FMCG, realty stocks drive up markets

Tue, 31 May 11:30 am

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Indian stock markets continue to trade firm on buying interest in heavy weights over the last two hours. Stocks from the FMCG and realty space are trading firm while stocks from the auto space are trading weak.

The BSE-Sensex is trading up by 90 points while NSE-Nifty is trading 30 points above the dotted line. BSE Midcap index is up by 0.8% while BSE Small cap index is trading 0.5% above yesterday's closing. The rupee is trading at 45.03 to the US dollar.

Consumer goods stocks are trading firm led by ITC and Godrej Consumer. Colgate Palmolive released its FY11 results. The company's top line grew by 13% YoY. Of this volume contributed 12% growth while value contributed the balance 1% growth. The toothpaste category which is the biggest category for the company, grew by 13% YoY. This was on the back of contribution from its flagship brands like Colgate Dental Cream, Colgate Sensitive, Active Salt, Max Fresh and Colgate Total. Growth ahead of the industry saw this category increase its volume market share to 53.1% in FY11 from 52.9% in FY10. Toothbrush category also saw strong sales with a volume growth of over 18% YoY. The newly launched category of mouth wash saw strong growth ahead of market during the year. As a result, market share of Plax mouthwash increased from 7.5% in FY10 to 22% in FY11. Operating margins for the year fell by 1.6% to stand at 22.9% on the back of increase in staff costs advertisement expense and other expenditure. Net profit for the year fell by 5%. This was the result of a sharp increase in effective tax rate as the company's exhausted its 100% tax exemption at its Baddi plant. Effective tax rate increased from 12.7% in FY10 to 22.6% in FY11.

Realty stocks are trading firm led by Godrej Properties and Orbit Corporation. As per a leading financial daily, DLF plans to sell its developed properties in an effort to mop up Rs 70 bn. These properties would include five IT parks and its hotels business. DLF plans to reduce its gross debt of Rs 239 bn from the proceeds of this sale. The strategy of selling developed properties is a shift in the company's line of thought as it has never sold its building and other developed properties. However, the company is reeling from increase in interest rates which is slowing its sales on one hand and increasing its cost of capital on the other. It may be noted that over the last one-and-a-half years, DLF has sold some noncore assets such as hotel sites in Delhi and Hyderabad as well as non-contiguous land parcels. For this, the company received Rs 30 bn. As per the company's spokesperson, DLF is looking to sell a combination of assets and underdeveloped non-contiguous land parcels which are not core to the company's medium term strategy. The aim of DLF is to become debt free in the medium term. However, to reduce its debt and meet its contingent tax obligations, the company has more than doubled what it targets to raise from the divestment of non-core assets. Originally, DLF planned to raise Rs 45 bn from the sales of its noncore assets. However, as per its revised target, it plans to raise Rs 100 bn in the next 2-3 year. With Rs 30 bn already with the company, the company is identifying properties to raise the balance Rs 70 bn.