Siddhant Chhabria (FMCG, Appliances) (Alco-Bev, Hotels ... - 1QFY20... · (HUL and BRIT) will gain healthy market share in a challenging period. ... COMPANY 1QFY20E OUTLOOK WHAT’S

Consumer

1QFY20E Results Preview

9 Jul 2019

Naveen Trivedi (FMCG, Appliances) [email protected],+91-22-6171 7324

Siddhant Chhabria (FMCG, Appliances) [email protected],+91-22-6171 7336

Himanshu Shah (Alco-Bev, Hotels) [email protected], +91-22-6171 7315

Jay Gandhi (Jewellery) [email protected], +91-22-6171 7320

Rohit Harlikar (Jewellery) [email protected], +91-22-6639 3036

2

FMCG: Weak macros dent demand Broad-based slowdown: Our FMCG coverage universe is expected to

deliver 9/9% YoY revenue/EBITDA growth in 1QFY20 (vs. 15/18% in 1QFY19 and 9/8% in 4QFY19). Rural stress continues with growth now at par with urban growth (vs. 1.2-1.3x urban in FY19). Low farm incomes, tight liquidity and weak consumer sentiments have dented demand. Slowdown is prevalent across categories with exceptions like summer products (juices, ice cream etc). We believe stronger players (HUL and BRIT) will gain healthy market share in a challenging period.

Modest margin expansion: Gross margin pressure has eased vs. FY19. Players like Marico, Jubilant FoodWorks, Britannia are expected to expand gross margins. Nestle, Dabur and Emami are expected to witness gross margin pressure.

4QFY19 Result Outliers: Jubilant FoodWorks and Marico

Outlook: We have a cautiously optimistic outlook on the sector. We expect demand environment to improve in the near term supported by (a) Fiscal and monetary stimulus, (b) Strong NPD pipeline coupled with aggressive A&P spends and (c) Normalized trade channels. However, the key risks to our estimates in FY20 could be driven by (a) Elongated rural stress, (b) Sharp commodity inflation and (c) Below normal monsoon.

Recommendations: We continue to like stocks where earnings acceleration is not fully priced-in and have enough tailwinds in the business. We recommend Jubilant FoodWorks (JFL) and Marico.

JFL: Although SSG is expected to moderate in the near-term, we believe price hikes and cost efficiency drive will maintain earnings momentum in FY20.

Marico is benefiting from onset of Copra harvest in Apr-19 which has resulted in cost deflation (25-30% decline YoY). Co. is reinvesting GM expansion into aggressive A&P spend to support new launches.

Top picks in FMCG: Jubilant FoodWorks and Marico

FMCG: Expect 8.6% Sales and 9.3% EBITDA Growth

CONSUMER: 1QFY20E RESULTS PREVIEW

Source: Company, HDFC sec Inst Research

10 8 8

7

9 7

6

12

9 10

6 6

11

18

6

16

5

10

15

20

25

ITC

HU

L

Nes

tle

Dab

ur

Bri

tan

nia

Mar

ico

Co

lgat

e

Em

am

i

Jubi

lant

Fo

od

Sales Gr. (%) EBITDA Gr. (%)

3

FMCG: Weak macros dent demand

COMPANY 1QFY20E

OUTLOOK WHAT’S LIKELY KEY MONITORABLES

ITC AVG

We expect cigarette revenue growth of 9% YoY, with 5.5% volume growth YoY (+1% in 1QFY19 and +7.5% in 4QFY19). Non-Cigarette business is expected to grow by 11% (11.6% in 1QFY19 and 15% in 4QFY19) with FMCG/Hotel/Agri/Paper business to register 10/12/9/14% 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 9.2% YoY (8.7% in 1QFY19 and 10% in 4QFY19). We model FMCG EBIT Margin at 3.5% (1.7% in 1QFY19 and 4% in 4QFY19)

We model overall EBITDA margin to be flat at 38.5% (+100bps in 1QFY19 and -87bps in 4QFY18). EBITDA to grow by 9% YoY (12% in 1QFY19 and 10% in 4QFY19)

Cigarette volume growth

FMCG business EBIT margin

Recovery in Paper Business

Outlook on Agri and Hotel businesses

HUL AVG

We expect revenue growth of 8% (16% in 1QFY19 and 9.3% in 4QFY19). We model domestic volume growth of 5.5% (12% in 1QFY19 and 7% in 4QFY19)

