The three fast-moving consumer goods (FMCG) companies Hindustan Unilever (HUL), Nestle and ITC are (19 October 2023) announcing their July-September quarter results today, with analysts expecting mild revenue growth from HUL, robust low-teen-digit revenue growth from Nestle and ITC’s expects to report volume growth in the mid-single-digit range for its cigarette business
HUL
HUL is expected to witness mild revenue growth for Q2FY24 because of unseasonal rains and the delayed festival season in the quarter, the rural demand continued to remain subdued delaying the path to recovery of generating higher volumes.
Additionally, the company will likely see moderate revenue growth in the mid-single digits due to lowered prices in certain categories. This growth will primarily come from increased sales volumes in the home and beauty & personal care segments.
According to Anushi Vakharia, Research Analyst, StoxBox, on the margin front, narrowing commodity costs will aid in sustaining the gross profit (GP) and EBITDA margin expansion story. However, increased spending on advertising and promotions aimed at boosting sales volumes will lead to a comparatively lower flow-through to operating profits.
“Looking ahead, we continue to remain optimistic about the company’s aim of delivering incremental volumes considering the festive period from Q3FY24 onwards and an almost normal monsoon season in the year keeping the macro-environment stable,” Vakharia said.
Nestle
Considering the higher urban mix of Nestle and the overall broad-based growth in both its domestic and international verticals, it is expected to register robust low-teen-digit revenue growth in the quarter. Additionally, the company’s higher focus on its RURBAN strategy to increase its rural distribution will further aid the business in driving its volume growth.
Although milk and coffee prices continued to remain firm, Vakharia expects a higher flow through operating profits aided by the increase in premiumisation trend and falling commodity prices of other raw materials.
“Overall, our focus would be on the management’s commentary on further updates for its rural expansion strategy and the outlook of milk prices ahead,” she added.
ITC
The expert expects ITC to report volume growth in the mid-single-digit range for its cigarette business on the back of the segment reporting market share gains and innovation.
“In the previous quarter, the business reported a robust performance in its FMCG business led by the business ramping up its rural distribution reach. However, considering the weak monsoon evidenced in August, we expect this growth rate to be subdued,” Vakharia underlined.
Meanwhile, she expects GP and EBITDA margins to expand in the 100-150bps range with key raw material prices falling off from their earlier levels and a higher focus on premiumisation. A key development to remain watchful is the company’s outlook on its agribusiness which is under pressure and hampering the company’s overall growth after the government’s decision to place restrictions on wheat and rice exports.
