A spoiler alert for listed FMCGs
Britannia Industries Ltd saw year-on-year Q2 revenue growth in the range of 1-4%, while for Marico Ltd it was down by nearly 1%. What’s more, there are not enough tailwinds for significant revenue growth as this has to be majorly volume-led. HUL has said that if commodity prices remain stable, pricing growth can be expected to be slightly negative in the near-term.
Q3 could get a boost from the shift in the festive season, but post that the picture is blurry. “Unorganised players may continue to gain strength, especially in highly penetrated categories such as tea, soaps and detergents, until there is a sufficient price pass-on by organised players," said Sachin Bobade, an analyst at Dolat Capital. This could lead to a loss of market share for listed companies.
Further, the pick-up in rural demand could be gradual at best. While companies seem optimistic on a revival in rural demand, the pace of recovery remains to be seen. Dabur India Ltd expects rural markets to gain traction with hikes in minimum support price, good rabi crop sowing, and the likelihood of more government measures ahead of elections.
The lack of clarity is captured to some extent in stock performances. Shares of companies with vast exposure to rural markets, such as HUL and Dabur, are down 2-4% so far this year. Marico’s stock rose by a mere 3%, significantly lagging the Nifty FMCG index.
On the profitability front, while gross margin is likely to remain elevated, companies are expected to invest those gains towards marketing to tackle increased competition. This will weigh on Ebitda margin outlook. “There were more earnings cuts than upgrades for FY2024-26E due to a weak growth outlook (delayed rural recovery) in staples," Kotak Institutional Equities
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