FMCG Stocks Outlook for the week – 24 to 28.10.2016 (In range; HUL, Asian Paints Jul-Sep results eyed)

FMCG Stocks Outlook for the week – 24 to 28.10.2016
(In range; HUL, Asian Paints Jul-Sep results eyed) )

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The shares of fast moving consumer goods companies are likely to remain in a range
next week as the market awaits results of major companies in the sector. Hindustan
Unilever Ltd, Asian Paints Ltd, and Kansai Nerolac Paints Ltd are among the major
companies scheduled to detail their earnings for the September quarter next week.

We believe the gross margin expansion would be lower with sequential increase in
certain commodity prices. Commodity prices have been on the rise for the past few
months as the country had experienced two consecutive years of drought in 2014 and
2015. Though monsoon rains in 2016 have been normal, the green shoots are likely to
appear only by the December quarter. We expect our consumer universe's revenue and
profit after tax to increase 10.2% and 15.8%, respectively, in Jul-Sep. Demand remains
steady, with no meaningful pick-up.

HUL is seen posting a standalone net profit of 10.5 bln rupees on net sales of 80.7 bln
rupees in the quarter ended September. Market participants are likely to keenly watch
the management's commentary on competition, especially in the shampoo, oral care,
and detergent category. On Oct 14, HUL's parent company, Unilever, had cut the
growth outlook for its Indian operations for Jul-Sep on account of high commodity
prices. In India, prices in skin cleansing increased in response to rising commodity
costs, dampening consumer demand for the category in the quarter.

Among other FMCG majors, ITC is likely to trade in the range of 235-246 rupees.
Asian Paints is likely to report moderate growth in revenue with flattish margins due to
heavy rains. The impact of rains, however, is likely to be offset by high single-digit
sales in the early festival season.