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Consumer
2QFY20E Results Preview
11 Oct 2019
Naveen Trivedi (FMCG, Appliances) [email protected],+91-22-6171 7324
Siddhant Chhabria (FMCG, Appliances) [email protected],+91-22-6171 7336
Jay Gandhi (Jewellery) [email protected], +91-22-6171 7320
2
FMCG: Growth is bottoming out in 2Q Moderation in growth to continue in 2Q: Our FMCG coverage
universe is expected to deliver 7/9% YoY revenue/EBITDA growth in 2QFY20 (vs. 13/14% in 2QFY19 and 7/10% in 1QFY20). Rural stress has aggravated and is now growing slower than urban (vs. 1.2-1.3x in FY19). Weak consumer sentiments has led to downtrading in few categories.
Slowdown is expected to bottom out in 2Q: Moderation in growth during June exit aggravated in July. Delay in onset of monsoons and liquidity crunch led to a weak start to the quarter. Most of the cos had witnessed flat to de-growth in July followed by a recovery in Aug and Sept. We believe consumption will recover in 2H with partial recovery in 3Q and full recovery from 4Q. Our assumption is driven by (1) Normal monsoons, (2) Favorable base and (3) Fiscal stimulus and Monetary stimulus.
Rationalization of A&P: We expect cos to rationalize their A&P cost given softer consumption and steep investment in 1Q (World Cup).
RM headwinds to hit liquor cos: Liquor cos will witness gross margin pressure driven by steep ENA, molasses and glass bottle inflation. Limited price hikes will result in tepid EBITDA growth. We cut our target multiple for Radico to 22x P/E (vs. 26x earlier). We maintain our multiple for UNSP (40x P/E) as we see various cost restructuring levers to support earnings growth.
2QFY20 Result Outliers: Marico
Recommendations: We believe cos which have a reinvestment opportunity will benefit post corp tax cuts. We like JFL and BRIT as these cos have an opportunity to expand addressable market which will drive longevity of growth. We believe growth rates will bottom out in 2Q and recover in 2HFY20. We roll forward our TP to Sep-21 earnings.
Top picks in FMCG: ITC, Jubilant FoodWorks and Britannia
FMCG: Expect 7% Sales and 9% EBITDA Growth
CONSUMER: 2QFY20E RESULTS PREVIEW
FMCG: Growth is bottoming out
Source: Company, HDFC sec Inst Research
6
8 9
6 7 7 5 6 5
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8 10
9 7
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8 7
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Sales Gr. (%) EBITDA Gr. (%)
0%
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4%
6%
8%
10%
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16%
Q1F
Y16
Q2F
Y16
Q3F
Y16
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Y18
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Y20E
Coverage Rev growth Avg Rev. Growth (%)
3
FMCG: Growth is bottoming out in 2Q
COMPANY 2QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
ITC AVG
We expect cigarette revenue growth of 6% YoY, with 3% volume growth YoY (+5.5% in 2QFY19 and +3.5% in 1QFY20). Non-Cigarette business is expected to grow by 9% (12% in 2QFY19 and 12% in 1QFY20) with FMCG/Hotel/Agri/Paper business to register 7/10/10/10% 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 8% YoY (8.7% in 2QFY19 and 8.2% in 1QFY20). We model FMCG EBIT Margin at 3% (2% in 2QFY19 and 2.5% in 1QFY20)
We model overall EBITDA margin to increase by 28bps at 37.6% (-121bps in 2QFY19 and +105bps in 1QFY20). EBITDA to grow by 8.4% YoY (11.8% in 2QFY19 and 8.7% in 1QFY20)
Cigarette volume growth
FMCG business EBIT margin
Recovery in Paper Business
Outlook on Agri and Hotel businesses
HUL AVG
We expect revenue growth of 6% (11% in 2QFY19 and 6.6% in 1QFY20). We model domestic volume growth of 5% (10% in 2QFY19 and 5% in 1QFY20)
We model 7.5/4/8% revenue growth in Home Care/PC/F&R segments, respectively
We build 83bps increase in GM (-74bps in 2QFY19 and +4bps in 1QFY20). Cost control initiatives will continue to benefit, we expect Adj EBITDA margin to expand by 137bps YoY to 23.2% (+162bps in 2QFY19 and +151bps in 1QFY20). Adj EBITDA to grow by 13%
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: 2QFY20E RESULTS PREVIEW
4
FMCG: Growth is bottoming out in 2Q
COMPANY 2QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
Nestle India AVG
We model 9% revenue growth (17% in 3QCY18 and 11% in 2QCY19). New product launches and aggressive marketing will support the revenue growth.
