Siddhant Chhabria (FMCG, Appliances) (Alco-Bev, Hotels) … - 1QFY20... · 2019. 7. 9. · Consumer...
Transcript of Siddhant Chhabria (FMCG, Appliances) (Alco-Bev, Hotels) … - 1QFY20... · 2019. 7. 9. · Consumer...
Consumer
1QFY20E Results Preview
9 Jul 2019
Naveen Trivedi (FMCG, Appliances) [email protected],+91-22-6171 7324
Siddhant Chhabria (FMCG, Appliances) [email protected],+91-22-6171 7336
Himanshu Shah (Alco-Bev, Hotels) [email protected], +91-22-6171 7315
Jay Gandhi (Jewellery) [email protected], +91-22-6171 7320
Rohit Harlikar (Jewellery) [email protected], +91-22-6639 3036
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FMCG: Weak macros dent demand Broad-based slowdown: Our FMCG coverage universe is expected to
deliver 9/9% YoY revenue/EBITDA growth in 1QFY20 (vs. 15/18% in 1QFY19 and 9/8% in 4QFY19). Rural stress continues with growth now at par with urban growth (vs. 1.2-1.3x urban in FY19). Low farm incomes, tight liquidity and weak consumer sentiments have dented demand. Slowdown is prevalent across categories with exceptions like summer products (juices, ice cream etc). We believe stronger players (HUL and BRIT) will gain healthy market share in a challenging period.
Modest margin expansion: Gross margin pressure has eased vs. FY19. Players like Marico, Jubilant FoodWorks, Britannia are expected to expand gross margins. Nestle, Dabur and Emami are expected to witness gross margin pressure.
4QFY19 Result Outliers: Jubilant FoodWorks and Marico
Outlook: We have a cautiously optimistic outlook on the sector. We expect demand environment to improve in the near term supported by (a) Fiscal and monetary stimulus, (b) Strong NPD pipeline coupled with aggressive A&P spends and (c) Normalized trade channels. However, the key risks to our estimates in FY20 could be driven by (a) Elongated rural stress, (b) Sharp commodity inflation and (c) Below normal monsoon.
Recommendations: We continue to like stocks where earnings acceleration is not fully priced-in and have enough tailwinds in the business. We recommend Jubilant FoodWorks (JFL) and Marico.
JFL: Although SSG is expected to moderate in the near-term, we believe price hikes and cost efficiency drive will maintain earnings momentum in FY20.
Marico is benefiting from onset of Copra harvest in Apr-19 which has resulted in cost deflation (25-30% decline YoY). Co. is reinvesting GM expansion into aggressive A&P spend to support new launches.
Top picks in FMCG: Jubilant FoodWorks and Marico
FMCG: Expect 8.6% Sales and 9.3% EBITDA Growth
CONSUMER: 1QFY20E RESULTS PREVIEW
Source: Company, HDFC sec Inst Research
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Sales Gr. (%) EBITDA Gr. (%)
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FMCG: Weak macros dent demand
COMPANY 1QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
ITC AVG
We expect cigarette revenue growth of 9% YoY, with 5.5% volume growth YoY (+1% in 1QFY19 and +7.5% in 4QFY19). Non-Cigarette business is expected to grow by 11% (11.6% in 1QFY19 and 15% in 4QFY19) with FMCG/Hotel/Agri/Paper business to register 10/12/9/14% growth respectively. Restructuring in retail business will have an impact on FMCG growth but is favourable for EBIT margin
We expect cigarette EBIT growth of 9.2% YoY (8.7% in 1QFY19 and 10% in 4QFY19). We model FMCG EBIT Margin at 3.5% (1.7% in 1QFY19 and 4% in 4QFY19)
We model overall EBITDA margin to be flat at 38.5% (+100bps in 1QFY19 and -87bps in 4QFY18). EBITDA to grow by 9% YoY (12% in 1QFY19 and 10% in 4QFY19)
Cigarette volume growth
FMCG business EBIT margin
Recovery in Paper Business
Outlook on Agri and Hotel businesses
HUL AVG
We expect revenue growth of 8% (16% in 1QFY19 and 9.3% in 4QFY19). We model domestic volume growth of 5.5% (12% in 1QFY19 and 7% in 4QFY19)
We model 9/6/10% revenue growth in Home Care/PC/F&R segments, respectively
We build 40bps dip in GM (188bps in 1QFY19 and -27bps in 4QFY19). Cost control initiatives will continue to benefit, we expect EBITDA margin to expand by 51bps YoY to 24.2% (+185bps YoY in 1QFY19 and +83bps YoY in 4QFY19). EBITDA to grow by 10%
Improvement in rural business
Commentary on competition, especially in natural products and oral care
Pricing actions and new launches strategy
Sustainability of cost saving initiatives
FMCG: 1QFY20E RESULTS PREVIEW
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FMCG: Weak macros dent demand
COMPANY 1QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
Nestle India AVG
We model 8% revenue growth (12% in 2QCY18 and 9% in 1QCY19). New product launches and aggressive marketing will support the revenue growth.
