Results preview: FMCG firms likely to hitch a ride on rural uptick in Q1

Volume growth expected to witness a sequential recovery

Fast-moving consumer goods (FMCG) companies are expected to see better results for the April-June quarter on the back of rural recovery, coupled with higher demand for summer products owing to unprecedented heat.

Growth in volumes is expected to witness sequential recovery.

Brokerages estimate top line growth will show an increase owing to recovery in volumes.

Domestic brokerage Motilal Oswal said in its pre-earnings report: “Rural markets have seen a gradual recovery (rural growth was better than urban) during the quarter.”

In its pre-earnings update on exchanges, Dabur India said: “The quarter saw sequential improvement in demand trends with rural growth picking up. With forecasts of a normal monsoon and continued focus by the government on macro-economic growth, we expect the improvement to accelerate in the coming months.”

The company said its consolidated revenue was expected to ring up mid to high single-digit growth during the first quarter of 2024-25 and its India business was expected to record mid-single-digit volume growth.

Marico, the maker of Parachute hair oils, said in its pre-earnings update its domestic business posted a modest uptick in underlying volumes growth on a sequential basis in the quarter ended June. 

Dabur pointed out commodity prices were stable during the quarter, due to which its gross margins were likely to witness expansion on account of rollover price increases and cost-saving initiatives.

“The business continued to invest strongly behind the brands with A&P (advertising and promotion) spends growing ahead of revenue. Consequently, the operating profit is expected to grow marginally ahead of revenue,” it said. 

Marico said it expected gross margins to expand over last year due to a favourable portfolio mix.

“We continued to adequately invest in brand building in line with our strategic intent to continually strengthen the long-term equity of both the core and new franchises,” it added in its update. 

Godrej Consumer Products said in its update that despite the operating conditions in India continuing to remain soft in the quarter, its India business performed well with high-single digit organic volume and mid-single digit value growth.

Motilal Oswal said it expected marginal improvements in growth in volumes quarter-on-quarter in the first quarter this financial year. “Considering steady macro, price cuts and consumer offers by companies, we expect that our FMCG universe is likely to post mid to high single-digit volume growth in FY25,” it added. 

Kotak Institutional Equities expects stable to improving volumes and value growth trends for most FMCG companies.

The brokerage said it expected an improving growth trend from Marico and Britannia Industries and a mixed performance from Godrej Consumer Products. It expects Tata Consumer Products also to post a strong set of numbers in the April-June quarter. 

Anand Rathi said in its report: “Summer demand has been healthy due to scorching heat, especially in north and central India. Most companies expected better margins, bolstered by favourable input prices. A&P spends were high due to stiffer competition from local companies, launches and a volume push.”

Motilal Oswal said “all eyes are on the government’s initiatives to boost rural income in the upcoming budget”, adding that companies had been focusing on driving their core portfolios through various initiatives, like distribution expansion, product relaunches, a stepup in marketing budgets, etc.