We model 72bps dip in GM on account of increase in input prices and unfavorable base. We model EBITDA margin increase of 14bps to 25%. EBITDA to grow by 9.6% YoY (22.6% in 3QCY18 and 7.4% in 2QCY19).
Commentary on recovery in trade channels and rural demand
New product pipeline
Dabur AVG
Consolidated revenue to grow by 6% (8.5% in 2QFY19 and 9.3% in 1QFY20). We model domestic business growth at 6% (10% in 2QFY19 and 10% in 1QFY20) with volume growth of 5% (8.1% in 2QFY19 and 9.6% in 1QFY20). Hair care/oral care/health supplements/home care/food expected to grow by 5/8/8/7/1.5%.
We expect international business to grow by 8% (9% in 2QFY19 and 6% in 1QFY20). Currency pressure is now behind, however demand environment is challenged in few economies
We model 43bps YoY (-75bps in 2QFY19 and -9bps in 1QFY20) increase in GM to 49.8%. We expect 8% increase in A&P expense to support new launches. We model 47bps increase in Adj EBITDA margin to 21.7% (-22bps in 2QFY19 and +117bps in 1QFY20). EBITDA to grow by 8.6% 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 6.5% revenue growth (+12.5% in 2QFY19 and 6% in 1QFY20) driven by volume growth of 4.5% (12% in 2QFY19 and 3.5% in 1QFY20)
Benign input inflation and cost-control initiatives would result in 13bps expansion in EBITDA margin to 16% (+100bps YoY in 2QFY19 and -69ps in 1QFY20). EBITDA to grow by 7%
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: 2QFY20E RESULTS PREVIEW
5
FMCG: Growth is bottoming out in 2Q
COMPANY 2QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
Marico AVG
We model 6% domestic revenue growth (20% in 2QFY19 and 6% in 1QFY20), with domestic volume growth of 6% (6% in 2QFY19 and 6% in 1QFY20). We model PCNO val/vol growth of 5.5/6.5% val/vol growth. Saffola is expected to grow at 6/4% val/vol while VAHO to report 9/6% val/vol growth
International is expected to grow by 9% (18% in 2QFY19 and 9% in 1QFY20), driven by portfolio diversification in Bangladesh and GTM initiatives in Vietnam
We model 370bps (-299bps in 2QFY19 and 522bps in 1QFY20) expansion in GM to 47.7%. We expect A&P spend to grow by 25% to support NPD. Adj EBITDA margin to expand by 169bps (-86bps in 2QFY19 and 322bps in 1QFY20) to 17.7%. 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
United Spirits AVG
We expect 4% volume growth (6% P&A and 2% Popular) on a high base of 10%. Growth has moderated for liquor industry owing to slowdown and high base. We expect revenue to grow at 5% (14% in 2QFY19).
Gross margins will remain under pressure owing to stiff commodity inflation (ENA , molasses and glass bottles). We expect 300bps decline in GM to 47.3%.
Tight control on cost and restructuring benefits should support EBITDAM expansion (+49bps to 20%) resulting in 8% Adj EBITDA growth.
