FMCG shares under pressure; Hindustan Unilever, Britannia hit 52-week lows

In the past six months, HUL and Britannia have underperformed the market by falling 20 per cent and 15 per cent, respectively, as against 1 per cent decline on the S&P BSE Sensex.

Shares of fast moving consumer goods (FMCG) companies were under pressure in trades on Monday, with sector giant Hindustan Unilever (HUL), down 2 per cent at Rs 2,120 and Britannia Industries, down 3 per cent at Rs 3,330. Both the stocks hit their respective 52-week lows on input cost pressure. In comparison, the S&P BSE Sensex was down 0.71 per cent at 55,462 at 10:50 am.

In the past six months, the stock of HUL and Britannia have underperformed the market by falling 20 per cent and 15 per cent, respectively, as against 1 per cent decline on the benchmark index. Dabur India, Nestle India, Jyothy Laboratories and Godrej Consumer Products were down 13 per cent to 29 per cent during the period.

Consumer goods companies have braved exceptional inflation in most of their raw materials, with some hitting even 20–40-year highs. And this has a substantial influence on the margins of consumer goods companies.

This, we believe, would lead to the following in the short term, downtrading by consumers, calibrated price hike and grammage cuts by consumer goods companies; rationalisation of ad spends to maintain margins; and pressurise smaller manufacturers as they cannot manage inflation like their larger counterparts, thereby accelerating the shift from unorganised to organized, Edelweiss Securities said in consumer goods sector report.

In October-December quarter (Q3FY22), HUL, Dabur and Marico reported slower 0-2 per cent volume growth whereas Nestlé, Tata Consumer, Jyothy Lab saw mid-single digit volume growth during the quarter.

Analysts at ICICI Securities believe sharp price increase in highly penetrated categories like detergent, soaps, hair oil have adversely impacted volume growth. Moreover, health supplements, essential packaged foods & sanitisers witnessed sales decline due to high base of last year. Discretionary categories like cosmetics, skin care witnessed swift recovery with sales touching pre-Covid levels. Cigarettes category also reported higher than pre-Covid level sales (value sales).

Though urban regions saw sharp growth due to recovery from the low base, rural region sales slowed down considerably due to price hikes resulting in down-trading towards regional brands or smaller SKUs, the brokerage firm said in Q3 earnings wrap.