FMCG / CONSUMPTION SPACE: BACK IN FAVOUR??

- One of the most common errors which Market retail participants make ever so often is that there is a tendency to get fixated on certain sectors; more often than not, missing out or failing to recognise the rallies budding in other sectors in time.

- We have been so obsessed with the rate sensitives the past three months, though admittedly with good reason since the Rate Cycle was and still is turning and these stocks had taken such a beating in the last 3 months of 2011 thus making them available at bankruptcy valuations. But now, alert investors might already have noticed that the rallies in rate sensitives in Capital goods, infra, Banking, Realty etc has plateaued off with most of these stocks either consolidating or even giving negative returns in the past month.

- On the other hand the last month in particular has again seen a creeping upsurge in the FMCG / CONSUMPTION favourites such as NESTLE, GODREJ INDUSTRIES, GSK CONSUMER, ITC, TITAN, BATA, TTK PRESTIGE, ASIAN PAINTS, COLGATE PALMOLIVE, JUBILANT FOODWORKS, HSIL, KAJARIA CERAMICS, CERA SANITARY etc etc.

- In fact, to carry the earlier point a little further, readers may be a tad surprised to know that NESTLE, GODREJ IND, TITAN, BATA, TTK PRESTIGE, GSK CONSUMER, ASIAN PAINTS, JUBILANT FOODWORKS have all made new 52-week highs THIS MONTH or thereabouts.!!!!!

• ASIAN PAINTS    up 10% in last 2 wks     52 wk high on 4/4/2012
• NESTLE            up 6% in last 2 wks       52 wk high on 4/4/2012
• GODREJ IND         up 15% in last 2 wks    52 wk high 2/4/2012
• BATA                     up 20%  in last month    52 wk high 3/4/2012
• TITAN                    up 12% in last month     52 wk high 4/4/2012
• ITC                          up 10% in last month     52 wk high 4/4/2012
• TTK PRESIGE       up 16% in last 2 wks      close to 52 wk high
• JUBILANT FOOD up 26% in last month      52 wk high 3/4/2012
• COLGATE              up 11% last month          52 wk high 3/4/2012
• KAJARIA            up 15% last month          52 wk high 20/3/2012
• HSIL                     up 19% in 1 wk               some way to go yet
• VIP                        up 11% in 1 wk                some way to go yet

-Comparing with some of the prominent rate sensitives as follows

• LANCO                   down 4% in last month
• GMR INFRA           down 2% in last 1 wk
• GVK POWER          down 1% in last 2 wks
• ACE                          down 4% in last month
• SUZLON                  down 10% in last 2 wks
• LARSEN                  up 6% in last month
• BHEL                       up 8% in last 1 wk
• ICICI BANK            down 2% in last 2 wks
• AXIS BANK            down 2% in last 2 wks
• HDFC BANK           up 3% in last month
• YES BANK              up 2 % in last 2 wks
• DLF                          up 5% in last 2 wks
• HDIL                        down 15% in last month              

- So, to cut a long Post short, it seems that in the last 2-4 wks smart money has surely moved into the FMCG / CONSUMPTION space. The money is probably either the incremental FII money coming from the overseas liquidity gush and /or some quantum of profit skimmed off by participants from the rate sensitive counters which saw such a terrific rally in the January to early March period.

- Of course, one is by no means implying that the rally in rate sensitives is over but it surely seems that quietly the FMCG / CONSUMPTION space has again crept back into the limelight - whether it is only a case of them playing catch-up or something more radical such as a temporary shift in the leadership sectors of the rally, only time will tell.

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RESULTS EOD 17/1/2012; KAJARIA CERAMICS

KAJARIA CERAMICS Q3 FY2012 RESULTS  SEE THIS

Excellent numbers!!!  Gross Sales up 40% yoy; EBIDTA up 38% yoy; EBIDTA Margins stable at 16% yoy; PAT up 18% yoy; EPS up 18% yoy. The only glitch is that currently the 'Consumption Space' is not exactly a Stock Market favourite but this is not to take anything away from the good numbers.

KAJARIA CERAMICS: BEST ENTRY PRICE

CMP 117                     BSE 17082

TECHNICALS:

On perusing the 2 year Price Charts, it becomes evident that the Stock is on a roll; the Charts are definitely positive. On the downside, a strong support exists at 102 levels, which, in my opinion, should hold. Below this there is a multi year support at 89 levels which one would not expect to be even touched, barring a Market meltdown. On the upside, there is a supply zone in the 120-122 range close to the 52 wk high and a break above that could see the Scrip go upto 133 levels in quick time.

FUNDAMENTALS:

The Company has a lot going for it here as well; excellent Results particularly in the last two Quarters; a slated 25% growth in topline as well as bottomline apiece over the next two years; 16% approx EBIDTA Margins guided; capacity expansion kicker in place; great Brand pull; robust Demand increment pool etc etc. The Company is on-course to do an EPS of about 10.5 for FY12 and approx 13 in FY13, which puts it at about 11x FY12E and about 9x FY13E at CMP 117, which seems fairly attractive. The main spoiler, if at all, could be the input cost escalation for both raw material as well as motive Gas, but that, I guess, is par for the course.

Therefore, in my opinion, KAJARIA CERAMICS is a staggered buy at CMP 117 and all dips upto 100 levels., with safe upsides of about 25% over the next 12 months.