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  • Sector alert | Consumer products

    Publish date: July 6, 2018

    The consumer products universe is red-hot and will post record-high growth in the first quarter of FY2019. Previous year’s low base, growing demand and improving margins have decidedly applied a summer glow to the sector.

    Key Highlights

    • We believe that the aggregate revenue, EBITDA and net income will increase by 13.5%, 21.8% and 22.7% respectively.
    • High demand in rural India has been another reason for the surge in demand. This is why most companies, especially
      Britannia, will show robust sales volume growth. However, Colgate would be one of the casualties of increased competition (read: Patanjali).
    • Product prices, which have remained unchanged for some time, are likely to go north due to increase raw material prices. The higher pricing will contribute to the sector’s success story, albeit as a small contributor.
    • The margins are also likely to jump due to GST benefits. Dabur and Nestle are two of the several companies that are likely to shine due to this.

    Valuation & outlook

    Several companies — Asian Paints, Dabur, Nestle, among others — are likely to report 25%-plus profit after tax. This is in complete contrast to this time, last year when GST headwinds brought down the sector’s net income to 2.5%. However, the growth remains optical as the sector worked from last year’s low base. This is why we feel it is best to exercise caution.

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