Consumer sector: steady revenues, margins

Consumer sector: steady revenues, margins

We expect consumer goods companies to post steady revenue growth, largely volume-driven, but also helped by price hike carry-overs and lower excise. With raw material prices falling, margins could rise 50-100 basis points year-on-year.

The sector is likely to report 12% revenue growth, largely volume-led. Lower excise duty and price carry-overs could also help drive revenue. We expect ITC Ltd, Dabur India Ltd, GlaxoSmithKline Consumer Healthcare Ltd (GSK), Colgate-Palmolive (India) Ltd and Marico Ltd to report good volume growth. As Hindustan Unilever Ltd (HUL) continues to lose market share in major segments, its volume growth could be restricted.

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Nevertheless, all of them will be affected by higher packaging material costs. Steady revenue growth and higher earnings before interest, tax, depreciation and amortization margins could push up net profit, though we expect effective tax rates to inch up.

Meanwhile, rising food prices is a key concern as it could reduce spends on consumer products and food companies’ margins. Moreover, it reduces investments by retailers in consumer products.

We retain buy on ITC, Dabur, Colgate, Marico, Godrej Consumer Products Ltd, GSK and Emami, and sell on HUL, Nestle India Ltd and Britannia Industries Ltd.