With bulk of growth driven by volumes and penetration, we believe that mid-cap consumer companies are in a better position to meet the increased growth challenges.
We expect these companies to gain 100-150bps volume share and 50-100bps value share in several categories over the next two years.
We expect most mid-cap consumer companies to maintain their earnings growth momentum in the medium term, supported by market share gains and a softer raw material cost environment.
These companies are expected to report earnings growth of 26% for FY11E vis-à-vis the two-year and five-year trailing growth of 21% and 22% respectively.
Mid-cap consumer companies are currently trading at a P/E multiple of 18x and EV/EBIDTA multiple of 14x on our FY11 estimates.
Our expectation is that considering earnings track record and improved economic outlook, selective opportunities such as Dabur India still offer upside of nearly 14% from current levels.
Monsoon performance in the near term and taxation changes (corporate tax and GST) over next 12 months would remain as key risk to our call.
Considering overall growth prospects, consensus expectations, and valuations, we initiate coverage on Dabur India Limited (Dabur) with a BUY rating, on Colgate Palmolive India Limited (Colgate) with a HOLD rating, and on Godrej Consumer Products Limited (GCPL) with a SELL recommendation.
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