We model 9/6/10% revenue growth in Home Care/PC/F&R segments, respectively

We build 40bps dip in GM (188bps in 1QFY19 and -27bps in 4QFY19). Cost control initiatives will continue to benefit, we expect EBITDA margin to expand by 51bps YoY to 24.2% (+185bps YoY in 1QFY19 and +83bps YoY in 4QFY19). EBITDA to grow by 10%

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: 1QFY20E RESULTS PREVIEW

4


COMPANY 1QFY20E


Nestle India AVG

We model 8% revenue growth (12% in 2QCY18 and 9% in 1QCY19). New product launches and aggressive marketing will support the revenue growth.

We model 85bps dip in GM on account of increase in input prices and unfavorable base. We model EBITDA margin decline of 48bps to 23.9%. EBITDA to grow by 6% YoY (41% in 2QCY18 and 6% in 1QCY19).

Commentary on recovery in trade channels and rural demand

New product pipeline

Dabur AVG

Consolidated revenue to grow by 6.5% (16% in 1QFY19 and 4.7% in 4QFY19). We model domestic business growth at 7% (4.5% volume growth) with Hair care/oral care/health supplements/home care/food expected to grow by 2/8/6/8/14%. Strong summer will drive beverages

We expect international business to grow by 5% (13% in 1QFY19 and 2% in 4QFY19). Currency pressure is now behind, however demand environment is challenged in few economies

We model 50bps dip in GM to 49.1% and expect 5% decline in A&P due to high base and slow volume growth. We model 11bps dip in EBITDA margin to 18.4% (+130bps YoY in 1QFY19 and -238bps in 4QFY19). EBITDA to grow by 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 9% revenue growth (13.6% in 1QFY19 and 10.1% in 4QFY19) driven by volume growth of 6% (12.5% in 1QFY19 and 7% in 4QFY19)

Benign input inflation and cost-control initiatives would result in 20bps expansion in EBITDA margin to 15.5% (+79bps YoY in 4QFY18 and -5bps YoY in 4QFY19). EBITDA to grow by 10.5%

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


5


COMPANY 1QFY20E


Marico GOOD

We model 6% domestic revenue growth (12% in 1QFY19 and 7% in 4QFY19), with domestic volume growth of 6% (12% in 1QFY19 and 8% in 4QFY19).

We model PCNO val/vol growth of 4/6% val/vol growth. Saffola is expected to growth at 6/7% val/vol while VAHO to report 8/4% val/vol growth.

International is expected to grow by 13% (9% in 1QFY19 and 14% in 4QFY19), driven by portfolio diversification in Bangladesh and GTM initiatives in Vietnam

We model 350bps expansion in GM to 45.8%. We expect A&P spend to grow by 25% to support NPD. EBITDA margin to expand by 176bps (-182bps YoY) to 19.3%. 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

Colgate WEAK

We expect 6% revenue growth with 5% volume growth (4% in 1QFY19 and 5% in 4QFY19). Pan-India launch of Swarna and re-launches in core portfolio will curb market share losses.

We model GM decline of 90bps YoY to 65%. We expect that ASP expense would continue to increase in support of new launches and re-launches. We model 8% increase in ASP (14% of sales)

EBITDA margin is expected to dip by 12bps YoY to 26.9% (+436bps in 1QFY19 and -128bps in 4QFY19). EBITDA to grow by 5.5% (+27% in 1QFY19 and +1% in 4QFY19)

Toothpaste volume growth and market share change

Feedback on Swarna pan-India launch ASP spends, especially with increased

competition from Dabur


6


COMPANY 1QFY20E


Emami WEAK

We expect weak revenue growth of 4.5% YoY owing to sluggish performance from both domestic and international business.

Domestic business will be impacted by general slowdown and slow recovery of core business. We model 2.5% domestic revenue growth (21% in 1QFY19 and 3% in 4QFY19) led by flat volume growth (16% in 1QFY19 and flat in 4QFY19)

International business to post 25% growth (7% in 1QFY19 and 19% in 4QFY19) led by acquisition of ‘Crème 21’.

