Demand challenges for FMCG products negatively impacted sector volume growth. Weak rural volume, lagging urban figures, low farm income and emergence of small regional firms are hurting large listed FMCG companies.
Read also: Q3 results preview: NBFCs likely to see healthy profit growth of 27% YoY amid softening margins
A delayed winter dampened demand for seasonal categories during the quarter, falling short of initial expectations across FMCG companies. In terms of categories, food and beverages is expected to outperform home and personal care, Elara Securities said.
According to the brokerage estimates, the FMCG companies are likely to report revenue and volume growth of 5% year-on-year (YoY) in Q3FY24 with a four-year CAGR of 10.4% against 10.6% in Q2FY24.
Companies that prioritize expanding their distribution networks, such as Mrs. Bectors Food Specialties, Jyothy Labs, Nestle India and Tata Consumer Products are experiencing stronger revenue.
Read also: Q3 likely to be last weak quarter, expect revenue growth for Indian IT firms from Q4: BNP Paribas
The October-December 2023 quarter saw a decline in the prices of essential commodities, except for wheat, sugar and milk. The drop in input cost prices has led to a resurgence of local regional firms, offering quality products and gaining market share.
While incremental prices are small, companies are increasing advertising and offering additional incentives to channels to remain competitive with regional brands, Elara Securities said.
(Exciting news! Mint is now on WhatsApp Channels Subscribe today by clicking the link and stay up to date with the latest financial information! Click here!)
For the quarter, it estimates gross margin expansion of 230 bps YoY and 50 bps QoQ (ex-ITC, up 370 bps YoY & 40 bps QoQ), with an EBITDA margin gain of 30 bps YoY but flat QoQ (ex-ITC, up 90 bps YoY & down 50 bps QoQ), led by benign input prices, partially offset by higher advertising spend.
The FMCG companies under its coverage are estimated to post EBITDA growth of 6.2% YoY (ex-ITC growth of 9.5% YoY). Apart from ITC and Britannia, which could experience a decline in EBITDA margin, other companies are expected to achieve margin expansion.
Jyothy Labs, Emami, Colgate Palmolive, and Marico are likely to post margin expansion of over 250 bps YoY.
Elara Securities’ preferred picks are ITC, Godrej Consumer and Varun Beverages.
Read also: Q3 results preview: Building materials companies expected to post strong volume growth with margin improvement
Hindustan Unilever: FMCG giant HUL expects to see 0.3% YoY growth in its Q3FY24 net profit to ₹2,589.5 crore, on an income of ₹15,390.9 crore which is likely to grow 1.1% YoY.
ITC: Cigarette-to-hotel conglomerate ITC’s net profit is estimated to rise 2.3% to ₹5,144.8 crore, while revenue is expected to rise 5% YoY to ₹17,031.7 crores. EBITDA can grow 1.8% YoY to ₹6,335.3 crores.
Nestle India: Nestle India’s revenue growth is expected to be 8.9%, while net profit is expected to be up 14.6% YoY for the quarter ended December 2023.
Read also: Q3 results preview: Banking sector earnings could moderate; NIM compression to ease from Q2 levels, says Motilal Oswal
Britannia Industries: The biscuit maker expects to post Q3FY24 earnings at ₹4,293 crore, up 2.3%, while its net profit is expected to fall 1.4% YoY to ₹549 crores.
Dabur India: The company is likely to benefit from increased demand for food and beverages. Its net profit and revenue growth during the quarter is estimated at 12.1% and 9.3% YoY, respectively.
Marico: The company faces challenges with weak demand for hair oil and premium edible oil, compounded by price cuts in edible oil, the brokerage noted. Its revenue is expected to fall 0.8% to ₹2,450 crore, while net profit may rise 10.6% YoY to ₹362.8 crores.
Disclaimer: The opinions and recommendations made above are those of individual analysts or trading companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
Unlock a world of Perks! From insightful newsletters to real-time stock tracking, breaking news and a personalized news feed – it’s all here, just a click away! Login Now!
Catch all Corporate news and Updates on Live Mint. Check out all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates and Live Business News.
More or less
Published: 05 Jan 2024, 12:51 IST