We model 85bps dip in GM on account of increase in input prices and unfavorable base. We model EBITDA margin decline of 48bps to 23.9%. EBITDA to grow by 6% YoY (41% in 2QCY18 and 6% in 1QCY19).
Commentary on recovery in trade channels and rural demand
New product pipeline
Dabur AVG
Consolidated revenue to grow by 6.5% (16% in 1QFY19 and 4.7% in 4QFY19). We model domestic business growth at 7% (4.5% volume growth) with Hair care/oral care/health supplements/home care/food expected to grow by 2/8/6/8/14%. Strong summer will drive beverages
We expect international business to grow by 5% (13% in 1QFY19 and 2% in 4QFY19). Currency pressure is now behind, however demand environment is challenged in few economies
We model 50bps dip in GM to 49.1% and expect 5% decline in A&P due to high base and slow volume growth. We model 11bps dip in EBITDA margin to 18.4% (+130bps YoY in 1QFY19 and -238bps in 4QFY19). EBITDA to grow by 6% YoY
Commentary on rural growth and wholesale channels
Any change in consumer preference towards naturals/ayurvedic products (mainly in oral care)
New launches strategy
Britannia AVG
We model 9% revenue growth (13.6% in 1QFY19 and 10.1% in 4QFY19) driven by volume growth of 6% (12.5% in 1QFY19 and 7% in 4QFY19)
Benign input inflation and cost-control initiatives would result in 20bps expansion in EBITDA margin to 15.5% (+79bps YoY in 4QFY18 and -5bps YoY in 4QFY19). EBITDA to grow by 10.5%
Change in competitiveness post GST, especially after a rise in taxes in the value segment
Commentary on new launches
Commentary on the completion of plant
FMCG: 1QFY20E RESULTS PREVIEW
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FMCG: Weak macros dent demand
COMPANY 1QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
Marico GOOD
We model 6% domestic revenue growth (12% in 1QFY19 and 7% in 4QFY19), with domestic volume growth of 6% (12% in 1QFY19 and 8% in 4QFY19).
We model PCNO val/vol growth of 4/6% val/vol growth. Saffola is expected to growth at 6/7% val/vol while VAHO to report 8/4% val/vol growth.
International is expected to grow by 13% (9% in 1QFY19 and 14% in 4QFY19), driven by portfolio diversification in Bangladesh and GTM initiatives in Vietnam
We model 350bps expansion in GM to 45.8%. We expect A&P spend to grow by 25% to support NPD. EBITDA margin to expand by 176bps (-182bps YoY) to 19.3%. EBITDA to grow by 18%.
Commentary on copra prices post increase in MSP
PCNO pricing strategy post copra deflation
Updates on Saffola recovery
Commentary on CSD channel
NPD pipeline
Improvement in international business
Colgate WEAK
We expect 6% revenue growth with 5% volume growth (4% in 1QFY19 and 5% in 4QFY19). Pan-India launch of Swarna and re-launches in core portfolio will curb market share losses.
We model GM decline of 90bps YoY to 65%. We expect that ASP expense would continue to increase in support of new launches and re-launches. We model 8% increase in ASP (14% of sales)
EBITDA margin is expected to dip by 12bps YoY to 26.9% (+436bps in 1QFY19 and -128bps in 4QFY19). EBITDA to grow by 5.5% (+27% in 1QFY19 and +1% in 4QFY19)
Toothpaste volume growth and market share change
Feedback on Swarna pan-India launch ASP spends, especially with increased
competition from Dabur
FMCG: 1QFY20E RESULTS PREVIEW
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FMCG: Weak macros dent demand
COMPANY 1QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
Emami WEAK
We expect weak revenue growth of 4.5% YoY owing to sluggish performance from both domestic and international business.