We model GM contraction by 226ps to 64% owing to steep inflation in menthol oil (+5bps in 1QFY19 and -438bps in 4QFY19). EBITDA margin to decline by 138bps to 18.8% ( +495bps in 1QFY19 and -389bps in 4QFY19). 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

Jubilant FoodWorks

AVG

We model 12% revenue growth, driven by 6% SSG (26% in 1QFY19 and 6% in 4QFY19). Our SSG estimates moderate given a high base, slow down and splitting stores. Focus has now shifted towards new stores. We model 20 Domino’s store additions in 1QFY20.

We model GM to expand by 157bps YoY to 76.1% (-183bps in 1QFY19 and 176bps in 4QFY19) drive by benign food inflation and benefit from new contract with PepsiCo. We model EBITDA margin expansion of 65bps YoY to 17.2% driven by favorable operating leverage, reduction in Dunkin losses YoY and cost efficiency drive. EBITDA to grow by 17% YoY.

Commentary on product launches Outlook on store addition in FY19-20 Competitive intensity, pricing strategy Outlook on sustainable SSG


7

Consumer Appliances: Cooling products were hot Excitement over summer products: Our coverage universe is

expected to post 13/14% revenue/EBITDA growth (15/29% in 1QFY19 and 13/-6% in 3QFY19). Slowdown will have its impact on 1Q performance for most appliance categories but strong summer 2019 will significantly drive cooling products (refer to our recent thematic Summer-19 to end with a bang!).

Expect robust growth for RAC, Air Coolers, Stabilizer: Summer was strong pan-India (unlike last year, south washout) and was hotter than last year. Extended winter impacted primary growth for March (4QFY19 was weak for all cooling product cos) and resulted into below normal channel inventory in trade. Therefore, many cooling products were stocked out when summer started well in April. Summer in North was delayed and it impacted May performance, however, summer rebounded strongly in June for North and resulted into strong offtake. Our channel checks suggests (1) Strong RAC, Air Cooler and Stabilizer offtake in 1QFY20, (2) Normal channel inventory (to drive non-season quarter performance), (3) Consumer buying in RAC has shifted towards fixed speed and lower priced products (Voltas to gain further market share), and (4) Consumer financing for RAC is now at 45% vs. 35% mix in 2018.

Recommendation: On the back of a challenging FY19, these cos have an opportunity to mean revert towards their long-term average volume growth driven by a normal summer, pent up demand and 4 quarters of favorable base. Categories like RAC, Air cooler, Fans, Stabilizer and Inverter will optically report strong performance in the near term driven by healthy offtake.

Our top picks in Appliances: Voltas and Symphony

Source: Company, HDFC sec Inst Research Note: V-Guard EBITDA growth is led by a favorable base (impact of one-time brand spend). Adj. EBITDA growth is at 16%.

APPLIANCES: 1QFY20E RESULTS PREVIEW

Appliances: Expect 13% Sales And 14% EBITDA Growth

13 18

12

70

12 8 14 12

20

41

8

-

14

28

42

56

70

Hav

ells

Vo

lta

s

Cro

mp

ton

Sym

phon

y

V-G

uard

TTK

P

rest

ige


> 70 2,665

https://www.hdfcsec.com/hsl.docs/Cooling Products - Update - Jun19 - HDFC sec-201906041551000440504.pdf













8

Consumer Appliances: Cooling products were hot

COMPANY 1QFY20E


Havells India AVG

We expect Havells (ex-Lloyd ) to register 12% revenue growth (19% in 1QFY19 and 14% in 4QFY19). We model 10/12/12/15% for Switchgears/Cables/Lighting/ECD. We model 14% growth in Lloyd (14% in 1QFY19 and -9% in 4QFY19) driven by robust RAC offtake but weak panels offtake.

We model flat (ex-Lloyd) EBITDA margin (+349bps in 1QFY19 and -90bps in 4QFY19) owing to modest volume growth. Lloyd, we expect EBITDA margin of 9.2% (9.3% in 1QFY19 and 3.4% in 4QFY19). We model overall EBITDA growth of 14%.

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

GOOD

We expect consolidated net revenue growth of 18% YoY. UCP segment to report 25% growth (-2% in 1QFY19 and -6% in 4QFY19) led by scorching summer, market share gains and favorable base. We model 8% growth in EMPS (31% in 1QFY19 and 12% in 4QFY19).

