However, rural demand continued to remain a concern for FMCG companies during the quarter.
Fast-moving consumer goods (FMCG) companies are expected to report strong revenue growth. This is largely on the back of price hikes by companies in the January-March quarter owing to higher commodity costs.
Discretionary spends improved compared to staples in the quarter, but Omicron did have an impact.
Rural demand continued to remain a concern for FMCG companies during the quarter. The slowdown in rural demand began at the end of the second quarter and continues to remain a cause for concern.
Motilal Oswal, in its preview note on the sector, said that inflation has been the theme in the quarter ended March 31, as already-elevated commodity costs were pushed up further due to the Russian invasion of Ukraine.
“With most companies having taken steep price hikes in Q3 of FY22, managements were already apprehensive of raising prices further as it risked affecting demand,” Motilal Oswal said in its report. Also, spiralling input costs compelled most FMCG firms to raise prices to protect margins.
Emkay noted in its report that the slowdown in staples continued in the quarter and added that it believes companies, which sell discretionary products, will report better performance. It also said price action should help companies report high-single digit revenue growth with flat volumes.
In its quarterly update, Marico also told investors that its consolidated revenue in the January-March quarter is in high single-digits. It also said that its gross margins are expected to be at similar levels as the same quarter last year.
The maker of Parachute coconut oil said its volumes were marginally positive on an exceptionally high base (25 per cent), leading to a double-digit volume growth on a two-year compound annual growth rate basis. It said, “Consumption trends remained subdued amid weak rural sentiment and inflation in global commodities aggravating due to geo-political tensions.”
It said, “While firms went for price hikes across FMCG categories to cope with the cost push, persistent inflation continued to hurt consumer wallets across rural and urban segments. As a result, FMCG volumes fell in January-February year-on-year (YoY).”
Meanwhile, Godrej Consumer Products said that in India, it expects to deliver close to double-digit sales growth, driven entirely by pricing. “We expect to deliver a higher than mid-single-digit sales growth and a two-year CAGR in the mid-teens. In FY23, we expect to deliver early double-digit sales growth,” Godrej Consumer said in its quarterly update.
It added, “On the profitability front, we expect lower YoY earnings before interest, taxes, depreciation, and amortisation (ebitda) margins during the quarter. This is due to input inflation and our weak performance in Indonesia.”
Motilal Oswal said in its report that it expects a 4 per cent YoY domestic volume decline on a high base of FY21. It says the consumer major’s gross margin will contract by 250 basis points YoY.
ITC is expected to see approximately 10 per cent volume growth in cigarettes, according to Axis Capital. The brokerage sees ITC reporting a strong growth in revenue and Ebitda YoY.
Britannia Industries may report flat domestic volume growth due to weakening demand environment, Kotak Institutional Equities said in its report. It said volume growth is weighed down due to grammage cuts in lower-priced packs.
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