FMCG Q3 growth dull; recovery amid tailwinds key for valuations: Analysts

In the latest note on the consumer goods sector, Emkay analysts Nitin Gupta and Mohit Dodeja estimated revenue growth of around 6% Y-o-Y & Ebitda growth of about 7% for listed FMCG players in Q3.

Emkay on Consumer goods sector: Financial performance of listed consumer goods companies is likely to remain subdued in the December quarter (Q3FY26), but multiple tailwinds are lining up to support a recovery in growth over the coming quarters, according to Emkay Global Financial Services.

 

In the latest note on the consumer goods sector, Emkay analysts Nitin Gupta and Mohit Dodeja estimated revenue growth of around 6 per cent year-on-year (Y-o-Y) and Ebitda growth of about 7 per cent for listed FMCG players in Q3FY26. While the overall quarter may not be exciting in terms of headline growth, analysts believe food companies are better placed than home and personal care players, with growth recovery ahead becoming critical for valuations.

 

 

Food outperforms; home, personal care face GST disruption

 

Emkay expects food companies to post relatively stronger performance in Q3, supported by faster inventory churn and restocking by trade channels. Contrastingly, home care and personal care categories have faced disruption following GST-related changes in October, which slowed growth and limited restocking activity. According to the brokerage, trade participants are using the transition period as an opportunity to improve return on investment, reducing the likelihood of broad-based inventory build-up in the near term.

 

Among individual companies, Emkay expects Marico to stand out with a robust 28 per cent revenue growth, driven by healthy price growth. Britannia, Nestlé India, Honasa Consumer, and Bikaji Foods are projected to deliver low double-digit growth. ITC is expected to record around 5 per cent volume growth in its cigarettes business during the quarter.

 

The festive season also played a role in shaping quarterly trends. With festivities starting earlier in Q3, food categories benefited from faster restocking during October and November. However, home and personal care categories saw only gradual improvement, with winter stocking delayed from Q2 and benefitting only select players in Q3. Emkay notes that views across the industry remain divided on the timing of benefits from GST cuts, with some companies expecting a pick-up from Q4, while others see a longer lag of 12-15 months.  CATCH STOCK MARKET LIVE UPDATES TODAY

Raw material easing to support margins, limited operating leverage

 

On the margin front, Emkay believes gross margin pressure is easing as key raw material prices soften. Copra prices, though still elevated, have corrected from their peak, while domestic palm oil, wheat, and tea prices declined 10 per cent, 9 per cent, and 6 per cent Y-o-Y, respectively, in Q3. The brokerage also expects companies to benefit from a 15 per cent year-on-year easing in crude prices, which should lower costs for crude-linked inputs.

 

For ITC, Emkay highlights that elevated leaf tobacco prices in the base quarter should support margin improvement from Q4 onwards as lower-cost inventory flows through. Overall, Ebitda margins for the FMCG universe are expected to see moderate expansion in Q3FY26.

 

In terms of earnings, Emkay expects Britannia, Marico, and Godrej Consumer Products (GCPL) to deliver low-to-mid-teens profit growth, while Honasa, Bikaji, and Gopal Snacks could see profits more than double Y-o-Y, aided by operating leverage and margin recovery.

 

Valuations factor in tailwinds; execution key to growth revival

 

Despite these tailwinds, Emkay cautions that growth for large FMCG companies remains muted due to weaker innovation pipelines and execution challenges. As valuations already factor in much of the industry’s medium-term positives, the brokerage stresses that accelerating growth will be crucial. Emkay continues to prefer GCPL, Marico, Bikaji, and Emami, while rolling forward its target prices from September 2026 estimates to December 2026 and trimming target prices for HUL and Bikaji by 5-8 per cent.

 

That said, Emkay believes execution and alignment with evolving consumer needs will determine which companies are best positioned to benefit from the emerging recovery in the consumer goods sector.

   

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