Domestic business will be impacted by general slowdown and slow recovery of core business. We model 2.5% domestic revenue growth (21% in 1QFY19 and 3% in 4QFY19) led by flat volume growth (16% in 1QFY19 and flat in 4QFY19)
International business to post 25% growth (7% in 1QFY19 and 19% in 4QFY19) led by acquisition of ‘Crème 21’.
We model GM contraction by 226ps to 64% owing to steep inflation in menthol oil (+5bps in 1QFY19 and -438bps in 4QFY19). EBITDA margin to decline by 138bps to 18.8% ( +495bps in 1QFY19 and -389bps in 4QFY19). EBITDA to decline by 2% YoY.
Kesh King growth outlook Price hike strategy Commentary on new launches Outlook on Mentha oil Distribution strategy Commentary on international business
Jubilant FoodWorks
AVG
We model 12% revenue growth, driven by 6% SSG (26% in 1QFY19 and 6% in 4QFY19). Our SSG estimates moderate given a high base, slow down and splitting stores. Focus has now shifted towards new stores. We model 20 Domino’s store additions in 1QFY20.
We model GM to expand by 157bps YoY to 76.1% (-183bps in 1QFY19 and 176bps in 4QFY19) drive by benign food inflation and benefit from new contract with PepsiCo. We model EBITDA margin expansion of 65bps YoY to 17.2% driven by favorable operating leverage, reduction in Dunkin losses YoY and cost efficiency drive. EBITDA to grow by 17% YoY.
Commentary on product launches Outlook on store addition in FY19-20 Competitive intensity, pricing strategy Outlook on sustainable SSG
FMCG: 1QFY20E RESULTS PREVIEW
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Consumer Appliances: Cooling products were hot Excitement over summer products: Our coverage universe is
expected to post 13/14% revenue/EBITDA growth (15/29% in 1QFY19 and 13/-6% in 3QFY19). Slowdown will have its impact on 1Q performance for most appliance categories but strong summer 2019 will significantly drive cooling products (refer to our recent thematic Summer-19 to end with a bang!).
Expect robust growth for RAC, Air Coolers, Stabilizer: Summer was strong pan-India (unlike last year, south washout) and was hotter than last year. Extended winter impacted primary growth for March (4QFY19 was weak for all cooling product cos) and resulted into below normal channel inventory in trade. Therefore, many cooling products were stocked out when summer started well in April. Summer in North was delayed and it impacted May performance, however, summer rebounded strongly in June for North and resulted into strong offtake. Our channel checks suggests (1) Strong RAC, Air Cooler and Stabilizer offtake in 1QFY20, (2) Normal channel inventory (to drive non-season quarter performance), (3) Consumer buying in RAC has shifted towards fixed speed and lower priced products (Voltas to gain further market share), and (4) Consumer financing for RAC is now at 45% vs. 35% mix in 2018.
Recommendation: On the back of a challenging FY19, these cos have an opportunity to mean revert towards their long-term average volume growth driven by a normal summer, pent up demand and 4 quarters of favorable base. Categories like RAC, Air cooler, Fans, Stabilizer and Inverter will optically report strong performance in the near term driven by healthy offtake.
Our top picks in Appliances: Voltas and Symphony
Source: Company, HDFC sec Inst Research Note: V-Guard EBITDA growth is led by a favorable base (impact of one-time brand spend). Adj. EBITDA growth is at 16%.
APPLIANCES: 1QFY20E RESULTS PREVIEW
Appliances: Expect 13% Sales And 14% EBITDA Growth
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Consumer Appliances: Cooling products were hot
COMPANY 1QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
Havells India AVG
We expect Havells (ex-Lloyd ) to register 12% revenue growth (19% in 1QFY19 and 14% in 4QFY19). We model 10/12/12/15% for Switchgears/Cables/Lighting/ECD. We model 14% growth in Lloyd (14% in 1QFY19 and -9% in 4QFY19) driven by robust RAC offtake but weak panels offtake.
We model flat (ex-Lloyd) EBITDA margin (+349bps in 1QFY19 and -90bps in 4QFY19) owing to modest volume growth. Lloyd, we expect EBITDA margin of 9.2% (9.3% in 1QFY19 and 3.4% in 4QFY19). We model overall EBITDA growth of 14%.
Outlook on housing demand
Commentary on new launches in consumer durables
Update on Lloyd’s Consumer business
Growth outlook
Commentary on commodity inflation and pricing actions
Voltas
GOOD
We expect consolidated net revenue growth of 18% YoY. UCP segment to report 25% growth (-2% in 1QFY19 and -6% in 4QFY19) led by scorching summer, market share gains and favorable base. We model 8% growth in EMPS (31% in 1QFY19 and 12% in 4QFY19).
