Analysts anticipate a sluggish revenue growth in the third quarter of FY24 for the fast-moving consumer goods (FMCG) sector due to subdued volumes, despite the favorable impact of lower raw material prices on gross margins.
The persisting demand challenges have led to restrained volume growth across FMCG products. Rural volumes lag behind urban figures, impacted by low farm income and the emergence of smaller regional firms, affecting larger, listed FMCG companies adversely.
Delayed winter conditions have specifically impacted seasonal categories, failing to meet initial expectations across FMCG companies. Food and beverages are projected to fare better than home and personal care products, as per Elara Securities.
The brokerage estimates a 5 per cent year-on-year (YoY) growth in revenue and volume for FMCG companies in Q3FY24, showcasing a four-year compound annual growth rate (CAGR) of 10.4 per cent, slightly lower than the 10.6 per cent in Q2FY24.
Companies focused on expanding distribution networks, such as Mrs. Bectors Food Specialities, Jyothy Labs, Nestle India and Tata Consumer Products, are likely to experience more robust revenue growth.
The quarter observed a decline in essential raw material prices, excluding wheat, sugar, and milk, leading to the resurgence of local regional firms that offer quality products, gaining market share.
FMCG firms are implementing incremental price cuts while boosting advertising and offering extra incentives to remain competitive with regional brands, as noted by Elara Securities.
The quarter is expected to witness a gross margin expansion of 230 basis points (bps) YoY and 50 bps quarter-on-quarter (QoQ), except for ITC, which is anticipated to witness an expansion of 370 bps YoY and 40 bps QoQ.
Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) margins may gain 30 bps YoY but remain flat QoQ (except for ITC, up 90 bps YoY and down 50 bps QoQ), largely due to favorable input prices, offset partially by increased advertising spending.
Among the FMCG companies under coverage, a 6.2 per cent YoY EBITDA growth is estimated (excluding ITC’s 9.5 per cent YoY growth). Except for ITC and Britannia, most firms are expected to achieve margin expansion. Notably, Jyothy Labs, Emami, Colgate Palmolive and Marico are likely to witness a margin expansion of over 250 bps YoY.
Elara Securities’ top picks include ITC, Godrej Consumer and Varun Beverages.
In terms of individual company estimates:
Hindustan Unilever’s net profit is projected to grow by 0.3 per cent YoY to Rs 2,589.5 crore, with revenue expected to increase by 1.1 per cent YoY to Rs 15,390.9 crore.
ITC’s net profit is estimated to rise by 2.3 per cent to Rs 5,144.8 crore, with revenue expected to increase by 5 per cent YoY to Rs 17,031.7 crore. EBITDA is anticipated to grow by 1.8 per cent YoY to Rs 6,335.3 crore.
Nestle India’s revenue growth is projected to be 8.9 per cent, while net profit is expected to rise by 14.6 per cent YoY in the quarter ended December 2023.
Britannia Industries is expected to report Q3FY24 revenue at Rs 4,293 crore, up 2.3 per cent, with net profit likely to decline by 1.4 per cent YoY to Rs 549 crore.
Dabur India anticipates increased demand in foods and beverages, with estimated net profit and revenue growth at 12.1 per cent and 9.3 per cent YoY, respectively.
Marico faces challenges in subdued demand for certain products, with revenue expected to decline by 0.8 per cent to Rs 2,450 crore, while net profit may rise by 10.6 per cent YoY to Rs 362.8 crore.
