If channel checks are anything to go by, consumers in India loosened their purse strings during the festive season and splurged on all kinds of consumer products. Consumer discretionary items are back in demand, and as a result, most companies have reported recovery in sales. So, no surprises that the sector is on course to deliver another quarter of robust growth in revenue and profit.
The Street is expecting the sector to deliver double-digit revenue and earnings growth in the third quarter, as the festive season helped sales of most companies. In fact, the fast-moving consumer goods (FMCG) sector is expected to lead the earnings growth this quarter. Steady volume growth and margin expansion would be the order in the December quarter, analysts believe. According to Antique Stock Broking, decorative paints and jewellery are expected to have witnessed a noticeable recovery during the quarter, led by the festive and marriage seasons. Organised retailers like Pantaloon Retail, Trent and Shoppers Stop are expected to report better same-store sales growth. Most brokerages are expecting the sector to report revenue growth of 16 per cent and earnings growth of nearly 17 per cent. Companies offering personal care products are expected to see marginally higher revenue growth. Analysts expect Hindustan Unilever Ltd (HUL) to show better growth rate in the personal care segment, too.
FMCG is expected to be one of the few sectors to see an expansion in operating margins, as the advertising to sales ratio has remained stable for most players. ICICI Securities expects the sector’s earnings before interest, taxes, depreciation and amortisation (Ebitda) margin to expand 63 basis points (bps) to 22.7 per cent. After seven quarters of decline, Dabur is expected to report a 125 bps expansion in Q3. The brokerage expects GSK Consumer, Marico and Dabur to report outstanding earnings growth.
So, what’s expected from the big boys of the sector, ITC and HUL? Kotak Institutional Equities is expecting 13 per cent revenue growth from HUL and volume growth of around eight per cent. ICICI Securities expects HUL’s Ebitda margin to improve 55 bps to 17 per cent, driven by a 99 bps expansion in the gross margin.
ITC is expected to report revenue growth of 18 per cent, driven mainly by price hikes. Though several brokerages are expecting the company’s cigarette volumes, too, to pick up in the third quarter, IIFL expects ITC to report flat volume growth, despite steep price hikes. The brokerage says ITC will be able to improve margins by 60 basis points to 37.8 per cent and record 16.1 per cent year-on-year growth in net profit at Rs 1,970 crore during the quarter. However, smaller companies are expected to steal a march over the big ones this season.