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Photo: HT
Photo: HT

FMCG firms to see noticeable recovery in Q2 with Britannia leading the pack

Valuations of many FMCG firms are not cheap, which suggests investors are capturing the rosy picture well

Consumer staples firms were among the least affected during the June quarter, despite the covid-19 lockdown. In fact, packaged food companies thrived as stay-at-home consumption increased.

For the September quarter as well, the growth momentum at Britannia Industries Ltd and Tata Consumer Products Ltd (TCPL) is expected to sustain. In the case of Britannia, the company is likely to dish out another good quarter even as some moderation from the June quarter is anticipated. “Britannia should continue to lead in revenue and earnings growth, riding on increased home consumption despite sequential moderation," said analysts at Jefferies India Pvt. Ltd in a 12 October report. It expects Britannia to post a 15% y-o-y revenue growth. Of course, that’s a deceleration from the neat 26.4% growth seen in the June quarter.

“Organic revenue growth rates for home and personal care and foods group (+6.2%) are expected to be the best seen in past six quarters." analysts at JM Financial Institutional Securities Ltd wrote in a 9 October report. “That is better than growth seen even prior to the pandemic setting in - aided by packaged foods (Britannia, TCPL) and GCPL (high single-digit growth in India, Africa)."

In revival mode
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In revival mode

Analysts estimate Godrej Consumer Products Ltd (GCPL) to report a decent recovery. In its September quarter update, GCPL said that it expects domestic business to deliver close to low double-digit y-o-y sales growth this quarter, led by the hygiene (including soap) and household insecticides categories.

For the largest FMCG company, Hindustan Unilever Ltd (HUL), expectations are low. JM Financial analysts said, “HUL is expected to be more tepid with organic growth of about 2% due to continued pressure in out-of-home and some personal products segments." Even so, reported growth would look better aided by the GSK Consumer merger.

Marico Ltd’s September quarter performance is likely to show a good recovery. On the other hand, ITC Ltd’s cigarette business is expected to be under pressure even as its FMCG segment should do well. On the profitability front, savings on ad expenses had boosted Ebitda margins of many FMCG firms in the June quarter. In the September quarter, advertising expenses are projected to rise sequentially. “Although aggregate y-o-y spends should still be lower. Further, acute cost focus, seen in the June quarter, is likely to reverse, although y-o-y should see an increase. Ebitda margin should marginally expand year-on-year, therefore," point out Jefferies’ analysts.

Meanwhile, analysts reckon that valuations of many FMCG firms are not cheap. In fact, shares of Britannia and TCPL have appreciated around 15% and 18%, respectively, from their pre-covid highs seen earlier this calendar year. This suggests investors are capturing the rosy picture to a good extent.

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