THEMATIC
B2C Distributors Survey: Weak demand persists in 1QFY17
1QFY17 saw no revival in broader consumption demand. The FMCG sector is likely to report median volume growth of ~5% YoY in 1QFY17 vs 5.5%/5.5% in 4QFY16/1QFY16 for our coverage universe. Categories like decorative paints, kitchenware and light electricals are likely to report moderation in YoY revenue growth of ~200bps vs 4QFY16. Exceptions to this trend are categories like ACs and fans, which benefited from temporary factors like an intense summer. Channel partners hope for consumption revival in 2HFY17 led by: a) normal monsoon; b) Seventh Pay Commission impact; and c) Government's rural initiatives like DBT. Margin benefits from softening input costs will continue to support earnings growth for FMCG/paints/kitchenware companies in 1QFY17. Our top BUYs in expectation of reasonable 1QFY17 results are ITC, Berger and Finolex. (Rakshit Ranjan, CFA, +91 22 3043 3201)
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