FMCG sector set for steady Q4 on rural demand and volume growth

ET Intelligence Group: The FMCG sector is expected to post a steady March-quarter performance, supported by stable rural demand, gradual urban recovery and volume growth even as pricing remains subdued in several segments. While steady raw material costs during most of the quarter are margin supportive, the recent rise in costs of crude-linked inputs such as packaging materials could weigh on margins. Companies with stronger execution, premium portfolios and better distribution reach are expected to outperform, while category-specific challenges and international headwinds may keep performance uneven across the pack.

Hindustan Unilever is expected to report mid-single digit revenue growth led by 4-5% volume growth. Growth is expected to be broad-based, with beauty and wellbeing growing in double-digits, while home care, personal care and foods & beverages are likely to grow in mid-single digits. The demerger of low-margin ice cream business may support operating margin before depreciation and amortisation (Ebitda margin).

ITC may show pressure in the cigarettes segment amid flat volume and higher taxes while displaying resilience in non-cigarette segments. The FMCG and agriculture related business is expected to remain robust, while paperboards business may grow in single digit. The margin for the cigarettes business is likely to contract amid rising leaf tobacco costs and limited pricing hikes.

Nestle India’s consolidated revenue growth is expected to be in double-digits, led largely by volumes in the domestic market while exports may show recovery on a weak base. Normalisation is expected after GST-related disruptions in the previous quarter. However, margin is likely to contract on account of high inflation in the coffee segment.
Asian Paints is likely to report better volume growth for the domestic decorative paints segment on a weak base. Upcoming price increase may boost channel restocking thereby aiding primary sales. International business may be subdued due to the Middle East disruption. Margins are likely to improve on stable raw material prices during the quarter, with the impact of recent crude inflation expected to be limited for the March quarter.

Varun Beverages is expected to report high-single digit revenue growth in the March quarter, with international markets likely to drive momentum through high double-digit volume growth. Ebitda margin is likely to contract, partly due to upsizing in India and ramp-up of snacks in Africa.
Britannia Industries may report double-digit revenue growth led by high-single digit volume expansion due to higher grammage in low-unit packs, which account for about two-third portion of sales. Margins are likely to improve supported by stable raw materials prices, especially in January and February. Dabur India is expected to post modest revenue growth, driven by mid-single digit volume growth in the domestic business. However, its international operations, particularly the Middle East and North Africa (MENA) region, which contributes around 8% of revenue may remain weak amid geopolitical tensions. Within domestic categories, home and personal care is expected to deliver double-digit growth, while healthcare and foods may see low single-digit expansion.

Colgate-Palmolive India is expected to report low single-digit volume growth on a weak base, after three consecutive quarters of declines. The margin could contract due to higher promotions and advertisement spends.