We model UCP modest EBIT margin expansion of 37bps YoY to 12.9% owing to high channel inventory and back-ended volume growth in the season. EMPS EBIT to contract by 237bps YoY to 7.8% (10.2% in 1QFY19 and 4.5% in 4QFY19)

EBITDA margin to decline by 56bps YoY to 10.8%. We model overall EBITDA growth of 12%.

RAC channel inventory

Pricing strategy

Competitiveness in RAC market

Outlook on EMPS revenue and margin


9


COMPANY 1QFY20E


Crompton Consumer

AVG

We expect 12% revenue growth, driven by 6% growth from Lighting (10% in 1QFY19 and 11% in 4QFY19) and 15% growth from ECD segment (23% in 1QFY19 and 10% in 4QFY19). Lighting growth will be impacted by decline in conventional lighting and price erosion in LEDs

We model 24bps expansion in GM (+180bps in 1QFY19 and -64bps in 4QFY19). We expect recovery in lighting margins to sustain, model 10.5% EBIT margin (6.7% in 1QFY19 and 11.5% in 4QFY19). ECD will maintain EBIT margin at 19.6%.

We model overall EBITDA growth of 20% resulting in 95bps margin expansion to 14.8%

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 (19% in 1QFY19 and 12% in 4QFY19) 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 15/10/7/6/11/13% growth for Stabilizers/UPS/Pumps/Cables/Water Heaters/Fans.

We model 61bps expansion in gross margin (292bps in 1QFY19 and 31bps in 4QFY19) to 31% driven by richer product mix. We expect robust EBITDA growth of 41% (EBITDA margin expansion 175bps) owing to one-time brand spend in 1QFY19. Adjusting for one-time brand spend, EBITDA margin will expand by 30bps YoY and EBITDA will grow by 16%.

Commentary on South performance

Non-south performance

Performance of new launches

Growth outlook

Outlook on input cost inflation and pricing action


10


COMPANY 1QFY20E


TTK Prestige AVG

We expect net revenue growth of 7% (25% in 1QFY19 and 7% in 4QFY19). We model 3/6/11% growth in Cookers/Cookware/Appliances respectively.

We model flat EBITDA margin at 13.3% (74bps in 1QFY19 and 52bps in 4QFY19). We expect EBITDA to grow by 8%

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 70% (-39% in 1QFY19 and -11% in 4QFY19) driven by favourable base, strong summer and normal inventory in the trade channel. We model 80% revenue growth in the domestic business and 25% growth in the international business.

We model gross margin increase of +100bps (+325bps in 1QFY19 and -553bps in 4QFY19) to 55.5%. We model EBITDA margin expansion of +1,929bps (-1,372bps in 1QFY19, -218bps in 4QFY19) to 29.5%.

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


11

Financial summary



Company NET SALES (Rs bn) EBITDA (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS (Rs/sh)

1Q FY20E

QoQ (%)

YoY (%)

1Q FY20E

QoQ (%)

YoY (%)

1Q FY20E

QoQ (%)

YoY (%)

1Q FY20E

QoQ (%)

YoY (%)

1Q FY20E

4Q FY19

1Q FY19

FMCG

ITC 119.4 (2.2) 9.8 45.8 0.2 9.0 38.5 108 (10) 31.1 (9.5) 10.2 2.5 2.8 2.3

HUL 101.1 3.1 8.1 24.9 7.1 10.4 24.2 90 51 17.3 8.5 10.1 8.0 7.3 7.2

Nestle 29.2 (2.7) 8.3 7.0 (6.8) 6.1 23.9 (104) (48) 4.3 (7.0) 9.0 44.7 48.0 41.0

Dabur 22.2 4.2 6.5 4.1 (10.6) 5.9 18.4 (304) (11) 3.5 (4.7) 7.6 2.0 2.1 1.9

Britannia 27.8 (0.0) 9.1 4.3 (1.4) 10.5 15.5 (10) 19 2.9 (1.6) 12.1 12.0 12.2 10.7

