Consumer Goods Makers Enter Festive Season On A Weak Footing

The July-September quarter, which saw the impact of further price hikes as well as persisting rural weakness, reported 12.3% growth in value terms, as per Bizom data.

Volumes were impacted as inflationary pressures pushed rural consumers to ration their consumption, according to Abneesh Roy, executive director of institutional Equities at Edelweiss Securities. “However, we expect grammage cuts to likely reverse as costs ease, aiding volume growth in the coming quarters.”

Quarterly updates by companies like Marico Ltd., Dabur India Ltd. and Godrej Consumer Products Ltd., too, point to weak demand, particularly in rural areas.

Marico’s domestic business volumes rose in “low single-digit” over a year earlier in three months through September, it said in a regulatory filing.

“In India, demand sentiment trended on similar lines as the preceding quarter during most of the quarter,” the company said. “With retail inflation holding firm, downtrading in rural (areas) was still prevalent during the quarter. Urban and premium discretionary, however, continued to fare better.”

Edible oil recovered well with “high single digit volume growth” on a normalised base and benefited from the sequential correction in prices, the maker of Saffola Oil said.

According to Dabur, “Geopolitical situation continued to impact the business with unprecedented inflation during the quarter. This led to weak demand trends across categories.”

“Urban markets were driven by modern trade and e-commerce, which saw double-digit growth,” said the maker of Dabur Chyawanprash. “Rural markets witnessed some pressure in terms of liquidity.”

It estimates “mid-single digit” revenue growth during the quarter and a 150 to 200-basis-point drop in margins compared to Q2 of the previous year.

Godrej Consumer Products expects to deliver high single-digit sales growth. “Rural markets witnessed slower growth compared to urban,” it said.

Kotak Institutional Equities expects “modest” volume growth and “high single-digit/double digit (up to 20%)” value growth for most staple companies.

Margins, it said, are likely to remain under pressure due to consumption of high-cost inventory and higher ad spends ahead of the festive quarter.

However, it sees a bounceback in the second half of the fiscal as benefits of lower raw material prices flow through.

“Discretionary will continue to outperform staples in Q2,” it said.

Kotak Institutional Equities’ Company-wise Growth Estimates (YoY):

• Hindustan Unilever: 17% revenue growth and 5.5% underlying volume growth (3-year CAGR of 3.5%).

• Britannia Industries:15% revenue growth and 5% volume growth (3-year CAGR of 5.3%), despite grammage cuts in price-point packs.

• Nestle: A 13% revenue growth (3-year value CAGR of +10.8%).

• ITC (FMCG): A 12% growth in revenue, partly aided by recovery in the stationery business and price hikes.

• Dabur, Godrej Consumer Products and Colgate: 4-11% domestic revenue growth with subdued volumes.

• Marico: 1.8% domestic revenue growth on the back of low-single digit volume growth (3-year volume CAGR of 7%).