Major fast moving consumer goods companies saw earnings downgrades during the typical June-October monsoon period, despite India experiencing its best southwest monsoon since 2020.
India received 934.8 millimetres of rainfall during the four-month season, surpassing the long period average of 868.6 millimetres, as per the India Meteorological Department. This increase in precipitation was expected to boost agricultural output and influence winter crop planting, which is critical for sectors reliant on rural demand.
However, earnings-per-share for companies like Marico Ltd., Dabur India Ltd., and ITC Ltd. have not followed the anticipated upward trajectory. Marico saw a downgrade of 0.9%, Dabur's earnings dropped by 1.34%, and Tata Consumer Products registered a downgrade of 2.5%.
In comparison, the overall Nifty FMCG index saw a modest earnings upgrade of 1.2% over the monsoon period.
Brewery companies like Radico Khaitan Ltd. and United Breweries Ltd. were the worst hit among Nifty FMCG stocks as their earnings downgraded by 18.9% and 8.9%, respectively.
The earnings downgrade is notable, given that a strong monsoon typically supports higher rural incomes and boosts demand for FMCG products.
A good monsoon typically translates to a good outlook for FMCG companies in India.
This year, however, challenges such as persisting food inflation, erratic rainfall patterns in certain regions, and ongoing disruptions in the global supply chain might have offset the expected benefits of a strong rainy season.
Early commentaries from some FMCG players suggest that overall, the demand environment is improving, but not at the anticipated rate.
The second quarter of fiscal 2025 is likely to witness slight to modest year-on-year gross margin expansion for several FMCG companies. Due to lower raw material prices, rising ad spends, and moderate realisation growth against preceding quarters, cumulative Ebitda margin is likely to decrease by 70 basis points, according to Nirmal Bang Institutional Research.
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