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Business News/ Companies / Company Results/  Q3 result preview: FMCG sector expected to see mid single-digit volume growth, margin expansion trend to continue
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Q3 result preview: FMCG sector expected to see mid single-digit volume growth, margin expansion trend to continue

Q3 result preview: FMCG companies are likely to report revenue and volume growth of 5% each year-on-year (YoY) in Q3FY24 with a four-year CAGR 10.4% versus 10.6% in Q2FY24.

Q3 result preview: Companies that prioritize expanding their distribution networks, such as Mrs. Bectors Food Specialities, Jyothy Labs, Nestle India and Tata Consumer Products experience stronger revenue growth.Premium
Q3 result preview: Companies that prioritize expanding their distribution networks, such as Mrs. Bectors Food Specialities, Jyothy Labs, Nestle India and Tata Consumer Products experience stronger revenue growth.

The fast-moving consumer goods (FMCG) sector is expected to see weak revenue growth due to muted volumes in the third quarter of FY24 amid persistent challenges to demand. Benign raw material prices are, however, likely to support gross margin expansion for FMCG companies during Q3FY24, analysts said.

Demand challenges for FMCG products have been adversely affecting sector volume growth. Weak rural volume, trailing urban figures, low farm income and emergence of small regional firms are hurting large, listed FMCG companies. 

Also Read: Q3 result preview: NBFCs likely to see healthy profit growth of 27% YoY amid moderating margins

A delayed winter has shrunk demand for seasonal categories during the quarter, falling short of initial expectations across FMCG companies. In terms of categories, food and beverages is anticipated to outperform home and personal care, said Elara Securities.

According to the brokerage estimates, the FMCG companies are likely to report revenue and volume growth of 5% each year-on-year (YoY) in Q3FY24 with a four-year CAGR 10.4% versus 10.6% in Q2FY24. 

Companies that prioritize expanding their distribution networks, such as Mrs. Bectors Food Specialities, Jyothy Labs, Nestle India and Tata Consumer Products experience stronger revenue growth.

Also Read: Q3 likely to be last weak quarter, expect revenue growth for Indian IT firms from Q4: BNP Paribas

The October-December 2023 quarter saw a decline in the prices of essential raw materials, excluding wheat, sugar, and milk. The fall in input cost prices has led to resurgence of local regional firms, offering good quality products and gaining market share. 

While incremental price cuts are small, companies are increasing advertising and offering extra incentives to channels to remain competitive with regional brands, Elara Securities said.

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During the quarter, it estimates a gross margin expansion of 230 bps YoY and 50 bps QoQ (ex-ITC, up 370 bps YoY & 40 bps QoQ), with an EBITDA margin gain of 30 bps YoY but flat QoQ (ex-ITC, up 90 bps YoY & down 50 bps QoQ), led by benign input prices, partly offset by higher spend on advertising. 

The FMCG companies under its coverage are estimated to post EBITDA growth of 6.2% YoY (ex-ITC growth of 9.5% YoY). Barring ITC and Britannia, which could experience a decline in EBITDA margin, other companies are expected to achieve margin expansion. 

Jyothy Labs, Emami, Colgate Palmolive, and Marico are likely to post a margin expansion of more than 250 bps YoY. 

Elara Securities’ preferred picks are ITC, Godrej Consumer and Varun Beverages.

Also Read: Q3 result preview: Building material companies expected to post strong volume growth with margin improvement

Hindustan Unilever: FMCG giant HUL is expected to see 0.3% YoY growth in its Q3FY24 net profit to 2,589.5 crore, upon revenue of 15,390.9 crore which is likely to grow 1.1% YoY.

ITC: Cigarette-to-hotels conglomerate ITC’s net profit is estimated to rise 2.3% to 5,144.8 crore, while revenue is expected to rise 5% YoY to 17,031.7 crore. EBITDA may grow 1.8% YoY to 6,335.3 crore.

Nestle India: Nestle India’s revenue growth is expected to be 8.9%, while net profit is expected to be up 14.6% YoY during the quarter ended December 2023.

Also Read: Q3 result preview: Banking sector's earnings could moderate; NIM compression to ease from Q2 levels, says Motilal Oswal

Britannia Industries: The biscuits manufacturer is expected to post Q3FY24 revenue at 4,293 crore, up 2.3%, while its net profit is expected to drop by 1.4% YoY to 549 crore.

Dabur India: The company is likely to benefit from increased demand in foods and beverages. Its net profit and revenue growth during the quarter is estimated to be at 12.1% and 9.3% YoY, respectively.

Marico: The company faces challenges with subdued demand for hair oil and premium edible oil, compounded by price cuts in edible oil, the brokerage noted. Its revenue is expected to fall 0.8% to 2,450 crore, while net profit may rise 10.6% YoY to 362.8 crore.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 05 Jan 2024, 12:51 PM IST
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