Demand trends Competitive intensity A&P strategy Commodity inflation outlook Post corp tax cuts, change in debt
repayment plan
FMCG: 2QFY20E RESULTS PREVIEW
6
FMCG: Growth is bottoming out in 2Q
COMPANY 2QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
Colgate AVG
We expect 5.5% revenue growth with 4% volume growth (7% in 2QFY19 and 4% in 1QFY20). Pan-India launch of Swarna and re-launches in core portfolio will curb market share losses
We model GM expansion of 23bps YoY to 65%. We expect moderation in ASP expense would continue. We model 7% increase in ASP (12% of sales)
EBITDA margin is expected to expand by 35bps YoY to 28.6% (+50bps in 2QFY19 and 59bps in 1QFY20). EBITDA to grow by 7% (+9.6% in 2QFY19 and +6.5% in 1QFY20)
Toothpaste volume growth and market share change
Feedback on recent launches ASP spends, especially with increased
competition from Dabur
Emami WEAK
We model 1% domestic revenue growth (flat 2QFY19 and 2% in 1QFY20) with flat volume growth (-4% in 2QFY19 and flat 1QFY20). Domestic business will be impacted by general slowdown and slow recovery of core business. Kesh King after posting 24% growth during the last 3 quarters, is now expected to post moderate growth (we modeled 4%)
International business to post 35% growth (4% in 2QFY19 and 34% in 1QFY20) led by acquisition of ‘Crème 21’.
We expect moderation in raw material pressure, leading into 140bps contraction in GM as compared to 209bps fall in 1QFY20. EBITDA margin to decline by 215bps to 28% ( -191bps in 2QFY19 and +58bps in 1QFY20). 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
FMCG: 2QFY20E RESULTS PREVIEW
7
FMCG: Growth is bottoming out in 2Q
COMPANY 2QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
Jubilant FoodWorks
WEAK
We model 9.5% revenue growth, driven by 3.5% SSG (20.5% in 2QFY19 and 4.1% in 1QFY20). Our SSG estimates moderate given a high base, consumption slow down and impact from splitting stores. We model 25 Domino’s store additions in 2QFY20 (22 stores in 1QFY20).
We model GM expansion of 119bps YoY to 75.8% (+46bps in 2QFY19 and +93bps in 1QFY20) driven by price hike (~3%), benefit from new contract with PepsiCo.
We model employee/Rent/Other expenses increase by 17/10/10% YoY. Thereby our adj EBITDA margin is flat at 16.6% (+268bps 2QFY20 and -94bps in 1QFY20). Adj EBITDA to grow by 8.5% YoY (44% in 2QFY19 and 4% in 1QFY20).
Commentary on product launches Outlook on store addition in FY20-21 Competitive intensity, pricing strategy Outlook on sustainable SSG Dunkin’ EBITDA margin
Radico Khaitan AVG
We expect 9% volume growth (15.5% P&A and 6.5% Popular) despite moderation in industry growth as the co continues to gain share and scale its new launches. We model 14.5% revenue growth led by favorable price/mix impact.
Gross margins will remain under pressure owing to stiff commodity inflation (ENA , molasses and glass bottles). We expect 250bps decline in GM to 47.6%.
Radico remains committed to invest behind its brands despite slowdown and stiff input costs. As a result, we expect Adj. EBITDA to grow by 6% resulting in 132bps decline (16.4% adj EBITDAM).
Industry demand trends Commentary on product launches Competitive intensity, pricing strategy Commodity inflation outlook Post corp tax cuts, change in debt repayment
plan
FMCG: 2QFY20E RESULTS PREVIEW
8
Consumer Appliances: Stand out in consumption A mixed bag: Our coverage universe is expected to post 9/16%
revenue/EBITDA growth (18/1% in 2QFY19). Appliances is expected
to deliver a better quarter vs. FMCG. Outperformance is driven by
low channel inventory of cooling products owing to a harsh summer.
However, we expect growth to moderate in categories ex-cooling
products. We expect margins to expand led by favorable base, soft
commodity inflation and price hikes.
