 "FMCG sector's Q4 PAT growth to be strong despite muted sales")
Fast moving consumer goods companies (FMCG) are expected to just about grow revenues in double digits in the March quarter. With rural growth slowing and urban consumption still to revive, volume growth for most companies is expected to be six-seven per cent . Analysts expect the consumer universe to grow sales by 8-10 per cent. The good news is that year-on-year (y-o-y) operating income and net profit growth would be much better than revenue growth, thanks to falling raw material costs and lower advertising spends.
Abneesh Roy of Edelweiss Securities expects its consumer universe to report a sales growth of 8.6 per cent y-o-y in the quarter, as demand trends are likely to be similar to the December one. The brokerage’s consumer universe reported sales growth of 7.7 per cent in the December quarter. However, operating income is expected to grow 16.6 per cent and net profit to grow 14 per cent y-o-y, led by margin expansion. Additionally, lower competitive intensity in oral care and detergents could possibly result in lower ad spends, which would also boost profitability. Religare is a lot more bullish on profit growth and expects companies to report 17 per cent growth in the March quarter compared to 11.7 per cent in the December one.
Benign commodity prices and some price hikes are expected to drive margin expansion for the sector as a whole. Nestle, for instance, has increased prices of Maggi Masala Noodles by 20 per cent during the quarter and four-five per cent in the coffee portfolio. While most players in the sector have undertaken price cuts to pass on gains from lower raw material prices, there is enough room for margin improvement, claim analysts. ICICI Securities expects a 100-basis point improvement in operating margins for HUL, Dabur, Colgate and Marico. ITC might witness a 140-basis point improvement, due to an aggressive price rise in cigarettes segment.
Abneesh Roy of Edelweiss Securities expects its consumer universe to report a sales growth of 8.6 per cent y-o-y in the quarter, as demand trends are likely to be similar to the December one. The brokerage’s consumer universe reported sales growth of 7.7 per cent in the December quarter. However, operating income is expected to grow 16.6 per cent and net profit to grow 14 per cent y-o-y, led by margin expansion. Additionally, lower competitive intensity in oral care and detergents could possibly result in lower ad spends, which would also boost profitability. Religare is a lot more bullish on profit growth and expects companies to report 17 per cent growth in the March quarter compared to 11.7 per cent in the December one.
Benign commodity prices and some price hikes are expected to drive margin expansion for the sector as a whole. Nestle, for instance, has increased prices of Maggi Masala Noodles by 20 per cent during the quarter and four-five per cent in the coffee portfolio. While most players in the sector have undertaken price cuts to pass on gains from lower raw material prices, there is enough room for margin improvement, claim analysts. ICICI Securities expects a 100-basis point improvement in operating margins for HUL, Dabur, Colgate and Marico. ITC might witness a 140-basis point improvement, due to an aggressive price rise in cigarettes segment.