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Business News/ Markets / Stock Markets/  Q2 Results Review: Godrej Consumer, ITC, Dabur, Tata Consumer among top analyst picks in the FMCG space
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Q2 Results Review: Godrej Consumer, ITC, Dabur, Tata Consumer among top analyst picks in the FMCG space

Q2 Result Review- The FMCG companies volume growth remained slower than desired for organised manufacturers. The Pricing-led growth slowed down, as expected, lowering the value growth. Analysts at Nomura expect 3QFY24 volumes to be better and Softness in input cost will improve margins.

Consumer Companies see sluggish volume growthPremium
Consumer Companies see sluggish volume growth

Consumer good manufacturers during the September quarter did not show much spark on volume growth though the improvement in margins with declining raw material prices remained positive to support earnings growth.

Volume growth for fast moving consumer goods companies (FMCG) remains sluggish as the the inflation led price hikes over past one year have proved to be a spoilsport. The pressure on volume growth is more on organized sector while unorganized manufacturers are still seeing some uptick. 

While overall FMCG market volume growth improved marginally sequentially (8.6% year-on-year) in 2Q24 versus 7.5% in 1Q24) the demand was slower than expected for organized players (2.2% y-y in 2Q24 vs 4.1% in 1Q24) as per Nomura Research report. This analysts at Nomura attributed to a rise of unorganized players, as raw material prices continue to soften making their products more affordable for value-seeking consumers.

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Motilal Oswal Financial Services also said that large manufacturers as Hindustan Unilever Ltd, Britannia Industries Ltd and ITC Ltd reported low single-digit revenue growth, and muted volume growth due to intensified competition from smaller players. Overall sales growth was largely in line for 15 out of 19 companies; however as per Motilal Oswal Securities, there were a few notable misses as well (Asian Paints, Procter & Gamble Health Ltd and Procter & Gamble Ltd).

With muted volume growth the sales growth, however, has taken a toll. Companies within coverage universe of Motilal Oswal Financial Services reported muted sales growth of 4.4% YoY versus estimate of 6.3% in 2QFY24 on a cumulative basis.

Analysts at Nomura Research also stated that staples value growth moderated down to .5% in 2Q24 versus average growth of 10-11% in the past eight quarters due to lesser contribution from pricing-led growth and a slower recovery in volume growth.

The Softness in input costs however led to improvement in operating margins. The majority of companies within our industry have returned to historical levels of advertising and promotion (A&P) spending to remain competitive in the market, while a few have introduced new product launches, said analysts at Motilal Oswal Financial Services.

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Softness in input costs was a positive and is likely to keep supporting improvement in Gross profit margins (GPM) and operating margins OPM). Analysts at Nomura Research said that with most input cost prices remaining deflationary year on year and sequentially, we expect GPM expansion to continue. We expect companies to continue investing in their brands and new launches, and stepping up their ad spending, while retaining some GPM improvement in OPM. They also expect 3QFY24 volumes to be better.

Analysts at Nomura prefer companies that are demonstrating pockets of strength in the form of superior growth (in volumes and pricing) trajectory than peers/industry, making investments in distribution, digitization and R&D capabilities to support innovative new launches, witnessing structural tailwinds despite volatile macro conditions, having a leaner/efficient business model; and having strong brands, pricing power and higher saliency of premium portfolio to stand out

Their Top picks include Godrej Consumer Products Ltd, DABUR and ITC Ltd.

ITC Ltd, Godrej Consumer Products Ltd along with Tata Consumer Products stand amongst top picks of analysts at Motilal Oswal Financial Services post Q2.

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 taking any investment decisions




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Ujjval Jauhari
Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
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Updated: 21 Nov 2023, 10:06 AM IST
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