B-G and B-B projects stalled in 1HFY20: Slowdown in govt spending
around general elections has dented growth. This is expected to
impact Havells (Cables and lighting), Voltas (EMPS) and V-Guard
(Cables) growth in 2QFY20. However, there is an uptick in order
growth (B-B and B-G) from September which will drive a recovery in
revenue growth in 2HFY20.
Cooling products to benefit from low channel inventory: A strong
summer-19 led to robust offtake for RAC, coolers, fans and
stabilizers. This has resulted in historically low channel inventory
levels. We believe primary sales will grow faster than secondary sales
over the rest of FY20. Symphony, Voltas, Crompton (ECD) and V-
Guard’s stabilizer will report a healthy quarter.
Recommendation: We believe growth will bottom out for appliances
in 2Q and expect festive season to drive recovery in consumer
sentiments. We upgrade our rating on Havells from NEUTRAL (since
Jan-19) to BUY. We roll forward our TP to Sep-21 earnings.
Our top picks in Appliances: Havells, Crompton and Symphony
Source: Company, HDFC sec Inst Research
APPLIANCES: 2QFY20E RESULTS PREVIEW
Appliances: Expect 9% Sales And 16% EBITDA Growth
8 5
11
33
12 11 13 8
19
41
30
11
-5
10 15 20 25 30 35 40 45
Hav
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Cro
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Sales Gr. (%) EBITDA Gr. (%)
9
Consumer Appliances: Stand out in consumption
COMPANY 2QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
Havells India AVG
We expect Havells (ex-Lloyd ) to register 8.5% revenue growth (28% in 2QFY19 and 9% in 1QFY20). We model 3/5/8/20% for Switchgears/Cables/Lighting/ECD. We model 6% growth in Lloyd (-4% in 2QFY19 and -8% in 1QFY20) driven by favourable base and key initiatives have been taken by the management
We model 88bps (ex-Lloyd) EBITDA margin expansion (-289bps in 2QFY19 and -55bps in 1QFY20). Lloyd, we expect EBITDA margin of 3% (3.3% in 2QFY19 and 1.4% in 1QFY20). We model overall EBITDA growth of 13%.
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
AVG
We expect consolidated net revenue growth of 5% YoY. UCP segment to report 16.5% growth (8% in 2QFY19 and 47% in 1QFY20) led by low trade inventory and market share gains. We model flat growth in EMPS (62% in 2QFY19 and -5% in 1QFY20).
We model UCP EBIT margin expansion of 321bps YoY to 9.5% owing to favourable base and healthy volume growth (-616bps in 2QFY19 and +61bps in 1QFY20). EMPS EBIT to contract by 62bps YoY to 7.8% (8.4% in 2QFY19 and 8% in 1QFY20)
EBITDA margin to expand by 20bps YoY to 7.8%. We model overall EBITDA growth of 8%.
RAC channel inventory
Pricing strategy
Competitiveness in RAC market
Outlook on EMPS revenue and margin
APPLIANCES: 2QFY20E RESULTS PREVIEW
10
Consumer Appliances: Stand out in consumption
COMPANY 2QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
Crompton Consumer
AVG
We expect 11% revenue growth, driven by 6% growth from Lighting (-4% in 2QFY19 and -2% in 1QFY20) and 13% growth from ECD segment (15% in 2QFY19 and 16% in 1QFY20). Lighting growth will be impacted by decline in conventional lighting and price erosion in LEDs
We model 125bps expansion in GM (-174bps in 2QFY19 and +27bps in 1QFY20). We expect recovery in lighting margins, model 8% EBIT margin (6.3% in 2QFY19 and 5.1% in 1QFY20). ECD will maintain EBIT margin at 19%
We model overall EBITDA growth of 19% (3% in 2QFY19 and 15% in 1QFY20) resulting in 93bps margin expansion to 12.9%
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 (6% in 2QFY19 and 10% in 1QFY20) 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 15/6/13/4.5/14/16% growth for Stabilizers/UPS/Pumps/Cables/Water Heaters/Fans
We model 198bps expansion in gross margin (-234bps in 2QFY19 and 216bps in 1QFY20) to 31.6% driven by richer product mix and favourable base. We expect robust EBITDA growth of 30% (-26% in 2QFY19 and 26% in 1QFY20). We model EBITDA margin expansion 136bps (-354bps in 2QFY19 and 285bps in 1QFY20) to 9.7%
Commentary on South performance
Non-south performance
Performance of new launches
Growth outlook
Outlook on input cost inflation and pricing action
APPLIANCES: 2QFY20E RESULTS PREVIEW
11
Consumer Appliances: Stand out in consumption
COMPANY 2QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
TTK Prestige AVG
We expect net revenue growth of 11% (7% in 2QFY19 and 3.5% in 1QFY20). We model 7/15/13% growth in Cookers/Cookware/Appliances respectively.
