homeearnings NewsFMCG preview | Anticipating recovery and shining performances in quarter one of FY24
FMCG preview | Anticipating recovery and shining performances in quarter one of FY24
The FMCG sector is showing signs of recovery and growth in quarter one of FY24. With volume growth expectations, favorable demand scenarios, margin expansion, and strong performances from key players, the industry appears poised for a positive trajectory. Smaller players are also making their mark, while market sentiments remain positive overall. As the year progresses, the performance of FMCG companies will continue to be closely monitored, especially regarding revenue and EBITDA growth, providing insights into the sector's health and future prospects.
The fast-moving consumer goods (FMCG) sector is poised for a turnaround in quarter one of FY24, with analysts predicting a return of volume growth and a favourable demand scenario. While certain segments faced challenges due to unseasonal rains and moderate summer in parts of the country, the healthcare portfolio experienced impressive growth, and the jewelry segment emerged as a standout performer. Despite potential risks, such as El Nino, FMCG companies are expected to benefit from declining raw material prices, resulting in margin expansion.
Industry analysts anticipate mid-single digits volume growth for the entire FMCG industry in the upcoming quarter. As the demand environment gradually recovers, a favorable scenario is expected in terms of overall demand. Notably, companies are reinvesting their gross margin savings into advertising expenditures and price cuts to stimulate demand further. While summer products were affected by unseasonal rains, the healthcare portfolio witnessed significant growth on a favorable base and recovery from COVID-19-related impacts.
Among the various sectors within FMCG, the jewelry segment has shown exceptional growth. Titan, a leading player in the market, recorded a remarkable 21 percent growth, while Kalyan Jewellers achieved an impressive 34 percent growth in the Indian business. These growth figures indicate the sector's resilience and the consumers' enduring affinity for jewelry.
D-Mart, a prominent player in the FMCG pack, posted 18 percent revenue growth, indicating a robust performance. Godrej Consumer witnessed an expansion of gross margins by 800 to 1,000 points, indicating operational efficiency.
Marico experienced a decline in consolidated revenue but achieved double-digit net profit growth. Dabur boasted over 10 percent consolidated revenue growth, but its net profit was impacted.
The decline in raw material prices, including palm oil, palm fatty acid, copra, Brent, and mentha, is expected to contribute to margin expansion across FMCG companies. These cost reductions are likely to positively impact the overall financial performance of the industry.
Analysts have set expectations for revenue and EBITDA growth for several FMCG companies. Hindustan Unilever Limited (HUL) is anticipated to achieve 8-9 percent revenue growth, Britannia 10-12 percent, and Asian Paints 6-8 percent. Notably, Asian Paints is expected to exhibit an EBITDA growth of 18-20 percent, higher than its revenue growth. Tata Consumer is likely to demonstrate strong revenue growth, while Nestle is expected to lead the pack with an impressive growth rate of over 15-16 percent in both revenue and EBITDA.
For ITC, analysts anticipate cigarette volume growth ranging between 9 percent and 10 percent. The market is eagerly awaiting ITC's commentary on its business structure, as it holds significant implications for the company's future endeavors.
While attention is often focused on larger players, it is important not to overlook the performance of smaller FMCG companies. Bajaj Consumer and Jyothy Lab have demonstrated strong growth in recent quarters. On the other hand, Emami and Varun Beverages may experience a demand decline due to the adverse effects of unseasonal rains on their summer products business.
Valuations in the FMCG sector have remained high, with stocks trading at fresh record highs. Companies such as ITC, HUL, Nestle, and Godrej Consumer are trading above historic valuations.
This indicates that the market is assigning higher value to these companies, reflecting positive market sentiments and investor confidence.
According to Abneesh Roy, Executive Director, Nuvama Institutional Equities, healthy growth is coming back in FMCG sector.
“Health and immunity portfolio is seeing a good recovery. We expect almost 8-11 percent growth in this part of portfolio for Dabur and Emami. The only weakness will be essentially in terms of the summer related portfolios, in terms of cooling hair oil, talcum powder, beverages and ice creams,” he said.
For more details, watch the accompanying video
(Edited by : C H Unnikrishnan)
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