FMCG Q2 Results Preview - Muted Topline, Volume Growth Persists: Nirmal Bang

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Nirmal Bang Report

Early commentaries from a few fast moving consumer goods players like Marico Ltd., Dabur India Ltd. and Godrej Consumer Products Ltd. suggest that the overall demand environment remains muted with some signs of a gradual recovery.

On rural demand, we believe that the overall recovery, although not sharp, is witnessing some signs of slow revival. Marico indicated that the anticipated pick-up in rural demand was hindered due to an upward trend in food prices and below-normal distribution of rainfall.

In terms of categories, while beverages segment revenue is likely to decline on account of a mild summer and delayed festive season, homecare category is expected to witness some positive momentum. Dabur India, Tata Consumer Products Ltd.’s India foods business and Nestle India Ltd. are expected to deliver relatively better four-year volume compound annual growth rate.

Expect mid single-digit revenue growth: We are expecting our FMCG coverage universe to clock revenue growth of 5.2% YoY, which is muted because of significantly lower realisation growth versus preceding quarters along with persistently tepid volume growth.

We expect gross margin for most of our coverage companies to improve on YoY basis. As highlighted in our recently released input cost note, while prices of key commodities like brent crude/Malaysian Palm Oil have seen ~13%/~4% YoY correction in Q2 FY24, commodities like Wheat and Milk have seen ~5%/8% YoY rise in prices.

For the overall FMCG coverage, we expect Ebitda margin to expand by ~110 basis points YoY.

What to watch out for in Q2 FY24: We expect Emami Ltd. to deliver relatively better Ebitda growth on YoY basis.

Preference on one-year forward basis: Gillette India Ltd. and Britannia Industries Ltd.

Key monitorables:

Effect of late monsoon recovery on rural income and the consequent impact on rural demand,
Impact of festive season on off-takes.

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Nirmal Bang - Consumer-FMCG-Sector Q2FY24 Result Preview.pdf

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