Marico 21.8 35.4 7.5 4.2 48.4 18.3 19.3 168 176 3.0 (24.5) 18.4 2.3 1.7 2.0

Colgate 11.0 (4.3) 6.0 3.0 (4.3) 5.5 26.9 1 (13) 1.8 (10.8) 7.8 6.6 7.4 6.1

Emami 6.4 0.5 4.6 1.2 (21.9) (2.2) 18.8 (540) (131) 0.7 (32.8) 2.0 1.6 2.4 1.6

Jubilant Food 9.6 10.5 11.9 1.7 11.9 16.2 17.3 20 65 0.9 10.4 17.2 6.6 6.0 5.7

Aggregates 348.5 1.9 8.6 96.0 1.8 9.3 27.6 (1) 17 65.5 (5.6) 10.3

Consumer

Durable

Havells 29.3 6.4 12.8 3.6 10.4 14.2 12.2 44 15 2.4 16.6 14.6 3.9 3.3 3.4

Voltas 25.3 22.6 17.7 2.7 88.5 11.9 10.8 376 -56 2.1 47.5 12.0 6.2 4.2 5.6

Crompton 13.5 11.9 12.1 2.0 18.9 19.8 14.8 87 95 1.3 17.0 25.5 2.1 1.8 1.7

Symphony 1.3 (2.5) 70.3 0.3 (32.6) 2,665.3 20.6 (915) 1,929 0.2 (27.2) 380.4 3.4 4.7 0.7

V-Guard 7.1 (3.8) 12.0 0.7 (16.0) 41.2 9.2 (134) 191 0.5 (15.2) 19.3 1.2 1.4 1.0

TTK Prestige 4.5 1.4 7.7 0.6 (6.4) 8.2 13.3 (111) 6 0.4 (9.0) 11.0 28.7 31.6 25.9

Aggregates 81.0 10.3 14.4 9.8 19.9 19.0 12.1 97 46 6.9 16.4 19.0

12

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


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

FMCG

HUL 3,759 1,740 NEU 1,817 28.1 33.3 41.0 61.8 52.3 42.4 41.6 37.8 29.6 69.2 28.5 22.1

ITC 3,084 273 BUY 397 10.4 11.3 12.4 26.2 24.1 22.0 16.7 15.0 13.4 39.2 40.9 43.7

Nestle 1,124 11,655 NR 11,064 167.1 206.5 245.9 69.7 56.4 47.4 40.1 34.4 29.4 82.1 101.4 121.4

Dabur 716 406 BUY 457 8.2 10.0 12.0 49.6 40.6 33.8 39.7 33.4 28.0 47.5 53.9 60.6

Britannia 663 2,763 NEU 3,011 48.1 55.2 66.9 57.5 50.1 41.3 37.5 31.9 26.4 39.2 40.4 45.0

Marico 478 370 BUY 384 7.2 9.0 10.8 51.4 41.0 34.2 37.2 30.1 25.8 48.8 48.1 54.5

Colgate 317 1,164 NEU 1,231 27.7 31.5 36.4 42.0 36.9 32.0 25.3 22.2 19.3 67.2 72.4 80.5

Emami 140 300 BUY 500 11.0 13.6 15.6 27.3 22.0 19.2 18.4 15.3 13.3 21.5 28.4 34.1

Jub. Food 161 1,222 BUY 1,755 24.1 30.4 38.1 50.7 40.2 32.0 25.8 20.8 16.7 45.8 56.6 68.6

Consumer

Durable

Havells 462 739 NEU 732 12.7 16.7 20.3 58.4 44.3 36.3 37.6 29.1 24.2 27.7 31.5 36.3

Voltas 197 596 BUY 677 15.6 19.9 24.2 38.2 29.9 24.6 28.4 22.2 17.7 31.4 29.6 32.3

Crompton 143 228 BUY 300 5.9 7.3 8.6 38.3 31.3 26.5 24.4 20.5 17.5 39.4 42.7 48.4

Symphony 87 1,237 BUY 1,626 15.4 29.6 36.1 80.3 41.7 34.2 63.4 30.3 24.8 30.6 49.4 56.2

V-Guard 101 238 BUY 250 4.1 5.7 7.0 58.7 41.9 33.9 45.6 32.0 26.0 21.1 28.2 31.6

TTK Prestige 76 6,583 NR 7,388 138.7 157.9 184.7 47.5 41.7 35.6 25.4 21.9 18.5 21.6 21.9 23.5

13

1QFY20E: FY20 year of consolidation!

