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Business News/ Companies / Company Results/  FMCG Q2 earnings to help gauge demand direction
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FMCG Q2 earnings to help gauge demand direction

Rural growth likely to march ahead of urban, discretionary demand may remain weak

Britannia Industries Ltd is set to announce its earnings this week followed by Hindustan Unilever Ltd that acts as a bellwether for India’s household consumption. HTPremium
Britannia Industries Ltd is set to announce its earnings this week followed by Hindustan Unilever Ltd that acts as a bellwether for India’s household consumption. HT

India’s top fast-moving consumer goods (FMCG) companies are set to announce their September quarter earnings that will give a peek into which way consumption demand is headed in millions of Indian households after the blow from the coronavirus pandemic.

Analysts expect rural growth to march ahead of urban. The easing of the lockdown and resumption of supplies to the market are expected to aid recovery of some personal care products and continue to benefit those that rely on in-home consumption. But demand for more discretionary items could remain weak.

Packaged foods company Britannia Industries Ltd is set to announce its earnings this week followed by India’s top FMCG company Hindustan Unilever Ltd that acts as a bellwether for India’s household consumption. “Major trends in Q2FY21 include normalization of in-home food consumption and revival of skin care. Overall, we expect demand sentiments to continue to improve aiding the sector’s revenue growth in H2FY21," said analysts at Edelweiss Securities Ltd in a report.

For Q2, the brokerage expects FMCG firms it tracks to post a year-on-year average volume growth of 1.3%, compared to a dip of 20.2% in the first quarter. It estimates revenue growth of 4.2% for the quarter, with year-on-year Ebitda growth of 3.8%in Q2FY21 compared to 15.5% and 26.6% year-on-year contraction in Q1FY21.

Ebitda, or earnings before interest, taxes, depreciation and amortization, is a measure of profitability.

India’s lockdown in late March severely dented FMCG distribution and manufacturing. While demand for health and hygiene products and packaged foods grew heavily, other categories such as personal care and on-the-go foods and beverages suffered. In fact, April and May were the worst for FMCG makers due to restrictions on store openings and many households had stockpiled provisions in March in anticipation of the lockdown. As a result, the April-June quarter witnessed a 17% decline in sales by value as compared with the same quarter of 2019, market researcher Nielsen said. For the full year, it lowered its growth forecast for the sector to between 1% and -1%.

However, demand and supply have since improved. Nielsen reported demand for FMCG products neared pre-covid levels in June, but again fell in August.

“Following a good Rabi crop yield and sharp increase in government allocation toward MGNREGA , the outlook for rural consumption is getting better due to good monsoons and record high Kharif crop sowing," Motilal Oswal said.

They project flat sales for FMCG firms in Q2 after two quarters of decline in year-on-year sales and Ebitda. Those projected to benefit include businesses hinged on in-home consumption, along with those that have a significant part of their sales coming from hygiene products, staples and illness prevention (herbal products). On an aggregate level, the brokerage expects a 0.5% growth in quarterly sales.

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ABOUT THE AUTHOR
Suneera Tandon
Suneera Tandon is a New Delhi based reporter covering consumer goods for Mint. Suneera reports on fast moving consumer goods makers, retailers as well as other consumer-facing businesses such as restaurants and malls. She is deeply interested in what consumers across urban and rural India buy, wear and eat. Suneera holds a masters degree in English Literature from the University of Delhi.
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Published: 19 Oct 2020, 08:41 AM IST
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