Investor's Eye: Viewpoint - Jubilant FoodWorks (Near term margin pressure to persist); Special - Q3FY2011 FMCG review

Summary of Contents

VIEWPOINT Jubilant FoodWorks Near term margin pressure to persist, All eyes on strategic tie upJubilant Foodworks (Jubilant)?s Q3FY2011 revenue and earnings grew by 58% and 63% respectively on a year-on-year (Y-o-Y) basis while the same were higher than our estimates. The earnings for the quarter fell short of the Street?s expectation on account of margin pressure and higher tax outflow. The reported earnings were approximately at Rs19 crore (~11% lower than the Bloomberg consensus expectation). The revenue growth came on the back of strong same store sales growth (at 35.7%) coupled with a robust 25 new store additions during the quarter, taking the total store count to 364, across 87 cities. SHAREKHAN SPECIAL Q3FY2011 FMCG earnings review  Key points Q3FY2011 performance?profitability affected by surging input cost: As anticipated, the third quarter of FY2011 saw margin reduction for most of the fast moving consumer goods (FMCG) companies on account of a higher raw material cost and sustained higher advertisement spends during the quarter. The top line growth was a function of a better volume growth for the FMCG companies (except for Tata Global Beverages Ltd [TGBL]) while the price increases improved the overall value growth of these companies. ITC beats Street?s expectation: Amongst the FMCG stocks under Sharekhan?s coverage, ITC continues to beat the market?s expectation with a strong bottom line growth of 21.4% year on year (YoY) on the back of a strong performance by the cash cow cigarette business and a consistently better performance of the agri businesses during the quarter. On the back of the recent acquisitions GCPL achieved a 40% year-on-year (Y-o-Y) growth in the bottom line (the stand-alone business showed an improvement with the revenue growth back on track and the bottom line up 18% YoY). Despite a strong volume growth in the domestic consumer business, Hindustan Unilever Ltd (HUL) and Marico witnessed a subdued bottom line growth, as their profitability was affected by a higher raw material cost during the quarter. ITC remains top pick in FMCG space: In view of the strong earnings visibility and the expectation of a better performance across businesses, we maintain ITC our top pick in the large-cap FMCG space. With an above 25% compounded annual growth rate (CAGR) in the bottom line expected over FY2010-13 and a potential upside of 36% from the current levels, we like GCPL in the mid-cap FMCG space. Though TGBL is expected to achieve a mid single-digit earnings growth over FY2010-13, in view of the positive surprises from the recent strategic alliance with (PepsiCo and Kerala Ayurveda) and an upside of 32% from the current levels, we maintain our Buy recommendation on the stock.   Click here to read report: Investor's Eye