We model UCP modest EBIT margin expansion of 37bps YoY to 12.9% owing to high channel inventory and back-ended volume growth in the season. EMPS EBIT to contract by 237bps YoY to 7.8% (10.2% in 1QFY19 and 4.5% in 4QFY19)
EBITDA margin to decline by 56bps YoY to 10.8%. We model overall EBITDA growth of 12%.
RAC channel inventory
Pricing strategy
Competitiveness in RAC market
Outlook on EMPS revenue and margin
APPLIANCES: 1QFY20E RESULTS PREVIEW
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Consumer Appliances: Cooling products were hot
COMPANY 1QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
Crompton Consumer
AVG
We expect 12% revenue growth, driven by 6% growth from Lighting (10% in 1QFY19 and 11% in 4QFY19) and 15% growth from ECD segment (23% in 1QFY19 and 10% in 4QFY19). Lighting growth will be impacted by decline in conventional lighting and price erosion in LEDs
We model 24bps expansion in GM (+180bps in 1QFY19 and -64bps in 4QFY19). We expect recovery in lighting margins to sustain, model 10.5% EBIT margin (6.7% in 1QFY19 and 11.5% in 4QFY19). ECD will maintain EBIT margin at 19.6%.
We model overall EBITDA growth of 20% resulting in 95bps margin expansion to 14.8%
Growth in premium fans
Commentary on GTM initiatives
Performance of new launches
Margin outlook for lighting
V-Guard Industries
AVG
We model 12% YoY revenue growth (19% in 1QFY19 and 12% in 4QFY19) for the quarter. Electronics segment is expected to drive growth owing to a scorching summer. However, electrical segment (cables and pump)will drag performance owing to near-term slowdown. We expect 15/10/7/6/11/13% growth for Stabilizers/UPS/Pumps/Cables/Water Heaters/Fans.
We model 61bps expansion in gross margin (292bps in 1QFY19 and 31bps in 4QFY19) to 31% driven by richer product mix. We expect robust EBITDA growth of 41% (EBITDA margin expansion 175bps) owing to one-time brand spend in 1QFY19. Adjusting for one-time brand spend, EBITDA margin will expand by 30bps YoY and EBITDA will grow by 16%.
Commentary on South performance
Non-south performance
Performance of new launches
Growth outlook
Outlook on input cost inflation and pricing action
APPLIANCES: 1QFY20E RESULTS PREVIEW
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Consumer Appliances: Cooling products were hot
COMPANY 1QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
TTK Prestige AVG
We expect net revenue growth of 7% (25% in 1QFY19 and 7% in 4QFY19). We model 3/6/11% growth in Cookers/Cookware/Appliances respectively.
We model flat EBITDA margin at 13.3% (74bps in 1QFY19 and 52bps in 4QFY19). We expect EBITDA to grow by 8%
Performance of new product launches
Commentary on recovery in trade channels
Commentary on rural demand
Commodity inflation and pricing actions
Symphony (Standalone)
GOOD
We expect net revenue to jump by 70% (-39% in 1QFY19 and -11% in 4QFY19) driven by favourable base, strong summer and normal inventory in the trade channel. We model 80% revenue growth in the domestic business and 25% growth in the international business.
We model gross margin increase of +100bps (+325bps in 1QFY19 and -553bps in 4QFY19) to 55.5%. We model EBITDA margin expansion of +1,929bps (-1,372bps in 1QFY19, -218bps in 4QFY19) to 29.5%.
