FMCG Q2 results preview: GST transition impact to hit volumes, margins; Nestle, HUL, Tata Consumer among top picks

FMCG Q2 results preview: The consumer sector companies are expected to experience revenue and volume growth of 5% and 2% year-on-year (YoY) in Q2FY26, said domestic brokerage, Nuvama Institutional Equities, in its Consumer Sector Q2FY26 Preview report.

This forecast stood in contrast to the previous quarters, where companies reported growth rates of 6% in revenue, 3% in EBITDA, and 3% in volume YoY in Q1 FY26, as well as 5% in revenue, 2% in EBITDA, and 4% in volume YoY in Q2 FY25. The report further indicated that EBITDA is anticipated to remain flat compared to the previous year.

Under consumer staples, the brokerage house's top recommendations are Bikaji Foods, Britannia, Nestle, HUL, and Tata Consumer; under consumer discretionary, they also prefer Asian Paints and United Spirits.

In its brokerage report, Nuvama said that the GST transition challenges would likely have a negative impact of 2–3% on volumes and sales, mostly because of delayed consumer purchases and trade unwillingness to hold more expensive inventory.

The majority of businesses have entirely transferred the initial GST benefit to customers. There will be a negative transition impact on working capital days, margins, and volumes in Q2FY26 to go backwards from November on.

“GST 2.0 reforms will eventually aid consumption, led by price cuts in larger packs and grammage addition in smaller packs. Rural demand remains resilient, supported by ongoing government schemes and good rains in most parts (except Bihar). In our view, H2FY26 (starting November) is likely to post volume boost for most consumer staples categories,” the brokerage said.

It is difficult to deal with inverted duty arrangements. Packaging, any other RM, and services are eligible for offsets (at the 18% GST rate). Input tax credit may go unused in many businesses since refunds are not permitted for services (A&P, leasing, logistics, and services related to outsourced vendors). Eventually, businesses will probably include this in their price.

Stocks in Focus

Heavy rains in Q2FY26 have negatively affected categories like fizzy drinks, beverages, beer, ice creams, and HI, according to the brokerage's analysis. Impacts will be felt by Varun Beverages, Emami, United Breweries, Dabur, and Godrej Consumer. Demand for paints was also affected, but it is probably going to be recovered in the upcoming quarters (delayed rather than lost).

India is expected to experience a harsh winter (December 25–February 26) because of the likelihood of La Niña (> 50%). The brokerage believes that while carbonated drinks and juices (VBL, Dabur) may face demand issues, skin care and immunity goods (HUL, Dabur, and Emami) are likely to benefit. The moderate winter base from the previous year may help Q3FY26 growth for winter portfolios.

According to the brokerage, tea prices (-15% YoY, +2% QoQ) are also expected to stay stable, bolstering Tata Consumer and HUL's margins from H2FY26 onward. Coffee is still up +45% YoY, which is good for Tata Consumer's plantations but gives HUL and Nestle a profit. Prices for copra are still high. Prices for palm oil have increased 7% year over year and 5% quarter over quarter, which might put strain on Bikaji, Britannia, Nestle, and Gopal snacks' margins in Q3FY26 if they continue.

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 making any investment decisions.