Demand to drive FMCG makers’ Q4 growth3 min read . Updated: 13 Apr 2021, 03:37 PM IST
- Rural demand pushed growth for FMCG firms; in urban pockets sale of staples via modern trade revived
NEW DELHI: Fast-moving consumer goods (FMCG) makers are expected to report strong double-digit revenue growth between 16% and 22% in the fourth quarter of FY21, according to estimates by brokerages. This will be on account of lower base effect emerging from the year ago quarter as well as continued demand for packaged foods, immunity boosters and a pickup in more discretionary categories.
“Our coverage universe is expected to witness 20.2% revenue growth on account of sales decline of 7-15% in base quarter. We believe packaged foods, health supplements, edible oil, immunity boosting products have continued the stronger growth in Q4," analysts at brokerage firm ICICI Securities said in their note on FMCG sector recently.
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The brokerage expects companies such as Dabur India, Hindustan Unilever Ltd, Zydus Wellness, Tata Consumer Products Ltd and Marico to report a strong 22-35% growth in sales for the quarter on the back of a low base, strong demand in key categories and price hikes taken by companies in soaps, hair oil and tea. It pegged ITC’s FMCG business to grow 15% during the quarter. It also expects net profit to grow 16.8% year-on-year across the companies it tracks.
Edelweiss Securities said it expects normalization in demand for health and hygiene products and that for discretionary products to return. It estimates a 22.5% revenue growth for companies it tracks.
According to Elara Securities, soaps, shampoos and home cleaning products saw strong momentum in Q4. The report also pointed to a pickup in discretionary categories, such as skin care, hair oils and colours. “Winter creams did well over January-February, aided by severe winter. Demand for biscuits sequentially dropped from December 2020 as consumers shifted to cheap street food, due to rising mobility," it said.
Most brokerages said laundry detergents and beverages could grow at a slower pace.
Analysts said that rural demand continued to spearhead growth for FMCG companies, while in urban pockets sales via modern trade revived for staples.
Godrej Consumer Products Ltd that makes Cinthol soaps and Goodknight mosquito repellent said its India business is expected to deliver sales growth around the 30s. This, it said in its Q4 earnings update, was driven by strong volume growth and calibrated price increases. Sales growth was broad based across categories of soaps, household insecticides and hair colours, it added.
In an earnings update, Marico Ltd said that the sector continued to exhibit improving demand trends as quarterly economic growth moved into positive territory and the covid-19 vaccination rollout gathered pace. Its India business delivered a “very strong double-digit volume growth", albeit on a low but relatively stronger base with brands such as Parachute Coconut oil, its foods portfolio and Saffola edible oil reporting strong demand.
Companies also witnessed a sharp jump in raw material prices.
Sharp increase in prices of palm oil, copra and tea, prompted them to take prices hikes to the tune of 5-12%, ICICI Securities said. “We expect gross margin contraction for HUL, Marico and Tata Consumer," it said.
Marico said its revenue growth in the fourth quarter was even higher than its volume growth due to pricing interventions it took to partially alleviate the input cost pressures.
However, all eyes are now set on how the second wave impacts sales in the June quarter.
“Most companies are prepared with stocks in local warehouses and short distances. But if the reverse migration of casual workers is serious and sudden, then around 10-15% shortage in plants could take place which can again lead to more inflation," said an analyst speaking on the condition of anonymity.
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