FMCG majors to post over 25 % growth

Brokerage houses expect fast moving consumer goods (FMCG) companies to report good results for the March quarter.

Colgate Palmolive, Dabur, Marico, Godrej Consumer, Asian Paints and Britannia Industries are expected to declare net profit growth of over 25 per cent. While Hindustan Lever, projected to show a single digit growth in revenue, is expected to post a profit growth of 15-20 per cent, cigarettes-to-hotels company ITC is likely to post sales and profit growth of over 20 per cent.

The FMCG stocks have underperformed in the last three months, indicating  a growth pressure in the sector. ITC, Nestle, Colgate and Procter & Gamble, underperformed the Bombay Stock Exchange Sensex by declining around 10 per cent compared with the 5.5 per cent fall in the index in the last three months. While Hindustan Lever was down 5 per cent,  Marico and Britannia gained over 11 per cent.

According to analysts, the profit of the sector is likely to grow 17 per cent in the  quarter. This is slightly better than the 14 per cent growth in the December quarter but still lower than the 20-21 per cent growth reported in the September and June quarters.

According Merrill Lynch, HLL's profit is projected to grow 16 per cent, better than the 11 per cent growth seen in the December quarter. ITC is likely to report numbers in line with past trends, with analysts expecting profits to grow 19 per cent led by a turnover growth of 18 per cent. Colgate is likely to stand out in the March quarter with the most improved performance on a year-on-year basis. Analysts expect profit to grow 30-35 per cent, better than the 10 per cent growth in the first nine months of the year.

Asian Paints should also have a strong quarter with a pre-tax profit growth of 26 per cent led by domestic business growth of 20 per cent. Analysts expect Asian Paints to post a net profit growth of 38 per cent.

Tata Tea is expected to see  a second consecutive quarter of profit decline. Nestle is likely to disappoint with an operating profit growth of around 12 per cent despite a revenue growth of 18 per cent. Higher milk and coffee prices are likely to hit operating margins.

CLSA expects FMCG companies to report 10 per cent -plus growth in revenues. Most of the companies have increased prices to pass on the hike in input costs. This may lead to a margin expansion in select companies.

After a weak growth in the December quarter, Hindustan Lever is likely to return to 10 per cent-plus revenue growth this quarter.

Higher operating margins owing to increased sales of personal products and price hike impact in key product lines are likely to drive earnings growth by 20 per cent.

FMCG demand growth is expected to be stable during the quarter on account of favourable growth in agriculture. Commodity prices continued to rise during the quarter, especially in case of raw materials such as palm oil and linear alkyl benzene (LAB).

In the domestic markets, palm oil prices went up by about 19 per cent, while LAB prices rose by 11.5 per cent.