The FMCG sector, which has been under pressure for almost the entire last year, but with softening commodity prices, fast-moving consumer goods (FMCG) companies are expected to report volume growth in the quarter ended March 2023. However, the rural demand situation still persists. Soft compared to urban demand, ICICI Direct Research said in its report.
As per analyst reports, softening commodity prices, price cuts by companies could result in an increase in volumes in Q4FY23. However, rural demand has been sluggish compared to urban demand.
“We forecast our FMCG coverage universe to see 9.8 per cent revenue growth in Q4FY23 led by a mix of volumes and pricing. HUL’s price cut in the beauty and personal care (BPC) category has started showing the benefits of a pick-up in volumes. In addition, the home care segment has been growing at a rapid pace over the last one year, mainly driven by higher mobility in the post-Covid period.”
ICICI Direct Research said gross margins of FMCG companies are likely to improve on a fall in commodity prices. Average palm oil, crude oil and coconut oil prices have been lower by 35 per cent, 16.1 per cent and 12.7 per cent, respectively, compared to the same quarter. wheat prices have fallen 21/kg compared to its peak 30/kg in December 2022, says ICICI Securities report. However, milk prices not only remained stable, but also increased in the fourth quarter.
“We anticipate lower ad-spend by most FMCG companies in Q4FY23, which will aid operating margins. Our coverage universe is likely to see a 90 bps improvement in Q4, translating into a net profit growth of 12.6%.”
In its report, it said that HUL is expected to see 6% volume growth, 15.4% revenue growth led by 9% pricing growth, while Nestle is expected to see 12.8% sales growth in Q4, led by noodles and chocolate categories .
The ITC (FMCG) business is also expected to witness a strong growth of 19.1%, owing to higher growth in foodstuff, discretionary and stationary segment, the report said. However, Tata Consumer expects to see strong growth in India’s food business (salt), driven primarily by price increases over the past year on higher energy costs in salt production.
In a recent BSE filing, Dabur India also noted that it has seen a gradual improvement in the demand trajectory in urban and rural markets in the March quarter, though it falls short of a full recovery. The Dabur chief said, “While urban markets have returned to positive volume growth, rural markets are still muted.”
“Dabur is likely to post disappointing results during the quarter with 5.4% revenue growth mainly led by prices. While urban demand conditions improved during the quarter, rural volumes still remained dismal. India sales are expected to grow by 5.6%, led by double-digit growth in the beverage category. We forecast an operating margin contraction of 213 bps to 15.9% in Q4. Adjusted net profit is expected to see a decline of 10.9% 338.1 crore,” said ICICI Direct in the report.
Marico Ltd. said in its update that the firm’s consolidated revenue would be in low single digits in the March quarter on a year-on-year basis, with the year-on-year volume trends slowing down as the urban and premium categories stabilized. There will be recovery.
“Marico is likely to see muted sales growth of 1.7% in Q4 mainly due to 2% decline in India business and 14.9% growth in international business. Sales growth decelerated mainly due to sharp price cuts in Parachute and Saffola edible oil categories in the last one year. Parachute Oil will see mid-single digit volume growth and Saffola Edible Oil may see a decline in volumes due to higher base. We forecast operating profit growth of 10.7% 383 crores. Operating margin is expected to increase by 142 bps to 17.4%. We anticipate net profit growth of 8.1% 277.6 crore,” the report said.
For shelter India, the brokerage expects operating profit to grow 3.9% to 21.5% with a contraction of 186 bps in operating margin. It is estimated to increase the net profit by 7.7% 640.3 crores.
while for ITC , it expects 340 bps gross margin improvement and a similar expansion in operating margin to 35.3%. Net profit is expected to rise by 17.2% to Rs 4911.8 crore and for HUL its estimated operating profit is expected to rise by 14.8% to Rs 4911.8 crore. 3723.8 Crore 24.4% with 24 bps contraction in Operating Margin. Net profit is expected to increase by 8.3% 2519.1 crore
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