The consumer goods companies are expected to deliver decent earnings growth for the fiscal first quarter ended June 2023 aided by cooling commodity and raw material prices. The demand momentum for fast-moving consumer goods (FMCG) companies improved in Q1FY24 led by urban markets and a recovery in the rural markets.
Sector analysts expect sales growth to moderate to a single digit as the demand is shifting to a volume-led growth from being a pricing-led one. Overall, net profit of consumer goods companies is expected to rise by around 19-20% on-year driven by softening input costs, while EBITDA growth is likely to be around 17-18% YoY.
“The urban market continues to lead growth while rural is also showing signs of improvement in demand both sequentially and yearly, as companies have started to pass on the benefits of lower commodity costs to consumers,” said brokerage firm Motilal Oswal Financial Services.
It expects the 19 consumer companies under its coverage to report a cumulative growth of 8.9% in revenue, 17.8% in EBITDA, and 19.1% in PAT in Q1FY24. In terms of volume, FMCG companies are likely to post mid-to-higher single-digit growth during the quarter under review.
“With the high-cost inventories being consumed by most of the companies and the impact of price hikes being entirely absorbed, we expect gross margins to improve YoY. The benefits from margin improvement will be used by companies in advertisement and promotional spends to drive demand,” the brokerage firm added.
Cumulative earnings growth is expected to be driven by large companies such as Britannia Industries, Godrej Consumer Products and Tata Consumer Products.
Here’s how individual companies in the FMCG sector is expected to perform in the June quarter of FY24.
Britannia Industries: The biscuit maker is expected to report 7% volume growth, gross margin and EBITDA margin improvement of 470 bps and 390 bps YoY, respectively, during Q1FY24, according to Motilal Oswal. Its revenue and net profit is likely to rise by 10.2% and 40.6%, YoY.
Colgate-Palmolive (India): The company’s net profit may rise 17.2% and revenue by 7.1%, led by volume growth of 4% YoY in Q1FY24. EBITDA margin may improve by 250 bps on-year, but it should contract sequentially by 400 bps due to higher ad spends on new launches.
Dabur India: The company is likely to deliver net profit growth of 7.2% and revenue growth of 9.8% YoY on the back of 6% volume growth. EBITDA margin is expected to remain flat, YoY, as per the brokerage house.
Godrej Consumer Products: The sharp decline in palm oil prices may lead to 660 bps YoY improvement in gross margin of the company. Its adjusted net profit is expected to rise by over 42% upon a consolidated revenue growth of 14%.
Hindustan Unilever: HUL’s net profit during the quarter may rise by 15.9% and revenue may grow by 9.8%, YoY, as per Motilal Oswal estimates. It expects 7% YoY domestic volume growth in Q1FY24 for the FMCG major and gross margin to expand by 230 bps on-year on account of lower palm oil costs.
ITC: The cigarette manufacturer is expected to see its revenue rise by 5.8% and net profit increase by 24.3% during the June quarter. It is expected to deliver 5% YoY volume growth in the cigarettes business. EBITDA margin may expand by 460 bps YoY on a weak base.
Marico: The Parachute oil maker is likely to see a volume growth of 7% YoY in Q1FY24. Revenue growth is seen at 9.5% and net profit growth at 2.6%. Lower raw material costs may aid gross margins.
Nestle India: The brokerage firm expects the company’s growth momentum in sales to taper-off, compared with earlier quarters. Its revenue may rise by 13.6% and net profit by 21% on-year, during the June quarter.
Tata Consumer Products: The Tata group company is likely to report net profit growth of 27.1% and revenue growth of 10.9%, YoY. Revenue for the India branded tea business may grow 5% YoY led by volume growth at a similar rate. EBITDA margin is likely to improve to 14.5% in Q1FY24 from 13.7%, YoY.
Meanwhile, the FMCG - Others segment is also expected to deliver strong growth across markets and product lines, and as input prices decline, analysts anticipate an expansion in margins too
The top picks by Motilal Oswal in the FMCG sector include ITC, Godrej Consumer Products and Tata Consumer Products.
Disclaimer: The views and recommendations given in this article are those of individual analysts and brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