We model flat EBITDA margin at 14.7% (+187bps in 2QFY19 and -27bps in 1QFY20). We expect EBITDA to grow by 11%
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 33% (-19% in 2QFY19 and +103% in 1QFY20) driven by favourable base, historically low trade inventory and new launches. We model 34% revenue growth in the domestic business and 11% growth in the international business.
We model gross margin increase of +82bps (-256bps in 2QFY19 and -443bps in 1QFY20) to 51.5%. We model EBITDA margin expansion of +168bps (-444bps in 2QFY19, +1,373bps in 1QFY20) to 32.1%.
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: 2QFY20E RESULTS PREVIEW
12
Financial summary
Note: Tax rate in 2QFY20 is based on new corp tax announcements and adjusted for higher provision in 1QFY20. Source: Company, HDFC sec Inst Research
CONSUMER: 2QFY20E RESULTS PREVIEW
Company
NET SALES (Rs bn) EBITDA (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS (Rs/sh)
2Q FY20E
QoQ (%)
YoY (%)
2Q FY20E
QoQ (%)
YoY (%)
2Q FY20E
QoQ (%)
YoY (%)
2Q FY20E
QoQ (%)
YoY (%)
2Q FY20E
1Q FY20
2Q FY19
FMCG
ITC 121.29 5.4 7.6 45.60 (0.1) 8.4 37.6 (210) 28 39.74 25.2 34.5 3.2 2.6 2.4
HUL 96.80 (3.0) 5.9 22.75 (10.9) 12.7 23.2 (200) 137 20.33 16.1 33.6 9.4 8.1 7.0
Nestle 32.04 6.8 9.0 8.01 13.4 9.6 25.0 146 14 6.14 40.3 37.7 63.7 45.4 46.3
Dabur 22.57 (0.7) 6.2 4.90 7.0 8.6 21.7 156 47 4.19 10.6 11.3 2.4 2.1 2.1
Britannia 30.57 0.0 6.5 4.88 23.7 7.4 16.0 135 13 4.03 60.4 32.8 16.8 11.1 12.6
Marico 19.58 (9.6) 6.6 3.47 (24.8) 17.8 17.7 (359) 169 2.51 (18.7) 17.0 1.9 2.5 1.7
United Spirits 23.41 5.5 5.1 4.66 20.4 7.7 19.9 245 49 3.30 103.3 27.4 4.5 2.2 3.6
Colgate 12.33 13.6 5.5 3.52 17.6 7.0 28.6 96 38 2.65 56.6 34.9 9.7 6.2 7.2
Emami 6.60 1.8 5.2 1.85 37.9 (2.3) 28.0 733 (215) 1.29 56.0 (0.4) 2.9 1.8 2.9
Jubilant Food 9.65 2.6 9.5 1.60 8.6 8.5 16.6 91 (15) 0.99 21.4 27.4 7.5 6.2 5.9
Radico Khaitan 5.93 (4.9) 14.5 0.97 (0.2) 6.0 16.4 77 (132) 0.70 27.5 41.0 5.3 4.1 3.7
Aggregates 380.77 2.5 6.9 102.20 0.2 9.4 26.8 (63) 59 85.86 25.3 31.5
Consumer
Durable
Havells 23.71 (12.6) 8.2 2.97 7.8 13.2 12.5 237 55 2.37 36.1 32.5 3.8 2.8 2.9
Voltas 14.98 (43.5) 5.4 1.17 (59.7) 8.1 7.8 -314 20 1.14 (30.8) 10.5 3.5 5.9 3.1
Crompton 11.50 (14.6) 10.8 1.48 (22.9) 19.4 12.9 (138) 93 1.26 2.9 63.7 2.0 2.0 1.2
Symphony 1.97 23.4 33.4 0.63 163.9 40.8 32.1 1,709 168 0.51 96.0 38.1 7.3 3.7 5.3
V-Guard 6.69 (4.3) 12.0 0.65 (8.7) 30.3 9.7 (47) 136 0.51 (2.7) 33.7 1.2 1.2 0.9
TTK Prestige 6.14 41.5 11.1 0.90 60.0 11.2 14.7 169 1 0.72 98.5 34.6 52.2 26.3 38.8
