FMCG Stocks Outlook for the week – 26 to 30.09.2016

FMCG Stocks Outlook for the week – 26 to 30.09.2016

 May fall next week as raw material cost high


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   Stocks  of  fast  moving  consumer  goods  companies  may  fall  in  the  coming  days  as  the  sector continues to face pressure from rising cost of raw materials. Prices of crude oil rose 10.8% on month, palm oil over 20% and sugar about 2% in August. Revenue momentum in the fast moving consumer goods  sector  will  continue  to  remain  subdued.  Though  expectations  of  an  earnings  recovery  are strong in the Oct-Mar period owing to normal monsoon this year, the green shoots may appear very late. The extent of recovery may not be as strong as market expectations.    In the Jun-Sep monsoon season, India received 813.1 mm of rainfall until Thursday, 96% of the long period average. A normal monsoon could also see the demand for household insecticide business rise during  the  Jul-Sep  quarter.  The  brokerage  has  a  'buy'  rating  for  stocks  of  Emami  Ltd  and  a  'sell' rating for  Godrej Consumer Products Ltd.  A pick-up in consumer demand in the  festive season will
   help  companies  perform  better  in  the  immediate  quarter.  HUL  (Hindustan  Unilever  Ltd),  given  its widest rural reach, is expected to be the biggest beneficiary of this pick-up in consumer demand.   Jubilant FoodWorks Ltd, the food service company that operates Domino's Pizza and Dunkin Donuts chains in India, may face a tough time ahead. The resignation of the company's chief executive Ajay Kaul on Sep 19 after being at the helm for 11 years is seen by many in the market as an outcome of the  company's  poor  show  in  the  Apr-Jun  quarter  this  year.  The  company  reported  a  net  profit  of 189.9  mln  rupees in  Apr-Jun,  down  31%  on  year.  The  company's  volume  in  the  same-store  sales category fell 3.2% on year. The de-growth in same-store sales was a "matter of concern". The long-term  story  of  food  service  industry  is  in  place  and  Jubilant  FoodWorks  Ltd  may  benefit  from  the demand revival. But until same store sales improves, margins and earnings may remain suppressed


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