Channel feedback
Inventory levels in trade channel
GST and erratic summer impact on unorganised players
Performance of Climate Technologies and other geographies
Outlook on exports
APPLIANCES: 1QFY20E RESULTS PREVIEW
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Financial summary
Source: Company, HDFC sec Inst Research
CONSUMER: 1QFY20E RESULTS PREVIEW
Company NET SALES (Rs bn) EBITDA (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS (Rs/sh)
1Q FY20E
QoQ (%)
YoY (%)
1Q FY20E
QoQ (%)
YoY (%)
1Q FY20E
QoQ (%)
YoY (%)
1Q FY20E
QoQ (%)
YoY (%)
1Q FY20E
4Q FY19
1Q FY19
FMCG
ITC 119.4 (2.2) 9.8 45.8 0.2 9.0 38.5 108 (10) 31.1 (9.5) 10.2 2.5 2.8 2.3
HUL 101.1 3.1 8.1 24.9 7.1 10.4 24.2 90 51 17.3 8.5 10.1 8.0 7.3 7.2
Nestle 29.2 (2.7) 8.3 7.0 (6.8) 6.1 23.9 (104) (48) 4.3 (7.0) 9.0 44.7 48.0 41.0
Dabur 22.2 4.2 6.5 4.1 (10.6) 5.9 18.4 (304) (11) 3.5 (4.7) 7.6 2.0 2.1 1.9
Britannia 27.8 (0.0) 9.1 4.3 (1.4) 10.5 15.5 (10) 19 2.9 (1.6) 12.1 12.0 12.2 10.7
Marico 21.8 35.4 7.5 4.2 48.4 18.3 19.3 168 176 3.0 (24.5) 18.4 2.3 1.7 2.0
Colgate 11.0 (4.3) 6.0 3.0 (4.3) 5.5 26.9 1 (13) 1.8 (10.8) 7.8 6.6 7.4 6.1
Emami 6.4 0.5 4.6 1.2 (21.9) (2.2) 18.8 (540) (131) 0.7 (32.8) 2.0 1.6 2.4 1.6
Jubilant Food 9.6 10.5 11.9 1.7 11.9 16.2 17.3 20 65 0.9 10.4 17.2 6.6 6.0 5.7
Aggregates 348.5 1.9 8.6 96.0 1.8 9.3 27.6 (1) 17 65.5 (5.6) 10.3
Consumer
Durable
Havells 29.3 6.4 12.8 3.6 10.4 14.2 12.2 44 15 2.4 16.6 14.6 3.9 3.3 3.4
Voltas 25.3 22.6 17.7 2.7 88.5 11.9 10.8 376 -56 2.1 47.5 12.0 6.2 4.2 5.6
Crompton 13.5 11.9 12.1 2.0 18.9 19.8 14.8 87 95 1.3 17.0 25.5 2.1 1.8 1.7
Symphony 1.3 (2.5) 70.3 0.3 (32.6) 2,665.3 20.6 (915) 1,929 0.2 (27.2) 380.4 3.4 4.7 0.7
V-Guard 7.1 (3.8) 12.0 0.7 (16.0) 41.2 9.2 (134) 191 0.5 (15.2) 19.3 1.2 1.4 1.0
TTK Prestige 4.5 1.4 7.7 0.6 (6.4) 8.2 13.3 (111) 6 0.4 (9.0) 11.0 28.7 31.6 25.9
Aggregates 81.0 10.3 14.4 9.8 19.9 19.0 12.1 97 46 6.9 16.4 19.0
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Valuation summary
Source: Company, HDFC sec Inst Research NR: Not Rated | TP is fair value for Nestle India and TTK Prestige since we don’t have active coverage
CONSUMER: 1QFY20E RESULTS PREVIEW
Company MCap
(Rs bn) CMP (Rs)
Reco. TP
(Rs)
EPS (Rs) P/E (x) EV/EBITDA (x) Core RoCE (%)
FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E
FMCG
HUL 3,759 1,740 NEU 1,817 28.1 33.3 41.0 61.8 52.3 42.4 41.6 37.8 29.6 69.2 28.5 22.1
ITC 3,084 273 BUY 397 10.4 11.3 12.4 26.2 24.1 22.0 16.7 15.0 13.4 39.2 40.9 43.7
Nestle 1,124 11,655 NR 11,064 167.1 206.5 245.9 69.7 56.4 47.4 40.1 34.4 29.4 82.1 101.4 121.4
Dabur 716 406 BUY 457 8.2 10.0 12.0 49.6 40.6 33.8 39.7 33.4 28.0 47.5 53.9 60.6
Britannia 663 2,763 NEU 3,011 48.1 55.2 66.9 57.5 50.1 41.3 37.5 31.9 26.4 39.2 40.4 45.0
Marico 478 370 BUY 384 7.2 9.0 10.8 51.4 41.0 34.2 37.2 30.1 25.8 48.8 48.1 54.5
Colgate 317 1,164 NEU 1,231 27.7 31.5 36.4 42.0 36.9 32.0 25.3 22.2 19.3 67.2 72.4 80.5
Emami 140 300 BUY 500 11.0 13.6 15.6 27.3 22.0 19.2 18.4 15.3 13.3 21.5 28.4 34.1
Jub. Food 161 1,222 BUY 1,755 24.1 30.4 38.1 50.7 40.2 32.0 25.8 20.8 16.7 45.8 56.6 68.6
Consumer
Durable
Havells 462 739 NEU 732 12.7 16.7 20.3 58.4 44.3 36.3 37.6 29.1 24.2 27.7 31.5 36.3
Voltas 197 596 BUY 677 15.6 19.9 24.2 38.2 29.9 24.6 28.4 22.2 17.7 31.4 29.6 32.3
Crompton 143 228 BUY 300 5.9 7.3 8.6 38.3 31.3 26.5 24.4 20.5 17.5 39.4 42.7 48.4
Symphony 87 1,237 BUY 1,626 15.4 29.6 36.1 80.3 41.7 34.2 63.4 30.3 24.8 30.6 49.4 56.2
V-Guard 101 238 BUY 250 4.1 5.7 7.0 58.7 41.9 33.9 45.6 32.0 26.0 21.1 28.2 31.6
TTK Prestige 76 6,583 NR 7,388 138.7 157.9 184.7 47.5 41.7 35.6 25.4 21.9 18.5 21.6 21.9 23.5
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1QFY20E: FY20 year of consolidation!