Aggregates 65.00 (18.8) 9.3 7.81 (14.2) 16.4 12.0 64 74 6.51 13.0 33.5
13
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: 2QFY20E RESULTS PREVIEW
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
HUL 4,253 1,969 NEU 2,036 28.1 35.0 42.4 70.0 56.3 46.5 47.2 43.4 34.2 248.6 39.2 27.2
ITC 2,655 238 BUY 370 10.4 12.8 14.1 22.8 18.5 16.9 14.3 12.9 11.4 39.2 45.9 49.5
Nestle 1,342 13,915 NR 13,640 167.1 233.6 278.1 83.3 59.6 50.0 48.2 41.3 35.3 82.1 114.7 137.3
Dabur 773 439 BUY 490 8.2 9.5 11.4 53.6 46.0 38.5 43.0 36.9 31.8 50.1 52.9 58.3
Britannia 729 3,037 BUY 3,620 48.1 59.2 72.5 63.1 51.3 41.9 41.3 37.3 30.5 39.3 43.1 49.8
Marico 497 385 NEU 400 7.2 8.7 10.4 53.4 44.3 37.0 38.6 31.1 27.0 48.8 47.4 53.4
Colgate 407 1,497 NEU 1,398 27.6 33.2 37.5 54.3 45.0 39.9 32.6 29.8 26.6 67.2 76.0 82.5
Emami 140 299 BUY 467 11.0 12.9 14.6 27.1 23.2 20.4 18.3 16.2 14.1 21.5 26.5 32.0
Jub. Food 172 1,300 BUY 2,092 24.1 32.1 41.2 54.0 40.5 31.6 27.5 24.9 19.3 45.8 52.0 44.8
United Spirits 448 616 BUY 760 10.2 13.4 17.0 60.2 46.1 36.1 35.1 27.9 23.6 15.6 20.2 22.8
Radico Khaitan 40 300 BUY 496 14.1 17.8 21.5 21.2 16.9 14.0 12.3 10.9 9.1 11.5 13.8 15.3
Havells 410 656 BUY 766 12.7 15.5 19.2 51.8 42.5 34.2 33.4 29.4 23.8 26.7 27.8 32.8
Voltas 221 668 BUY 746 15.6 20.3 24.3 42.8 32.9 27.5 32.3 24.4 20.6 31.4 31.4 31.8
Crompton 161 257 BUY 349 5.9 7.9 9.2 43.2 32.6 27.8 27.5 23.4 20.0 39.4 47.6 53.6
V-Guard 96 225 BUY 255 4.1 5.3 6.6 55.4 42.7 34.1 43.0 32.6 26.1 21.1 26.1 29.9
Symphony 89 1,276 BUY 1,810 15.4 29.7 36.5 82.9 43.0 34.9 65.3 33.3 27.0 31.9 50.5 56.8
TTK Prestige 83 6,005 NR 8,456 138.7 172.8 199.0 43.3 34.7 30.2 27.9 24.4 21.0 21.5 24.1 25.7
14
Jewellery 2QFY20E: A Washout! Our coverage universe is expected to be washout as the sudden spike in
gold prices June-end onwards have kept consumers at bay. Revenue/EBITDA/EBITDA margins are expected to be flat YoY as the lower-margin gold-exchange scheme is pushed to salvage volumes. Channel checks suggest most of the big-box jewellery retailers have clocked flattish-to-single digit declines in revenue for 2Q. That said, key monitor-able would be the off-take in the upcoming festive season and assessing how big the lag could be before consumers adjust to the new price. This will be the second quarter of “Un-Titan-like” performance and investors would be keen to understand for how long the pain could last. Thangamayil could be hurt even more given the heavy base of 2QFY19.
