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Consumer goods companies may face squeeze on margins

Consumer goods companies may face squeeze on margins
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First Published: Sun, Apr 18 2010. 08 42 PM IST

Graphic: Yogesh Kumar/Mint
Graphic: Yogesh Kumar/Mint
Updated: Sun, Apr 18 2010. 08 42 PM IST
We expect consumer goods companies to post steady revenue growth, largely volume-driven. With mounting competition, we expect price cuts to affect value growth and higher advertising expenditure to affect margins. Moreover, with higher raw material prices, we expect the sector’s net profit growth to be 14% year-on-year (y-o-y).
Graphic: Yogesh Kumar/Mint
The sector is likely to report 13% revenue growth, largely volume-led. The waning effect of lower excise and price carry-overs and price cuts result in lower value growth. We expect ITC Ltd, Dabur India Ltd, GlaxoSmithKline Consumer Healthcare Ltd (GSK), Colgate-Palmolive (India) Ltd and Marico Ltd to report good volume growth. On the other hand, Hindustan Unilever Ltd (HUL) and Marico are expected to report lower revenue growth than volume growth.
With rising raw material prices and heightened competition, we expect earnings before interest, tax, depreciation and amortization margins to come under pressure. Higher prices of crude oil derivatives are expected to affect personal care companies. Higher food prices will affect food companies.
With HUL cutting prices aggressively to regain lost market share and Procter and Gamble Hygiene and Health Care Ltd introducing products at cheaper rates, we expect the consumer goods sector to get affected.
Also, higher advertising expenditure and promotions are expected to affect margins.
We retain buy on Asian Paints Ltd, Dabur, Colgate, Marico, Godrej Consumer Products Ltd, GSK and Emami Ltd, and sell on ITC, HUL, Nestle India Ltd and Britannia Industries Ltd.
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First Published: Sun, Apr 18 2010. 08 42 PM IST