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Business News/ Markets / Stock Markets/  FMCG sector may show volume uptick on price cuts in Q4, though rural demand to remain soft
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FMCG sector may show volume uptick on price cuts in Q4, though rural demand to remain soft

As per the analyst report, softening of commodity prices, price cuts by companies could result in volume uptick in Q4FY23. However, the rural demand has been muted compared to urban demand.

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FMCG sector which has been under pressure for almost the entire last year, but with softening of commodity prices, Fast-Moving Consumer Goods (FMCG) companies are expected to post uptick in volumes in quarter ended MArch 2023. However, rural demand conditions still remain soft compared to urban demand, said ICICI Direct Research in its report.

As per the analyst report, softening of commodity prices, price cuts by companies could result in volume uptick in Q4FY23. However, the rural demand has been muted compared to urban demand.

“We estimate our FMCG coverage universe to see 9.8 per cent revenue growth in Q4FY23 led by mix of volume & pricing. Price cuts taken in beauty & personal care (BPC) category by the HUL have started benefiting the pick-up in volumes. Also, home care segment has been growing at a faster pace from last one year mainly propelled by higher mobility in post-Covid period," the report noted.

ICICI Direct Research noted that the decline in commodity prices is likely to improve gross margins of FMCG companies. “Average palm oil, crude & coconut oil prices have been down 35 per cent, 16.1 per cent & 12.7 per cent, respectively, compared to the corresponding quarter. Wheat prices have dropped to 21/kg compared to its peak of 30/kg in December 2022. However, milk prices have not only remained firm, but has also inched up in Q4," the ICICI Securities report noted.

"We estimate lower ad-spends by most FMCG companies in Q4FY23, which would aid operating margins. Our coverage universe is likely to see 90 bps improvement in Q4 likely to drive to net profit growth of 12.6%," it added.

In its report it said estimated HUL to see 15.4% revenue growth led by 6% volume growth, 9% pricing growth, while for Nestlé it expects to see 12.8% sales growth in Q4 led by noodles & chocolate category. 

The report noted that ITC (FMCG) business is also expected to see strong growth of 19.1% led by higher growth in foods, discretionary & stationary segment.  While, Tata Consumer is expected to see strong growth in India foods business (salt) mainly driven by price hikes taken in last one year on higher energy cost in production of salt. 

In a recent BSE filing, Dabur India too noted that it has seen sequential improvement in demand trajectory across urban and rural markets in March quarter though it falls short of a full recovery. “While urban markets have returned to positive volume growth, rural markets still remain muted," said Dabur major.

“Dabur is likely to post dismal results during the quarter with 5.4% revenue growth largely led by prices. Though urban demand conditions have improved during the quarter, rural volumes continue to remain dismal. India sales in expected to grow by 5.6% led by double digit growth in beverage category. We estimate operating margin contraction of 213 bps to 15.9% in Q4. Adjusted net profit is expected to see a decline of 10.9% to 338.1 crore," said ICICI Direct in the report.

Marico Ltd in its update that the firm's consolidated revenue will be in low single digit in the March quarter on a year-on-year basis with gradual recovery with year-on-year volume trends as urban and premium categories being stable.

“Marico is likely to see muted sales growth of 1.7% in Q4 mainly due to expected 2% dip in India business & 14.9% growth in international business. The decline in sales growth in mainly due to sharp price cuts taken in Parachute & Saffola edible oil categories in last one year. Parachute oil would see mid-single digit volume growth & Saffola edible oil is likely to see volume de-growth due to high base. We estimate operating profit growth of 10.7% to 383 crore. Operating margin is expected to expand by 142 bps to 17.4%. We estimate net profit growth of 8.1% to 277.6 crore," said the report.

For Nestle India, the brokerage expects the operating profit  to grow 3.9% with contraction of 186 bps in operating margins to 21.5%. It estimate 7.7% growth in net profit to 640.3 crore. 

While for ITC , it expect 340 bps gross margin improvement & similar expansion in operating margins to 35.3%. Net profit is expected to grow 17.2% toRs 4911.8 crore and for HUL its estimated the operating profit is likely to grow 14.8% to 3723.8 crore with 24 bps contraction in operating margin to 24.4%. Net profit is expected to grow 8.3% to 2519.1 crore

 

 

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Published: 14 Apr 2023, 09:04 PM IST
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