FMCG firms brace for tepid Q2 earnings 

Volume growth of consumer goods firms in the second quarter to be in low single digits, says Edelweiss Securities.

Published: 13th October 2019 11:37 AM  |   Last Updated: 13th October 2019 11:37 AM   |  A+A-

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For representational purposes

By Express News Service

Notwithstanding the corporate tax cuts, distress signs appear imminent with consumer goods firms estimated to report low single-digit volume growth in the second quarter of the current financial year. In fact, this quarter is likely to mark the slowest volume growth for FMCG firms since the first quarter of FY18, which was impacted by GST-related de-stocking, according to Edelweiss Securities Ltd. 

Second-quarter earnings disclosures are set to kick off this week, with companies like Hindustan Unilever set to announce results on October 14, 2019. On average, packaged consumer goods firms are estimated to register revenue growth between 6.4 and 9.3 per cent while recording volume growth between 3 and 6 per cent, noted brokerage firms. Analysts also expect volume to grow at a modest pace in Q2.

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“The continuing liquidity crunch is now hurting retailers as well, which is further pressuring volumes at consumer goods companies,” said Abneesh Roy, senior vice-president, research (institutional equities), Edelweiss. 

Further, agricultural distress owing to patchy monsoon and lower ramp-up of the PM-Kisan scheme are unlikely to reverse the deceleration in the rural economy. Rural growth, which grew on par with urban growth in Q1FY20, is losing steam — now at 0.9x of urban growth.

However, the sector might witness a volume growth revival by the fourth quarter of this fiscal, provided the Central government increases its spending and its payouts under PM-Kisan scheme reach farmers, Roy added.

This time, however, analysts are tracking profit-before-tax (PBT) numbers as net profits are not comparable with previous quarters, given the lower tax rate for several firms in the second quarter.

According to Kotak Institutional Equities, capital goods PBT is expected to fall by 3 per cent, while PBT of consumer durable firms is expected to drop by 28 per cent due to poor rural demand.

In staples, analysts also say that Godrej Consumer Products’ India business would have among the best volume growth of 5.7 per cent year-on-year (YoY) on the back of a gradual recovery in its household insecticide portfolio.

Emami, on the other hand, would lag with 1 per cent YoY dip in volume growth. As the prices of wheat and milk have risen, firms like Nestle and Britannia could be impacted, Edelweiss said.

Recently, Marico said demand and consumer sentiment during the July-September quarter was mostly subdued, resulting in slower growth in its categories.

Foreign brokerage Credit Suisse also warned that India’s FMCG sector could witness the worst revenue growth in 15 years on account of domestic as well as global factors. 


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