ALCO-BEV: 1QFY20E RESULTS PREVIEW
United Spirits : Low base to support EBITDA growth
We expect UNSP’s volumes to grow by 8% YoY (P&A 6%, Popular 10%), revenue +9.6%, EBITDA 29% and PAT 30%. Volume growth is driven by shift in sales of 4QFY19 to 1QFY20 in absence of excise increase in states like Karnatala.
Despite decline in gross margin (-405bps YoY) on account of higher ENA and bottle prices; EBITDA growth to outpace revenue on account of lower A&P spends and other opex driven by efficiencies.
Potential price increase in Karnataka (30-35% of UNSP’s volumes) could be positive. Sale of non-core assets (Rs 11 in our TP) over next 2-3 years is a additional trigger. Persistent increase in state excise levies leading to shift in consumer wallet share and lack of premiumisation are key risks.
UNSP registered revenue/EBITDA/earnings CAGR of 2/16/33% over FY17-19E. We estimate UNSP to report revenue/EBITDA/earnings CAGR of 10/19/24% over FY19-21E.
Reiterate BUY with TP of Rs 650 (40x FY21E EPS). Premiumisation and margin expansion are key re-rating trigger.
Radico Khaitan : Opportunity galore!
• Radico reported flat earnings at ~Rs 0.7bn over FY12-17 due to subdued volume growth, lack of price increases from state government, higher raw material prices and steep increase in taxes.
• However, Radico’s earnings rebound strongly over FY17-19E (51% CAGR) on account of curb on monopolistic distribution in UP (20-25% of RDCK’s revenue) w.e.f. Apr-18 leading to healthy volume growth, softer raw-material prices aided by captive manufacturing and price increases across majority of the states and balance sheet deleveraging (net debt down from Rs 9bn in FY16 to Rs 3.2bn as at FY19).
• In absence of price increases from state governments, increase in RM prices (both ENA and bottles); we estimate Radico’s revenue growth to moderate and margin to be flat in FY20. Radico’s stock price has thus corrected by ~30%. It provides an attractive entry opportunity. Reiterate BUY with TP of Rs 478 @ 26x FY21E EPS viz. 35% discount to UNSP. This is owing to latter’s large scale of operations, improving margins and potential sale of non-core assets that may reduce debt.
• Historically, Radico has traded at 20x 1-yr forward PE multiple. Healthy volume growth and mix improvement (premiumisation and higher share of whisky) is inevitable for further re-rating. With increased A&P spends (re-investment of gross margin expansion), this is likely.
• We estimate Radico to report revenue/EBITDA/earnings CAGR of 8/9/14% over FY19-21E. This is against a CAGR of 12/28/51% over FY17-19E.
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1QFY20E: Healthy performance
ALCO-BEV: 1QFY20E RESULTS PREVIEW
COMPANY 1QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
Alco-Bev
UNITED SPIRITS Strong
We expect the volumes to grow by 8% YoY. Revenue to grow by 10% on account of mix change and premiumisation.
We have modeled 205bps YoY increase in the EBITDA margins. Decline in gross margin of 405bps YoY on account of increase in RM prices, to be offset by lower employee costs, A&P spends and other opex.
