongoing gradual unlock and trends observed in FY21, discretionary companies are set to witness a strong rebound over the remainder of the year – provided India does not see a third COVID wave, the vaccination pace remains healthy and the pandemic's impact on income/wealth is contained, the financial services provider said.
All companies are expected to report at least 9 percent YoY sales growth – barring Britannia Industries, which had a blowout base quarter, with 27 percent sales growth in Q1FY21.
Hindustan Unilever is likely to report 9 percent YoY sales growth (5 percent volume growth) and 2–3 percent EBITDA and PAT growth. ITC is expected to post 28 percent overall sales growth, with 22 percent volume growth in cigarettes, as per the report.
Meanwhile, most companies would experience some degree of material cost inflation and are likely to experience gross margin pressure, despite price increases taken during the quarter. While mobility was affected during the quarter, operations and supply chains were largely unaffected.
Among FMCG companies, Motilal Oswal likes Dabur India as it offers the best visibility given successful efforts by the new CEO to boost growth, an attractive rural growth outlook and strong traction in the profitable healthcare business.
The brokerage is also positive on Hindustan Unilever as rural demand remains resilient and demand in the health, hygiene, and nutrition categories remains healthy.
It has added Godrej Consumer Products to its top picks after the new CEO announcement. The appointment of a new CEO at GCPL offers scope for transformative change, especially if they are able to strongly grow the domestic business and usher better capital allocation, Motilal Oswal said.
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