Consumer staples towards growth deceleration
The slowing rural demand over the past two quarters, which has severely impacted the performance of companies, especially in the FMCG/consumer staples and two-wheeler segments, has been a cause for concern.
A deceleration in decorative paints/adhesives volume growth trajectory is expected led by a significant price hike in a weak demand environment. Jewelry retail (Titan) should see strong underlying revenue momentum aided by continued market share gains. Alcohol beverages companies should see continued demand recovery.
Negligible volume growth and mid-to-high single-digit value growth is expected across the consumer staples pack. Food & Beverages categories should fare better than some Home and Personal Care segments. FMCG companies like Tata Consumer Products Ltd, Nestle India, and ITC are expected to report resilient print relative to peers.
1. Hindustan Unilever is expected to give 8% revenue growth and a negative 2% Underlying Volume Growth (3-yr CAGR of 1.6%)
2. Tata Consumer Products Ltd: is expected to give a modest 1% volume growth in India tea on a high base of 23% (3-yr CAGR of 9%) and 20% growth in India foods
3. Nestle India is expected to give 9% revenue growth
4. ITC: 11% growth is expected in FMCG revenues partly aided by the amalgamation of Sunrise foods
5. Dabur, Britannia, and Godrej Consumer Products Ltd: 6-8% revenue growth is expected led by negligible volume growth
6. Marico and Colgate Palmolive: low-to-mid single-digit value growth is expected led by flattish volumes.
Raw material inflation would continue to impact gross margins for most companies, despite price hikes. The companies are expected to use advertising and promotions lever to defend margins partially.
Tata Consumer Products Ltd is expected to see a YoY gross margin expansion led by moderation in tea prices. EBITDA growth and PAT growth would be soft for most companies given gross margin headwinds.
A visible deceleration is expected in the underlying volume growth of the paints/adhesives category in 4QFY22 (versus 2QFY22 and 3QFY22) owing to 22% to 15% price hikes. The core decorative paints (excluding putty/ construction chemicals) and adhesive volumes would be flat or down on YoY basis.
Asian Paints would lead the pack with 19% value growth, followed by Pidilite Industries (14%), Berger Paints (13%), and Nerolac Paints (6%). A sharp QoQ gross margin improvement is expected aided by 3QFY22 price hikes.
For United Spirits, a 10% YoY (+3% 3-yr CAGR) net revenue growth is estimated. For, ITC a 10% YoY cigarette volume growth (+1.5% 3-yr CAGR) and 13.9% YoY cigarette EBIT growth (+2.7% 3-yr CAGR) is expected.
Titan is expected to register 17% YoY growth in jewelry sales and 36% YoY growth in jewelry EBIT (13.6% margin) partly aided by inventory gains on studded jewelry. Jubilant Foodworks is expected to deliver 14% revenue growth with 50 new Domino’s store addition. Varun Beverages Ltd is expected to deliver robust 13% volume growth in India business.
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