Outlook on volumes, raw material prices due to increase in ENA prices, competitive environment and route-to-market changes, if any
Update on premiumisation
RADICO KHAITAN Average
We expect Radico to report volume growth of ~6.8% YoY. Prestige and above to grow at healthy 13% and Popular by ~4%. Healthy growth is partly on account of shift of 4QFY19 sales on account of de-stocking due to license renewal. Revenue to grow by ~9% YoY (IMFL 11.6% and non-IMFL -1%).
EBITDA to grow by modest ~5% (post six healthy quarter of double digit growth) owing to base effect, softer volume growth, increase in RM prices and marginal impact from Rampur factory closure. PAT to grow by ~12%.
Outlook on volumes, price increases and raw material prices due to increase in ENA prices
Update on premiumisation and uptake of 8PM premium black whisky
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1QFY20E: Financial Summary
ALCO-BEV: 1QFY20E RESULTS PREVIEW
Source : Company, HDFC sec Inst Research
Source : Company, HDFC sec Inst Research
Peer Valuations
COMPANY
NET SALES (Rs bn) EBITDA (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS (Rs/sh)
1Q FY20E
QoQ (%)
YoY (%)
1Q FY20E
QoQ (%)
YoY (%)
1Q FY20E
QoQ (bps)
YoY (bps)
1Q FY20E
QoQ (%)
YoY (%)
1Q FY20E
4Q FY19E
1Q FY19
ALCO-BEV
United Spirits 22.06 (2.0) 9.6 2.95 4.2 29.4 13.4 79 bps 204 bps 1.52 14.8 29.9 2.1 1.8 1.6
Radico Khaitan 5.63 10.4 9.0 0.96 33.6 5.0 17.0 295 bps -66 bps 0.53 35.9 12.0 4.0 2.9 3.6
Aggregate 27.69 0.3 9.5 3.91 10.1 22.4 14.1 125 bps 149 bps 2.05 19.6 24.7
COMPANY Mcap
(Rs bn) CMP (Rs)
RECO TP EPS (Rs/sh) P/E (x) EV/EBITDA (x) RoIC (%)
(Rs) FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E ALCO-BEV United Spirits 413.3 569 BUY 651 10.2 11.4 15.7 55.6 49.7 36.3 32.6 28.8 22.3 14.7 15.0 18.7
Radico Khaitan 38.1 287 BUY 481 14.1 15.9 18.5 20.3 18.2 15.6 11.8
10.5 9.0 11.5 12.3 13.2
16
1QFY20E: Slowdown in auto, a risk
LUBRICANTS: 1QFY20E RESULTS PREVIEW
COMPANY 1QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
Lubricants
GULF OIL LUBRICANTS STRONG
• We expect Gulf to report ~30.5mn KL of volumes (+11% YoY). Revenues to grow by ~13.3%.
• Led by price increases, we estimate EBITDA to grow by ~16.9%YoY.
• Drivers for growth are new product launches, focus on OEM tie-ups and expansion of distribution channels.
• PAT to grow at 18.7% YoY.
• Reiterate BUY with TP of Rs 1,052 @ 22x FY21E EPS.
Outlook on demand environment, especially in light of severe slow down in auto industry competitive intensity and RM price trends
Electric vehicle impact, if any in short term
17
1QFY20E: Financial Summary
LUBRICANTS: 1QFY20E RESULTS PREVIEW
Source : Company, HDFC sec Inst Research
Source : Company, HDFC sec Inst Research
Valuation
COMPANY
NET SALES (Rs bn) EBITDA (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS (Rs/sh)
1Q QoQ (%)
YoY 1Q QoQ YoY 1Q QoQ (bps)
YoY (bps)
1Q QoQ (%)
YoY 1Q 4Q 1Q
FY20E (%) FY20E (%) (%) FY20E FY20E (%) FY20E FY19E FY19
LUBRICANTS
Gulf Oil 4.42 1.3 13.2 0.75 1.6 16.9 17.1 5 bps 54 bps 0.48 7.6 18.7 9.6 8.9 8.3
COMPANY Mcap CMP
RECO TP EPS (Rs/sh) P/E (x) EV/EBITDA (x) RoIC (%)
(Rs bn) (Rs) (Rs) FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E
LUBRICANTS
Gulf Oil 41.3 829 BUY 1,052 35.0 39.4 47.8 23.7 21.0 17.3 14.6 12.7 10.5 33.3 33.6 42.2
18
Jewellery 1QFY20E: Is this just a pit stop for Titan?...or more
JEWELLERY: 1QFY20E RESULTS PREVIEW
Our coverage universe is expected to register 16/20% YoY revenue/EBITDA growth during 1QFY20 vs 9/32% YoY in 1QFY19. Growth may be back for some south-based players - clocking 10-18% growth (per channel checks) albeit on a low base as gold prices remain elevated in 1Q (4.5% YoY growth).