ALCO-BEV: 1QFY20E RESULTS PREVIEW

United Spirits : Low base to support EBITDA growth

We expect UNSP’s volumes to grow by 8% YoY (P&A 6%, Popular 10%), revenue +9.6%, EBITDA 29% and PAT 30%. Volume growth is driven by shift in sales of 4QFY19 to 1QFY20 in absence of excise increase in states like Karnatala.

Despite decline in gross margin (-405bps YoY) on account of higher ENA and bottle prices; EBITDA growth to outpace revenue on account of lower A&P spends and other opex driven by efficiencies.

Potential price increase in Karnataka (30-35% of UNSP’s volumes) could be positive. Sale of non-core assets (Rs 11 in our TP) over next 2-3 years is a additional trigger. Persistent increase in state excise levies leading to shift in consumer wallet share and lack of premiumisation are key risks.

UNSP registered revenue/EBITDA/earnings CAGR of 2/16/33% over FY17-19E. We estimate UNSP to report revenue/EBITDA/earnings CAGR of 10/19/24% over FY19-21E.

Reiterate BUY with TP of Rs 650 (40x FY21E EPS). Premiumisation and margin expansion are key re-rating trigger.

Radico Khaitan : Opportunity galore!

• Radico reported flat earnings at ~Rs 0.7bn over FY12-17 due to subdued volume growth, lack of price increases from state government, higher raw material prices and steep increase in taxes.

• However, Radico’s earnings rebound strongly over FY17-19E (51% CAGR) on account of curb on monopolistic distribution in UP (20-25% of RDCK’s revenue) w.e.f. Apr-18 leading to healthy volume growth, softer raw-material prices aided by captive manufacturing and price increases across majority of the states and balance sheet deleveraging (net debt down from Rs 9bn in FY16 to Rs 3.2bn as at FY19).

• In absence of price increases from state governments, increase in RM prices (both ENA and bottles); we estimate Radico’s revenue growth to moderate and margin to be flat in FY20. Radico’s stock price has thus corrected by ~30%. It provides an attractive entry opportunity. Reiterate BUY with TP of Rs 478 @ 26x FY21E EPS viz. 35% discount to UNSP. This is owing to latter’s large scale of operations, improving margins and potential sale of non-core assets that may reduce debt.

• Historically, Radico has traded at 20x 1-yr forward PE multiple. Healthy volume growth and mix improvement (premiumisation and higher share of whisky) is inevitable for further re-rating. With increased A&P spends (re-investment of gross margin expansion), this is likely.

• We estimate Radico to report revenue/EBITDA/earnings CAGR of 8/9/14% over FY19-21E. This is against a CAGR of 12/28/51% over FY17-19E.

14

1QFY20E: Healthy performance


COMPANY 1QFY20E


Alco-Bev

UNITED SPIRITS Strong

We expect the volumes to grow by 8% YoY. Revenue to grow by 10% on account of mix change and premiumisation.

We have modeled 205bps YoY increase in the EBITDA margins. Decline in gross margin of 405bps YoY on account of increase in RM prices, to be offset by lower employee costs, A&P spends and other opex.

Outlook on volumes, raw material prices due to increase in ENA prices, competitive environment and route-to-market changes, if any

Update on premiumisation

RADICO KHAITAN Average

We expect Radico to report volume growth of ~6.8% YoY. Prestige and above to grow at healthy 13% and Popular by ~4%. Healthy growth is partly on account of shift of 4QFY19 sales on account of de-stocking due to license renewal. Revenue to grow by ~9% YoY (IMFL 11.6% and non-IMFL -1%).

EBITDA to grow by modest ~5% (post six healthy quarter of double digit growth) owing to base effect, softer volume growth, increase in RM prices and marginal impact from Rampur factory closure. PAT to grow by ~12%.

