FMCG firms may see a two percent drop in Q1 profit

Analysts say impact of destocking by wholesalers ahead of GST rollout could reflect in April-June quarter results

Published: 12th July 2017 08:31 AM  |   Last Updated: 12th July 2017 08:31 AM   |  A+A-

By Express News Service

CHENNAI: Fast-moving consumer goods (FMCG) sector, one of the worst-hit by demonetisation, may take another dent in the April-June quarter. The uncertainty and lack of clarity among traders, coupled with destocking by many large scale wholesalers preceding the GST’s rollout is likely to affect FMCG firms’ volumes by as much as two per cent, say analysts.

According to Edelweiss Securities, the confusion in the rules, input tax credit of existing inventory and other issues spurred companies in the segment to destock over the past 10 days of June. This destocking has resulted in wholesale demand slowing down significantly. Companies will also have to bear the result of promises to distributors that any extra taxes paid under GST on transitional stock would be reimbursed.

“Many wholesalers destocked in the run-up to GST. This saw our sales volume slow a bit, especially to low-volume regions,” said a senior sales manager at an FMCG major, requesting anonymity.

Many analysts also feel that companies will see slower revenue growth during the quarter because of higher trade margins and GST compensation being doled out.

Companies also expect their revenue growth for the June quarter to be dragged down by lower realisation growth on account of higher trade margins and incentives doled out to channels to compensate for GST transition losses. As for profit margins, Kotak Securities said in its quarterly reports that aggregate Ebitda margins will contract by about one per cent compared to the year before. “However, stringent cost control and cuts in advertising and promotions spends will negate negative leverage impact.”

According to Edelweiss Research, Ebitda and PAT growth is likely to slow to 2.2 per cent, 2.2 per cent and 2 per cent, respectively, in Q1FY18. Most firms analysed by Edelweiss, including Britannia, Colgate, Emami, Dabur and Nestle India, are expected to see negative sales growth.

“Companies with high proportion of wholesale trade will be impacted more as our channel checks indicate that quite a few wholesalers have still not registered under GST,” Edelweiss analysts said.


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