Q1 Results: Consumer Goods Makers’ Earnings Reinforce Slowing Consumption

Revenue and volume growth of India’s largest consumer goods companies slowed in the quarter ended June as demand remained subdued and rural consumption eased further.

The top line of the staples to shampoo makers with a market capitalisation of at least Rs 30,000 crore grew at a slower pace on a yearly basis in the quarter ended June compared with the previous three months, according to data compiled by BloombergQuint. Nestle India Ltd. and Dabur India Ltd. were the only exceptions as their net sales growth was higher.

“Slow rhythm of the overall economy and persistent channel liquidity issues continue to weigh on short term growth,” Kotak Institutional Equities said in a note. For Nestle India Ltd., which did see a double-digit growth, Prabhudas Liladher said sustaining the momentum would be difficult given the slowdown in consumer demand and poor sentiment

The numbers only reinforce the slump in demand at a time cars sales to logistics sector indicators point to a slowing economy. And as Finance Minister Nirmala Sitharaman didn’t announce any stimulus and instead raised taxes on the super-rich, Indian equities have wiped off nearly $200 billion of wealth since the budget.

Volume growth eased for most fast-moving consumer goods companies with the exception of Dabur India and Godrej Consumer Products Ltd. Average volume growth of the players in the sector stood at 6 percent during the quarter. That’s higher than the previous three-month period but only because of Dabur’s 9 percent jump.

Earnings before interest, taxes and depreciation or Ebitda margins expanded for all companies, except Nestle, as raw material prices fell and the companies cut costs. Marico’s margin was further aided by a 25 percent year-on-year decline in copra prices.

“Benign raw materials environment, aggressive internal savings agenda and low media intensity in the sector should continue to aid healthy margin expansion,” said Kotak Institutional Equities.

The Way Forward

Early trends from the first-quarter results indicate that the consumption slowdown is not too deep at the moment with a few consumer companies reporting earnings better than expectations, Mahesh Nandurkar, India equity strategist at CLSA, said in a note.

The managements of Hindustan Unilever Ltd., Dabur and Marico expect improvement in the second half of the fiscal ending March 2020.

They are hopeful of improvement in liquidity in trade channels and more cash in the hands of consumers with help from government interventions, according to JP Morgan said. But, the brokerage said, it’s yet to see evidence of that.