Packaged goods sales seen recovering partially in September quarter
Mumbai: Equities analysts tracking listed consumer and packaged goods firms say that their earnings are expected to recover, but only partially as wholesale and rural sales remain affected following the implementation of the goods and services tax (GST) on 1 July.
Most equities firms say FMCG firms will recover sales by 7-9% year-on-year for the quarter ended September.
“Revenue growth drivers will include inventory restocking after the GST implementation, new product launches, and continued price growth,” said equities brokerage firm Philip Capital, adding that sales in this quarter should be better than the one ended June.
Analysts also say the festive season’s sales, improved by an early Diwali in October this year, will help FMCG firms recover their growth momentum.
“Volumes in Q2FY18 are likely to improve, benefiting from festive season demand, restocking in the distributor channel, some recovery in the wholesale channel (especially in South and West regions) and resumption of ordering by CSD (canteen stores department),” said brokerage firm IDFC Securities. “We expect volume growth of around 3-7%,” they said, adding that inflation in raw materials like sugar, milk, and copra (dried coconut) could affect margins for packaged food maker Nestle and oil maker Marico.
“Despite some recovery in volume growth, we expect profitability for Dabur and Marico to be impacted the most, due to weak pricing and muted international business,” IDFC report said.
Meanwhile, early end-of-season sales before the GST was implemented is also expected to affect earnings for listed clothing retailers.
“For apparel retailers, pre-ponement of the end of season sale (EOSS) to Q1FY18 and large online sales by e-commerce players could result in muted LTL (like to like) growth in Q2FY18E,” IDFC Securities said in its note. “However, lower discounting-led improvement in gross margins and moderate growth in other overheads (no store additions) could result in a marginal improvement in profit,” the brokerage said.
Meanwhile, brokerage firm Kotak Securities said it expects a “relatively robust quarter aided by restocking post GST implementation (albeit wholesale/CSD have not yet fully recovered) and early/strong festive season,” it said in a note. “Overall, we expect aggregate revenues to grow by ~9% (staples to grow at 8% and discretionary growth higher at 11%),” the brokerage firm said.
The partial recovery, analysts say, is not because of low consumer demand but because trade channels are struggling to recover.
“Underlying consumer demand remains fairly healthy and primary sales are likely to see a bump-up due to restocking post GST implementation,” Kotak Securities said in its note. “However, feedback on pace of restocking has been fairly mixed and our interactions indicate that inventory days at distributor level have become leaner for good and may not go up back to pre-GST levels as channel has adjusted to lower inventory days without witnessing any impact on sales,” it said.
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