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Consumer discretionary : Steady revenue growth, margin pressure continues
What’s Buzzing:
The consumer discretionary (CD) universe reported steady revenue growth while EBITDA margin pressure continuing in Q1.
Context:
The CD universe reported revenue growth of 59% YoY, much ahead of our estimate of 42%, largely on a favourable base. On a three-year basis, coverage universe reported revenue CAGR of ~14% led by strong revenue growth reported by paint companies. Decorative paint majors Asian Paints & Berger Paints recorded strong volume CAGR of 20% and 14%, respectively, led by dealer additions and launch of new products. On the FEMG front, intense summer and market share gains drove strong revenue growth of 125% and 119% for Voltas and Havells, respectively. The EBITDA margin pressure of the coverage universe continued in Q1 due to inventory losses and high raw material costs in the FMEG and PVC piping companies.
Our Perspective:
The CD universe witnessed EBITDA margin pressure in Q1FY23 dragged by FMEG and pipe companies. The sector companies reported EBITDA margin decline in the range of 400-500 bps YoY, mainly due to use of high cost inventories and increased advertisement expenses in Q1FY23. The management have said that high cost inventory will be exhausted by Q2FY22 with margin recovery set to start from thereon. On the other hand, paint companies have reported a margin recovery led by price hikes and improved operating leverage. Going forward, we see good festive demand as catalyst to growth and easing raw material prices to reduce EBITDA margin pressure. We are positive on Asian Paints for its sustained volume growth with limited impact on margins. We also like Polycab and Bajaj Electricals for their focus on new launches and geographical expansion leading to market share gains.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
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