Outlook on volumes, price increases and raw material prices due to increase in ENA prices

Update on premiumisation and uptake of 8PM premium black whisky

15

1QFY20E: Financial Summary


Source : Company, HDFC sec Inst Research


Peer Valuations

COMPANY

NET SALES (Rs bn) EBITDA (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS (Rs/sh)

1Q FY20E

QoQ (%)

YoY (%)

1Q FY20E

QoQ (%)

YoY (%)

1Q FY20E

QoQ (bps)

YoY (bps)

1Q FY20E

QoQ (%)

YoY (%)

1Q FY20E

4Q FY19E

1Q FY19

ALCO-BEV

United Spirits 22.06 (2.0) 9.6 2.95 4.2 29.4 13.4 79 bps 204 bps 1.52 14.8 29.9 2.1 1.8 1.6

Radico Khaitan 5.63 10.4 9.0 0.96 33.6 5.0 17.0 295 bps -66 bps 0.53 35.9 12.0 4.0 2.9 3.6

Aggregate 27.69 0.3 9.5 3.91 10.1 22.4 14.1 125 bps 149 bps 2.05 19.6 24.7

COMPANY Mcap

(Rs bn) CMP (Rs)

RECO TP EPS (Rs/sh) P/E (x) EV/EBITDA (x) RoIC (%)

(Rs) FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E ALCO-BEV United Spirits 413.3 569 BUY 651 10.2 11.4 15.7 55.6 49.7 36.3 32.6 28.8 22.3 14.7 15.0 18.7

Radico Khaitan 38.1 287 BUY 481 14.1 15.9 18.5 20.3 18.2 15.6 11.8

10.5 9.0 11.5 12.3 13.2

16

1QFY20E: Slowdown in auto, a risk

LUBRICANTS: 1QFY20E RESULTS PREVIEW

COMPANY 1QFY20E


Lubricants

GULF OIL LUBRICANTS STRONG

• We expect Gulf to report ~30.5mn KL of volumes (+11% YoY). Revenues to grow by ~13.3%.

• Led by price increases, we estimate EBITDA to grow by ~16.9%YoY.

• Drivers for growth are new product launches, focus on OEM tie-ups and expansion of distribution channels.

• PAT to grow at 18.7% YoY.

• Reiterate BUY with TP of Rs 1,052 @ 22x FY21E EPS.

Outlook on demand environment, especially in light of severe slow down in auto industry competitive intensity and RM price trends

Electric vehicle impact, if any in short term

17

1QFY20E: Financial Summary

LUBRICANTS: 1QFY20E RESULTS PREVIEW



Valuation

COMPANY

NET SALES (Rs bn) EBITDA (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS (Rs/sh)

1Q QoQ (%)

YoY 1Q QoQ YoY 1Q QoQ (bps)

YoY (bps)

1Q QoQ (%)

YoY 1Q 4Q 1Q

FY20E (%) FY20E (%) (%) FY20E FY20E (%) FY20E FY19E FY19

LUBRICANTS

Gulf Oil 4.42 1.3 13.2 0.75 1.6 16.9 17.1 5 bps 54 bps 0.48 7.6 18.7 9.6 8.9 8.3

COMPANY Mcap CMP

RECO TP EPS (Rs/sh) P/E (x) EV/EBITDA (x) RoIC (%)

(Rs bn) (Rs) (Rs) FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E

LUBRICANTS

Gulf Oil 41.3 829 BUY 1,052 35.0 39.4 47.8 23.7 21.0 17.3 14.6 12.7 10.5 33.3 33.6 42.2

18

Jewellery 1QFY20E: Is this just a pit stop for Titan?...or more

JEWELLERY: 1QFY20E RESULTS PREVIEW

Our coverage universe is expected to register 16/20% YoY revenue/EBITDA growth during 1QFY20 vs 9/32% YoY in 1QFY19. Growth may be back for some south-based players - clocking 10-18% growth (per channel checks) albeit on a low base as gold prices remain elevated in 1Q (4.5% YoY growth).

Overall consumer sentiments remain sombre as elevated gold prices play spoilsport. Post a blockbuster FY19, Titan reported a less than inspiring ~13% growth in Jewellery. Could this just be a pit-stop for Titan or there is more to it? Channel checks hint some teething issues in East and a recovery in performance for some of its peers down south. Non-jewellery business continues to perform well (est. growth of 19%).

Thangamayil is expected to report strong growth in gold volumes albeit on a low base (est: growth of ~14.5%). We also expect margin expansion led by better product mix. The company is now on the cusp of resuming store addition (~10 store additions planned for FY20 on a base of 35) with focus on SSSG growth.

