Consumer Staples Q2 Results Preview: Slow rural recovery to weigh on revenue, volume growth; margins to expand
- Q2FY24 EBITDA for consumer staples sector expected to expand by 12% YoY, says Nuvama. Nestle and Tata Consumer to report strongest results, alcoholic beverage volume growth weaker.
In its most recent Q2FY24 preview report on the consumer staples sector, brokerage Nuvama Institutional Equities stated that it expected Q2FY24 (July-September) earnings before interest, taxes, depreciation, and amortisation (EBITDA) for the companies under its coverage to expand by 12% YoY, and revenue by 3%. Volume growth will be moderate, with the majority of businesses probably reporting low- to mid-single-digit volume increase.
Rural recovery was hampered by August this year, which saw the lowest rainfall in more than 100 years and a 36% deficit. Urban-focused businesses, like Nestle, have an advantage. The festive season is now totally in Q3FY24. Growth in prices will slow down much more. Most companies' margins will rise year over year, the brokerage said.
Most companiesinternational units are expected to fare better than their corresponding India operations. Nestle, Tata Consumer, Godrej Consumer, and Colgate are among Nuvama's top recommendations .
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Outperformers and laggards in Q2FY24
The brokeragefirm predicts that Nestle and Tata Consumer would report the September quarter's strongest overall results. HUL, Dabur, ITC, Colgate, and Emami are projected to provide mediocre performances. Britannia, Marico, and Bajaj Consumer will likely post margin expansion despite muted volume growth.
Cigarette volume growth of roughly 4% YoY is expected forITC.For the most of companies, international business will most likely perform better than the corresponding India operations in constant currency terms. Due to price increases in Karnataka and the timing of festivals, the volume growth of alcoholic beverages would be weaker than in Q1.
"Biscuits, soaps and detergents players have seen adverse impact of local players coming back, given commodity deflation. The entire festive season this year has shifted to Q3FY24, which would affect consumption in this quarter. Product categories such as hair oil and edible oil remain weak given high rural salience and down-trading," the brokerage said.
Gross margins to expand for most companies
Nuvama's research said that raw material costs for commodities like copra, edible oil, palm oil, and packaging have been adjusted year over year. Most companies' gross margins will increase year over year, which has led to increased ad spending. Due to the fact that the price of Extra Neutral Alcohol (ENA) has risen somewhat but the price of glass has not significantly changed, alcohol beverage players will seeQoQ margin pressure.
Indigo Paints, Nestle, Tata Consumer, and Tata Consumer (TCPL) are expected to see the strongest revenue growth on a year-on-year basis, while United Spirits, Adani Wilmar, and Marico are anticipated to experience the slowest growth, according to the brokerage.
United Spirits, ITC, and Britannia would exhibit the weakest growth in EBITDA, while Asian Paints, Indigo Paints, and Berger would lead the pack.
The majority of brokerage coverage companies will see growth in EBITDA margins YoY.
Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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