MarketFresh: FMCG Tracker - Input commodity inflation remains steady - Religare

Input cost inflation remained flat for yet another month in November, while pricing activity remained muted in December. We recommend profit booking and remain Underweight on the sector given slowing growth and fairly rich valuations. Our top picks are Dabur, BRIT and BJCOR. We have a SELL rating on HUVR, APNT, NEST, CLGT and GSK Consumer, and recommend HOLD on ITC, GCPL, MRCO and Emami.

- Input cost inflation flat for second consecutive month: After increasing all through June-September this year, commodity inflation remained flat in October/November. While copra (+11.9% MoM), mentha oil (+3.5% MoM), palm oil (+3.2% MoM), wheat (+1.6% MoM) and milk (+1.0% MoM) recorded the highest inflation in the basket of commodities we track, sunflower oil (-7.6% MoM), LAB (-4.3% MoM), Tea (-3.5% MoM), LLP (-2.7% MoM) and HDPE (-2.4% MoM) corrected.

- RM cost index largely flattish: Though MRCO recorded a sharp increase in its November RM cost index, costs declined for Dabur and HUVR; the rest of our coverage universe reported a flattish RM index.

- Pricing remains muted while promotions continued in December: Barring the F&B segment, price hikes have slowed considerably for most FMCG categories due to higher competition and moderating volume growth. At the same time, promotional activity which was picking up steadily so far has now moderated in the Home & Personal Care (HPC) and F&B categories.

In HPC, there were no price/promotion-related changes in the soaps and detergents category which was till now seeing strong spate of promotional activity. The toothpaste segment saw no change in promotions except for a price hike by CLGT in its Colgate Total brand. In shampoos, except for a marginal 1% price hike by HUVR in its Sunsilk brand, there were no other price increases or promotions in the category. P&G continued with its H&S promotion for a second month in a row (a Rs 20 discount or a 14% price cut on its 170ml bottle). Shampoo sachets did not see any price changes in the month. The skin segment saw a price hike by HUVR in its Ponds face wash brand.

In Foods, there was pricing action across categories with milk, tea and sugar-free seeing price hikes while biscuits saw some brand-specific price cuts largely by Parle.

Source : Equity Bulls

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