Q4 results season was full of surprises, with key companies surprising on either volume or profit delivery. HUL disappointed on volume, while ITC surprised with estimated 0.2-0.5% volume growth (UBS-e was -3.5%). ITC’s volume was especially good, with management reiterating that there was no pipeline stuffing ahead of factory closures. Colgate, Emami and Dabur’s results were re-assuring due to the limited impact of key competitors. Emami (+17.6%), Asian Paints (+13%) Marico (+10.5%) and Britannia (+10%) delivered profitable volume growth. Titan’s volume delivery, at +15% q-o-q, came at the expense of profitability.
The sector delivered revenue growth of 8.6% y-o-y (ex-Titan, Nestle), with underlying volume growth of 6.7% y-o-y. Continued low raw material prices and an urban skew aided average gross margin expansion of 120bps y-o-y (ex-Titan, Nestle). Ad-spending/sales expanded 80bps y-o-y (ex-Titan, Nestle). EBITDA margin expanded an average of 145bpts (ex-Titan, Nestle), as other expenses were tightened. EBITDA growth was 16.3% y-o-y. Profit after tax for the sector (ex-Titan, Nestle) grew 11.5% y-o-y.
In our view, a cigarette volume uplift in Q1/Q2 could help re-rate ITC, which still offers the best risk-reward among our covered companies. We have ‘buy’ ratings on Britannia, Colgate and Emami, primarily on strong volume expectations.