FMCG Q4 Preview: Another Dull Quarter Likely With Sluggish Demand, Limited Growth

The fast-moving consumer goods sector is expected to see low-to-mid single-digit volume growth in the January–March quarter of financial year 2024, with no meaningful change in the rural growth trends, according to analysts.

Factors such as low farm income and emergence of regional competitors continue to adversely affect large companies like Hindustan Unilever Ltd. and Dabur India Ltd., which have a relatively higher salience from rural areas.

Both these companies, along with Varun Beverages Ltd., might also encounter hurdles from slow demand in seasonal categories, such as beverages and skin care, due to a delayed winter.

Overall demand sluggishness will likely keep the top-line delivery muted in the March quarter. Companies, except Tata Consumer Products Ltd., are expected to log single-digit revenue growth, according to Bloomberg estimates.

In the fourth quarter, essential commodities, such as crude and palm oil, have witnessed a sequential increase. However, it has not been significant to impact margin. Gross margins are expected to expand year-on-year for many companies, although the pace of expansion will likely moderate.

The Ebitda is likely to grow at a higher rate than revenue and the margin is expected to gain mainly due to benign input prices, partly offset by higher spend on advertising.

Some have indicated in their pre-quarterly business updates that the urban and rural demand growth rates are now converging. This has raised hopes that the fourth quarter could be the final dull quarter for FMCG companies.

• Tata Consumer's growth stems from robust performance in new ventures, increased volume in salt and acquisition of Capital Foods.

• Colgate Palmolive (India) Ltd. is expected to achieve high single-digit growth through aggressive promotional offers in modern trade and premiumisation.

• Food categories to outperform HPC products.

• Except for Britannia Industries Ltd., ITC Ltd. and HUL, which could experience a decline in Ebitda margin, others are expected to achieve margin expansion.

• Fierce competition is dragging companies like HUL and Britannia.

• Urban markets continued to see improvement, and rural markets have also started witnessing recovery.

• Volume growth has bottomed out and should reach their recent historical levels by fiscal 2025.

• Revenue growth could be slightly higher than volume growth for some companies due to price hikes in the home and personal-care category.

• Expects low to mid-single digit volume growth, revenue growth of 5.6%; Ebitda growth of 6.2%, and profit after tax growth of 7.4%.

• Paints and adhesive companies are expected to report high single-digit volume growth.

• Outliers: Godrej Consumer Products Ltd., Marico Ltd., Nestle.

• Underperformer: HUL, Britannia.

• Expects muted revenue growth of 4% over the previous year and 5% growth each in Ebitda and adjusted profit after tax, excluding ITC.

• Q4 volume growth is likely to moderate sequentially.

• The near-term outlook is not too positive, given the recent surge in select raw-material prices.

• Sluggish demand, incremental inflationary pressure is being built in sector valuations, which is now at an average five-year forward price-to-earnings of 49 times.

• However, the residing El Nino effect from May has created optimism of a better agri season ahead.

• Revenue to grow slightly faster and profit slower than third-quarter trends.

• International businesses of most companies are likely to outperform India operations.

• Top-tier show: United Breweries Ltd., Tata Consumer, Dabur, Colgate, Godrej Consumer, Pidilite Industries Ltd. and Nestle.

• Muted show: Bajaj Consumer Care Ltd., HUL and ITC.

• Detergent bars, edible oils, biscuits, tea and hair oils continue to see the adverse impact of local players returning.

• Godrej Consumer (aided by acquisition, like-to-like volume growth shall be 6%) and Britannia (grammage addition) to lead volume growth.

• Demand trends remain sluggish but rural is picking up, fuelled by price cuts in staples.

• Revenue growth slows from prior quarters to 5%.

• Ebitda growth to outpace revenue.

• International business to register double-digit growth in constant-currency terms.

• Gross-margin expansion to continue. HPC division to lead growth.

• Consolidated revenue moved back into the positive territory after three quarters of fall.

• Urban and rural demand growth rates are converging.

• There's a slight uptick in domestic volume.

• International business reverted to clocking double-digit CC growth.

• Strong gross margin expansion expected.

• To see low double-digit growth in operating profit.

• Subdued operating conditions in India offset strong international show.

• Expects to deliver underlying volume growth of 6–9%.

• Consolidated sales growth seen at 5%, driven largely by currency volatility.

• Ebitda, including forex, margin to expand despite increased media investments.

• Edible-oil sales value declined 4%, but volume grew 13%.

• Food and FMCG rose 18% in value terms and 10% in volume terms, driven by domestic sales amid export restrictions.

• Overall, on a standalone basis, the business saw 4% volume growth and a negative 4% value growth year-on-year.

• In fiscal 2024, its revenue nearly doubled to Rs 4,700 crore in just two years.

• It continues to gain market share.

Earnings delivery of the staples companies was not as weak as it was on the volume front during the first nine months of the last fiscal. Their profit after tax grew 16% year-on-year, broadly similar to historical average.

Yet, the majority of staples stocks have underperformed, which according to Motilal Oswal, is because the market was more focused on volume-led earnings growth. The stock returns of HUL, Dabur, Marico, Emami Ltd., and Procter & Gamble Hygiene and Health Care Ltd. have been lower than their earnings growth over the last three years.

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