FMCG cos to witness low topline growth in Q3, volume growth to remain soft

Also, during the year, companies resorted to cutting prices of their products as commodity prices softened, thus also having restricted the growth in revenue in the quarter

Fast-moving consumer goods companies are expected to witness continued weakness in the October-December quarter which will reflect in the topline growth and margins are expected to remain similar to that of the July-September quarter.

Brokerages expect volume growth to remain soft and not very different from Q2.

“We expect demand and margin trends to be broadly similar to that witnessed in 2Q,” Kotak Institutional Equities said in its report on the sector.

Also, during the year companies resorted to cutting the prices of their products as commodity prices softened, thus also having restricted the growth in revenue in the quarter.

 

The domestic brokerage firm also added, “We expect muted low-to-mid single-digit volume growth and a deceleration in revenue/Ebitda growth for most staple companies.”

Vishal Gutka, vice-president-research (consumer and retail), PhillipCapital India also added that rural demand continues to remain weak on the back of impacted farm income, and competition from regional players continues to eat into larger players' market share.

“We expect Tata Consumer Products, Jyothy Labs and Nestle India to do better than the rest of the FMCG universe. Nestle India is expected to continue to report double-digit revenue growth in the December quarter,” Gutka added.

Kotak Institutional Equities also said that it expects Ebitda (earnings before interest, tax, depreciation and amortisation) growth to be higher than revenue growth. It added that despite this being the festive quarter, there was an absence of uptick in demand.

“There was some delay in winter demand in the north and also the winter season was delayed and warm in the east which had an impact on the sale of health supplements and skincare categories in the quarter,” said Sachin Bobade, vice president at brokerage firm Dolat Capital. He added that he expects low single-digit growth in volumes in home and personal care.

Nuvama Institutional Equities also stated that the rural volumes continued to remain weak in the quarter that ended in December. The brokerage highlighted the emergence of local players in many categories and also consumers have resorted to downgrading, especially at the mass end of the market.

Retail intelligence firm Bizom noted that in October, Sales of fast-moving consumer goods (FMCG) saw an uptick in October as kiranas, or mom-and-pop stores, stocked up ahead of Diwali.

Excluding branded commodities, sales of FMCG grew 7 per cent in value terms in October compared to the same month last year. However, inclusive of branded commodities, the sales were down by 4.8 per cent.

In November, the firm noted that FMCG sales were seeing the pressure of excessive stocking for Diwali. It also said that repeat purchases in stores are under heavy pressure for beverages, personal care and branded commodities. 

“We also see that movement of products in both packaged foods and confectionery has maintained and grown in November 2023, this is a positive indicator of movement in these categories for festive gifting and consumption,” said Akshay D’Souza, chief of growth and insights at Bizom.

In November, sales were down 7.5 per cent and rural growth slumped 9.6 per cent, while urban growth dropped 3.5 per cent.