FMCG, Alco Bev, QSR Q4 Results Preview - Challenging Demand Environment: HDFC Securities

HDFC Securities Institutional Equities

We continue to expect a gradual recovery in fast moving consumer goods demand versus the expectation of a quick rebound, more so in rural markets, as high inflation has dented the net income level of bottom-of-the-pyramid consumption.

Moreover, we expect divergence between volume and growth to normalise with volume growth back at its historical average of mid-single digit. Easing commodity inflation will help sustain gross margin expansion.

With price cuts and higher consumer promotions, GM expansion will be slower in the coming quarters. Companies are also reinvesting some of these gains in product innovation, distribution expansion, and marketing spending, which shall limit operating margin expansion. Within quick service restaurant, although we believe the industry has multi-year growth potential, given India’s rising consumer base, eating-out frequency, quicker delivery and -for-money proposition.

However, given that high inflation is impacting consumer wallets, we have been highlighting that the slowdown is not transient and we expect a delayed recovery. Moreover, the pressure on the operating margin has been significant.

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