Here is a short summary from the Q2-FY18 Earnings Call Transcript of a few selected stocks. The sole objective of this post is to provide a quick short digest of disclosures relating to the company that came to the forefront during the earnings call. Over the course of this quarter, we intend to keep an eye out for the transcripts of other companies as well.
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Current Performance (Q2) – Dated October 27, 2017
Company witnessed lower than expected demand during the current quarter. Though the early festive season helped in demand revival, the extended monsoon in the middle of October dampened the demand [normally the monsoon starts to withdraw by middle of September]. With painting not executed during rainy season or when it is raining outside, this impacted Revenues.
Decorativepaint business registered high single-digit volume growth in the Q2.
Automotivecoatings joint venture (PPG-AP) witnessed subdued demand in the Auto OEM and General Industrial business segments.
Home Improvement Business – Both segments i.e. kitchen business and the bath business performed considerably better in the second quarter than the first. The impact of GST was felt much more by this segment more than the paint segment
The company has discontinued the production of Phthalic Anhydride at its Ankleshwar plant since August 2017 and plans to augment its manufacturing capacity for paints, synthetic resins and emulsions at that location.
The company inaugurated its first paint plant in Indonesia in the month of September 2017, with an initial capacity of 5,000 MT/year on a single-shift basis.
The company is on track to commission the first phase of two plants [One in Mysuru, Karnataka and the other in Vizag, Andhra Pradesh at a cost of Rs. 1,000 crore of the Rs. 1,200 capex] in FY2018-19. However, with the company yet to sign an agreement with the respective state governments, there is no clarification on any tax breaks/ fiscal benefits to be derived from their establishment.
Caribbean operations completed divested on July 24, 2017. Company has recorded a gain of Rs.67.5 crores pre-tax [issuable by Singapore, which is the holding company for Caribbean operations. There will be no tax impact on the Transaction since there is no capital gain tax in Singapore].
On the demand from Affordable housing scheme – the company is looking to target the segment [affordable housing segment] when it goes for repainting almost immediately upon purchase.
Coupled with good monsoon and settling down of the trade channel from the initial hiccups of the GST rollout, company is hopeful of a better demand condition in the second half of the year. In the International markets, the forex situation in the markets of Egypt and Ethiopia is a key cause of concern.
Crompton Greaves Consumer Electricals
Current Performance (Q2) – Dated October 27, 2017
ECD business grew at 11%, much of it being driven by the premium segment. Currently the market is declining due to external factors starting with demonetization and later the implementation and the transition to GST . Company expects market to gradually improve and become finally stable by January, February or March.
Lighting – growing on an adjusted basis 25% over previous year. The LED business now represents about 70% of the company’s lighting business.
Fans [market size has declined by 4%] have been classified as a luxury good therefore carries a 28% GST. The company’s anti-dust fans is a runaway success driving a lot of the fans business growth.
Company has not witnessed [at least in the current or past quarters] any significant shift from unorganized to organized [in terms of partners or players].
Costs for this quarter were down on account of Rs. 10 crores spent on advertising in Q2 last year, while this time it was close to zero, material costs have remained in control.
With housing stats highly correlated to the fan market growth, the company is looking at urbanization as an opportunity. Increase in the cost of Electricity is leading to demand for more power efficient products.
Current Performance (Q2) – Dated October 25, 2017
Consumer offtake during GST transition [first half – first quarter was pre- GST, second quarter was post-GST] remained stable. Input costs have started to inflate during the current quarter.
GST transition – excise duty which was treated as a cost is now getting subsumed in GST and getting netted off turnover. The impact – reduced turnover for the current quarter but with no impact on EBITDA [tax rate for FY 18 is expected to be around 30%]. This is also applicable for other tax lines i.e. service tax, octroi, excise duty benefits, cenvat etc. On the Unilever front – no implication in the Unilever reported accounts, because under IFRS, the turnover is always reported net of excise.
Q2 has been a quarter of profitable volume-driven growth i.e. 4%. Company has reduced prices by almost 3% to 4% to pass on the net GST benefits.
Indulekha – has now got clinical results to rpove that it is actually able to re-grow hair [this is in line with the company’s consistent effort on introducing new products in the hair portfolio i.e. first came in Dove about 10 years ago, then came TRESemmé and now Indulekha].
Exceptional income – profit on sale of equity shares in Kimberly-Clark Lever to Kimberly-Clark i.e. Rs. 46 crores.
The business in FMCG grows when there’s more money in hands of people. With good monsoons, the company is expecting rural growth to get back on track and going ahead will a key driver.
Expect gradual improvement in rural demand going forward, expect to see trade conditions to continue to improve and also expect to see input costs to inflate further. Focus is on volume-driven growth and improvement in operating margin.
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