Fast-moving consumer goods (FMCG) companies in India are anticipated to experience sustained challenges in the October-December quarter. This is likely to be reflected in both the top-line growth, and the margins are expected to be consistent with those observed in the July-September quarter.
Brokerages expect volume growth to remain soft and not very different from Q2.
“We expect demand and margin trends to be broadly similar to that witnessed in 2Q,” Kotak Institutional Equities said in its report on the sector.
Price Reductions Impacting FMCG Revenue:
Also, during the year, companies resorted to cutting the prices of their products as commodity prices softened, thus also having restricted the growth in revenue in the quarter.
The domestic brokerage firm also added, “We expect muted low-to-mid single-digit volume growth and a deceleration in revenue/Ebitda growth for most staple companies.”
Vishal Gutka, the Vice President of Research (Consumer and Retail) at PhillipCapital India, further mentioned that rural demand remains subdued due to the impact on farm income. Additionally, competition from regional players continues to erode the market share of larger players.
“We expect Tata Consumer Products, Jyothy Labs and Nestle India to do better than the rest of the FMCG universe. Nestle India is expected to continue to report double-digit revenue growth in the December quarter,” Gutka added.
Kotak Institutional Equities also anticipates that EBITDA (earnings before interest, tax, depreciation, and amortization) growth will outpace revenue growth. The report highlights that despite this being the festive quarter, there is a lack of an upswing in demand.
“There was some delay in winter demand in the north and also the winter season was delayed and warm in the east which had an impact on the sale of health supplements and skincare categories in the quarter,” said Sachin Bobade, vice president at brokerage firm Dolat Capital.
He added that he anticipates a growth rate in volumes for home and personal care in the low single digits.
Nuvama Institutional Equities also added that the rural volumes continued to remain weak in the quarter ending in December. The brokerage highlighted the emergence of local players in many categories, and consumers have resorted to downgrading, especially at the mass end of the market.
Retail intelligence firm Bizom noted that in October, sales of fast-moving consumer goods (FMCG) saw an uptick as kiranas, or mom-and-pop stores, stocked up ahead of Diwali.
Excluding branded commodities, the value of FMCG sales increased by 7 percent in October compared to the corresponding month last year. However, when including branded commodities, sales declined by 4.8 percent.
In November, the company observed that FMCG sales were affected by the impact of excessive stocking for Diwali. Additionally, it mentioned that repeat purchases in stores were experiencing significant pressure, particularly for beverages, personal care, and branded commodities.
“We also see that movement of products in both packaged foods and confectionery has maintained and grown in November 2023, this is a positive indicator of movement in these categories for festive gifting and consumption,” said Akshay D’Souza, chief of growth and insights at Bizom.
In November, there was a 7.5 percent decline in sales, with rural growth experiencing a 9.6 percent slump and urban growth dropping by 3.5 percent.
Read Other Articles: FMCG giants turn to data forecasting to address online stock gaps in quick commerce