Overall consumer sentiments remain sombre as elevated gold prices play spoilsport. Post a blockbuster FY19, Titan reported a less than inspiring ~13% growth in Jewellery. Could this just be a pit-stop for Titan or there is more to it? Channel checks hint some teething issues in East and a recovery in performance for some of its peers down south. Non-jewellery business continues to perform well (est. growth of 19%).
Thangamayil is expected to report strong growth in gold volumes albeit on a low base (est: growth of ~14.5%). We also expect margin expansion led by better product mix. The company is now on the cusp of resuming store addition (~10 store additions planned for FY20 on a base of 35) with focus on SSSG growth.
Jewellery: Expect 16% Sales And 20% EBITDA Growth
Source: Company, HDFC sec Inst Research
-
5.0
10.0
15.0
20.0
25.0
Tita
n
Than
gam
ayil
Sales Gr. (%) EBITDA Gr. (%)
19
Jewellery 1QFY20E
JEWELLERY: 1QFY20E RESULTS PREVIEW
COMPANY 1QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
TITAN WEAK
We expect growth of 13.4% YoY in Jewellery business despite a low base(6.3% in 1QFY19 and 22.3% in 4QFY19) as elevated gold prices keeps demand at bay. Titan added 12 Tanishq stores (net) in 1Q. We expect gold grammage growth of 8.5% YoY.
Non-jewellery business is expected to grow by ~19% with Watches/Eyewear/Other business to register 19/13/30% growth, respectively.
We expect Jewellery EBIT growth of ~17.2% YoY (18.8% in 1QFY19 and 17.5% in 4QFY19).
Overall EBITDA margin to expand by 45bps to 11.3% during the quarter.
Grammage growth and market share change
Outlook on jewellery demand
Outlook on Watches and Eyewear businesses
Non-jewellery business EBIT margin
Pace of network expansion
THANGAMAYIL GOOD
We expect revenue growth of 20.1% YoY (-10.8% in 1QFY19 and -1.2% in 4QFY19). We model gold volume growth of 14.5% YoY (-9.1% growth in 1QFY19 and -9.4% growth in 4QFY19).
EBITDA margin expected to be higher by 20bps YoY to 5.9% led by favourable product-mix and increased in-house manufacturing.
Adj. PAT to improve by ~34.1% YoY.
Grammage growth and demand outlook
Commentary on store renovation and expansion
EBIT margin
20
Financial Summary
JEWELLERY: 1QFY20E RESULTS PREVIEW
Source: Company, HDFC sec Inst Research
Company NET SALES (Rs bn) EBITDA (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS (Rs/sh)
1Q FY20E
QoQ (%)
YoY (%)
1Q FY20E
QoQ (%)
YoY (%)
1Q FY20E
QoQ (bps)
YoY (bps)
1Q FY20E
QoQ (%)
YoY (%)
1Q FY20E
4Q FY19
1Q FY19
Titan 51.3 5.0 15.3 5.8 17.3 20.1 11.3 118 45 3.9 -1.1 20.2 4.4 4.5 3.7
Thangamayil 4.7 32.1 20.1 0.3 60.1 24.3 5.9 104 20 0.1 94.0 34.1 10.1 5.2 7.6
Aggregate 56.0 6.8 15.7 6.1 18.7 20.3 10.9 109 41 4.0 0.6 19.3
Valuation Summary
Source: Company, HDFC sec Inst Research
Company MCap
(Rs bn) CMP (Rs)
Reco. TP
(Rs) EPS (Rs) P/E (x) EV/EBITDA (x) Core RoCE (%)*
FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E Titan 976 1,099 NEU 1,020 17.3 20.2 24.7 63.6 54.5 44.5 46.9 36.9 30.4 17.9 19.5 20.9 Thangamayil 4 315 BUY 590 22.1 28.8 35.2 14.3 11.0 9.0 11.3 9.8 8.7 7.6 8.7 9.2
21
CONSUMER: 1QFY20 RESULTS PREVIEW
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
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CONSUMER: 1QFY20E RESULTS PREVIEW