What to expect from FMCG sector in Q3 earnings?

FMCG earnings

Indian Market
by 5paisa Research Team Last Updated: 2023-01-13T13:28:01+05:30

India’s fast-moving consumer goods sector (FMCG) has seen demand remain soft in the recent past and the third quarter ended December 31 may not hold any positive surprise on that front as rural demand has failed to perk up and urban demand too has remained unchanged.

While companies will still sport a respectable revenue growth, it is expected to be driven by price increases rather than actual volume growth, according to analysts tracking the sector.

Overall revenues of top FMCG companies tracked by institutions are expected to grow 8.5-11% in the third quarter, year on year.

The packaged food business is expected to sustain strong growth, though primarily led by price hike with volumes almost flat. The delayed onset of winter is also likely to moderate revenues from winter portfolio and skin care portfolio in particular could see an impact from that.

Meanwhile, other discretionary consumption basket sectors like QSR were also weak while cigarettes are sustaining a similar growth as in the past.

According to one brokerage, HUL, Nestle, Britannia, ITC (excluding agri side) and Jubilant Foodworks are expected to deliver double-digit YoY growth.

The flip side

But there is some positive news on the earnings side as analysts are expecting a sequential improvement in margin as commodity prices have eased. ITC, Britannia and Nestle are expected to be among the outliers in terms of margins by the same brokerage house.

Another brokerage noted that there is a mixed trend in raw material prices for FMCG companies given imported inputs like palm, crude & related commodities have seen sharp decline but agri commodities like wheat, rice, coffee & milk prices continued to remain at an elevated level.

Crude price has declined by almost a third from the peak during the summers but is only 10% lower sequentially and still 11% higher compared to the year ago period. Moreover, the depreciation of Indian currency has also had its effect.

This brokerage expects sequential improvement in operating margins though a year-on-year decline for HUL, Colgate, Dabur, Nestlé and Zydus Wellness.

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