FMCG companies may see price hike-led revenue growth In July-September

Volumes to remain under pressure due to grammage reductions

Revenues of fast-moving consumer goods companies are expected to continue rising on the back of price increases in the July-September quarter. However, volumes are expected to remain under pressure due to grammage reduction, inflation and slowdown in rural demand.  

Rural demand for FMCG products remained soft during the quarter. Godrej Consumer Products said in its quarterly update that rural markets witnessed slower growth compared to urban.

Dabur India said in its quarterly update ahead of its earnings, “Urban markets were driven by modern trade and e-commerce which saw double-digit growth." It added that rural markets saw some pressure on the liquidity front.

However, despite the challenges posed by the macro-economic situation, Dabur's India business had a steady performance and is expected to report revenue growth in mid-single digits.

Marico also pointed out in its update that downgrading in rural areas continued due to retail inflation holding firm in the quarter. It said urban and premium discretionary segments continued to fare better during the July-September quarter.

In its preview note on the sector, Motilal Oswal said sales growth in the September quarter will largely be led by price hikes as volumes for most categories remain negatively impacted by grammage reduction, high CPI inflation, and a sustained slowdown in rural demand.

“However, prices of key commodities such as crude and palm oil have eased in recent weeks, but are unlikely to improve margins in Q2FY23 as the decline came in only towards the end of the quarter,” Motilal Oswal said in its report.

The brokerage expects higher input to affect margins.

Kotak Institutional Equities expects discretionary companies to witness stronger 3-year revenue compounded annual growth rate (CAGR) compared to staples.

It also pointed out that a delayed monsoon in some Northern states impacted consumption marginally.

Companies with summer products will not see a sharp growth in the quarter due to heavier rains and cooler temperature, Edelweiss Securities said in its report. It also said, “International segments (excluding UK and EU) are expected to outperform domestic businesses aided by lower base (Tata Consumer Products/United Spirits will remain subdued) yet, profits may be impacted by INR depreciation.”

Edelweiss Securities expects margins to remain weak in the quarter despite easing inflation. The brokerage said, “Industry leaders have undertaken price hikes, especially in detergents, foods, personal care, salt and biscuits.”

Dolat Capital expects HUL to see double digit revenue growth in home care, personal care and the food and refreshment vision in the quarter.

Kotak Institutional Equities expects a 17 per cent YoY revenue growth and 5.5 per cent growth in volumes.

On Britannia, the brokerage expects 5 per cent YoY growth in domestic volumes and  over 10 per cent YoY contribution from price-mix.

Dolat Capital expects ITC’s cigarette business to witness improvement in volume growth. It also said that it expects the firm’s agri business would post high double-digit growth driven by inflation and its margins in FMCG are expected to remain muted.

Motilal Oswal expects Colgate-Palmolive (India) gross margins to remain flat compared to last year due to higher material costs.

Commentary to watch out for consumer companies include rural demand, raw material costs outlook and volume growth.