Jewellery: Expect 16% Sales And 20% EBITDA Growth


-

5.0

10.0

15.0

20.0

25.0

Tita

n

Than

gam

ayil


19

Jewellery 1QFY20E


COMPANY 1QFY20E


TITAN WEAK

We expect growth of 13.4% YoY in Jewellery business despite a low base(6.3% in 1QFY19 and 22.3% in 4QFY19) as elevated gold prices keeps demand at bay. Titan added 12 Tanishq stores (net) in 1Q. We expect gold grammage growth of 8.5% YoY.

Non-jewellery business is expected to grow by ~19% with Watches/Eyewear/Other business to register 19/13/30% growth, respectively.

We expect Jewellery EBIT growth of ~17.2% YoY (18.8% in 1QFY19 and 17.5% in 4QFY19).

Overall EBITDA margin to expand by 45bps to 11.3% 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 growth of 20.1% YoY (-10.8% in 1QFY19 and -1.2% in 4QFY19). We model gold volume growth of 14.5% YoY (-9.1% growth in 1QFY19 and -9.4% growth in 4QFY19).

EBITDA margin expected to be higher by 20bps YoY to 5.9% led by favourable product-mix and increased in-house manufacturing.

Adj. PAT to improve by ~34.1% YoY.

Grammage growth and demand outlook

Commentary on store renovation and expansion

EBIT margin

20

Financial Summary



Company NET SALES (Rs bn) EBITDA (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS (Rs/sh)

1Q FY20E

QoQ (%)

YoY (%)

1Q FY20E

QoQ (%)

YoY (%)

1Q FY20E

QoQ (bps)

YoY (bps)

1Q FY20E

QoQ (%)

YoY (%)

1Q FY20E

4Q FY19

1Q FY19

Titan 51.3 5.0 15.3 5.8 17.3 20.1 11.3 118 45 3.9 -1.1 20.2 4.4 4.5 3.7

Thangamayil 4.7 32.1 20.1 0.3 60.1 24.3 5.9 104 20 0.1 94.0 34.1 10.1 5.2 7.6

Aggregate 56.0 6.8 15.7 6.1 18.7 20.3 10.9 109 41 4.0 0.6 19.3

Valuation Summary


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 Titan 976 1,099 NEU 1,020 17.3 20.2 24.7 63.6 54.5 44.5 46.9 36.9 30.4 17.9 19.5 20.9 Thangamayil 4 315 BUY 590 22.1 28.8 35.2 14.3 11.0 9.0 11.3 9.8 8.7 7.6 8.7 9.2

21

CONSUMER: 1QFY20 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

Disclosure: We Naveen Trivedi, MBA, Himanshu Shah, CA, Jay Gandhi, MBA, Siddhant Chhabria, PGDBM & Rohit Harlikar, MBA authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock – No HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is solely for information of the recipient only. The report must not be used as a singular basis of any investment decision. The views herein are of a general nature and do not consider the risk appetite or the particular circumstances of an individual investor; readers are requested to take professional advice before investing. Nothing in this document should be construed as investment advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in securities of the companies referred to in this document (including merits and risks) and should consult their own advisors to determine merits and risks of such investment. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete. HSL is not obliged to update this report for such changes. HSL has the right to make changes and modifications at any time. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HSL or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently sent or has reached any person in such country, especially, United States of America, the same should be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published in whole or in part, directly or indirectly, for any purposes or in any manner. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. This document is not, and should not, be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report should not be construed as an invitation or solicitation to do business with HSL. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HSL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HSL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report. HSL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HSL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 HDFC Securities Limited, SEBI Reg. No.: NSE, BSE, MSEI, MCX: INZ000186937; AMFI Reg. No. ARN: 13549; PFRDA Reg. No. POP: 11092018; IRDA Corporate Agent License No.: HDF 2806925/HDF C000222657; SEBI Research Analyst Reg. No.: INH000002475; SEBI Investment Adviser Reg. No.: INA000011538; CIN - U67120MH2000PLC152193 Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.

mailto:[email protected]



22

HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013 Board : +91-22-6171 7330 www.hdfcsec.com


http://www.hdfcsec.com/

Documents

Siddhant Chhabria (FMCG, Appliances) (Alco-Bev, Hotels ... - 1QFY20... · (HUL and BRIT) will gain healthy market share in a challenging period. ... COMPANY 1QFY20E OUTLOOK WHAT’S