Jewellery: Expect 15% Sales And 22% EBITDA Growth
JEWELLERY: 2QFY20E RESULTS PREVIEW
Source: Company, HDFC sec Inst Research
1.3
(8.6)
(4.9)
(9.7)
(12.0)
(10.0)
(8.0)
(6.0)
(4.0)
(2.0)
-
2.0
Titan Thangamayil
Sales Gr. (%) EBITDA Gr. (%)
15
COMPANY 2QFY20E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
TITAN GOOD
We expect growth of 1% YoY (vs. 29% in 2QFY19 and 14% in 1QFY20) in Jewellery business as the spurt in gold prices June onwards hurts volumes. Titan added 27 Tanishq stores (net) in 2Q. We expect gold grammage de-growth of 15.5% YoY.
Non-jewellery business is expected to grow by ~12% with Watches/Eyewear/Other business to register 7/28/20% growth respectively.
Expect Jewellery EBIT margins to remain flat.
Overall EBITDA margin to shrink by 67bps to 10.2% 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 decline of 8.6% YoY (32% in 2QFY19 and 26.9% in 1QFY20). We model gold volume decline of 25% YoY given the high base (36.6% growth in 2QFY19 and 17.7% growth in 1QFY20).
EBITDA margin expected to remain flat.
Adj. PAT to decline by ~24% YoY.
Grammage growth and demand outlook
Commentary on store renovation and expansion
EBIT margin
JEWELLERY: 2QFY20E RESULTS PREVIEW
Jewellery 2QFY20E
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Financial Summary
Source: Company, HDFC sec Inst Research
JEWELLERY: 2QFY20E RESULTS PREVIEW
Company NET SALES (Rs bn) EBITDA (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS (Rs/sh)
2Q FY20E
QoQ (%)
YoY (%)
2Q FY20E
QoQ (%)
YoY (%)
2Q FY20E
QoQ (bps)
YoY (bps)
2Q FY20E
QoQ (%)
YoY (%)
2Q FY20E
1Q FY20
2Q FY19
Titan 46.3 -10.2 1.3 4.7 -17.4 -4.9 10.2 -90 -67 3.0 -17.6 10.2 3.4 4.1 3.7
Thangamayil 3.3 (32.5) (8.6) 0.15 (42.7) (9.7) 4.4 (78.9) (5.0) 0.05 (58.3) (23.5) 1.6 2.6 1.9
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 (%)*
FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E Titan 1,093 1,231 NEU 1,140 17.3 20.8 26.0 71.3 59.3 47.3 52.3 40.7 33.3 18.0 19.7 21.1 Thangamayil 4,445 325 BUY 535 22.1 29.5 36.7 14.7 11.0 8.8 11.5 10.4 9.3 7.6 9.2 9.8
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CONSUMER: 2QFY20E 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: 2QFY20E RESULTS PREVIEW