FMCG makers to report low-to-mid-single-digit volume growth in Q2

New Delhi: Consumer goods companies could report “stable” numbers in the September quarter as rural demand continued to outpace urban and sectors such as fast moving consumer goods (FMCG) and jewellery retailers reported sustained demand. However, unprecedented rainfall in parts of the country may hurt volumes for certain categories.

“For staples companies, demand trends remained stable quarter-on-quarter in Q2FY25, with rural markets outperforming urban areas for the third consecutive quarter. However, heavy rains and floods in certain regions have disrupted the supply chain. They also affected out-of-home consumption and consumer off-take, particularly for the beverages category. Food and beverage companies are likely to implement price hikes in response to rising costs of agricultural commodities,” analysts at Motilal Oswal Financial Services said on Friday.

The brokerage expects FMCG and jewellery companies to either sustain or outperform their growth trajectory in Q2FY25; quick service restaurants, paint companies and liquor makers are expected to see weakness in growth and profitability, they said.

Read more: Complan maker plans to invest up to ₹200 crore in direct-to-consumer brands

The alcoholic beverages segment was impacted by seasonality and heavy rains, they said.

FMCG outlook

Analysts at Nuvama Institutional Equities expect consumer companies that the brokerage tracks such as—Colgate, Bikaji, Indigo Paints, Varun Beverages, Britannia Industries, Godrej Consumer, Hindustan Unilever Ltd, Marico, etc—to clock revenue growth of 5.7% in the September quarter. Volumes could grow 5% year-on-year versus 9% growth in the same quarter last year.

Volume growth is likely to be in the low-to-mid-single-digits, largely similar to year-on-year trends of the preceding quarter, Nuvama Institutional Equities analysts said in a note released earlier this week.

"Volume growth or overall performance is softer than initial expectations for many companies either due to heavy rains affecting beverage and paints category or higher competition in few categories. Rural demand continues to report a gradual recovery. The outlook is positive, but gradual. However, urban demand seems to be experiencing a slight slowdown and growing slower than rural. High rains adversely impacted India business in exterior paints, beverages and out of home consumption,” they said.

To be sure, fast moving consumer goods makers are expected to report their numbers starting later this month. The numbers are critical as FMCG demand dropped year-on-year last quarter.

As per data from NIQ released in August—India's fast-moving consumer goods industry reported a sharp drop in volume growth in the food and non-food categories in the June quarter, largely due to a slowdown in sales of packaged foods such as salt, flour and oil.

The rainfall factor

Companies said heavy rainfall in parts of the country impacted demand for some categories as it obstructed mobility.

On Tuesday, Dabur India said it expects to post a mid-single-digit decline in consolidated revenue for the September quarter, largely due to heavy rain and floods across the country.

“While demand trends were witnessing some improvement, heavy rain and floods across parts of the country impacted out-of-home consumption and consumer offtake during Q2FY25. Due to this, we saw some impact on our business especially in the beverage category,” the company said in its exchange filing.

On Friday, shares of Avenue Supermarts Ltd that runs stores under the DMart banner were trading down following the company’s September quarter earnings update.

Read more: Emami’s D2C push, premium acquisitions can drive FY25 goals

“Stock could be a bit weak in near term as like for like growth is muted and below expectations, store addition though weak is generally back ended. DMart posted revenue of ₹14,050.32 crore in the September quarter, growing about 14% year-on-year," said analysts at Nuvama Institutional Equities.

Mumbai-based Marico Ltd that sells Parachute hair oil reported a more positive commentary.

The sector witnessed stable demand trends with rural outperforming urban on a year-on-year basis for the third quarter in a row, the company said in an update on 2 October.

“In the given context, the domestic business posted mid-single digit volume growth, exhibiting improvement on a sequential basis,” the company said.

Gradual improvement in demand ahead

Its Saffola oils portfolio posted low single digit revenue growth, while the pricing cycle for the brand turned slightly favourable after eight quarters. Value added hair oils portfolio was “subdued” amidst competitive headwinds in the bottom of the pyramid segment. The company expects gradual improvement in demand trends ahead.

Looking ahead, the second half of fiscal 2025 is expected to see better performances, bolstered by the festival season, rising incomes, government initiatives, and an above-average monsoon, all of which are likely to boost consumer demand across key categories, according to Motilal Oswal.

The La Nina phenomena is playing out well given earlier harsh summers and now above normal monsoons. This may also lead to harsh winters, analysts at Nuvama Institutional Equities said.