Consumer goods makers set to see margin recovery

In its quarterly update published on Thursday, Dabur India Ltd said demand trajectory across urban and rural markets reported slight improvement, although it fell short of a full recovery.

“While urban markets have returned to positive volume growth, rural markets still remain muted. Despite near-term consumption pressure, there are some green shoots emerging, such as moderating inflation, improving consumer confidence and increase in government spending,” the company told the exchanges. Overall, Dabur’s consolidated revenue is expected to grow in the mid-single-digit in Q4, it said.

Nuvama Institutional Equities analysts expect companies under its coverage to report average volume growth of 6.18% during the quarter. Meanwhile, Motilal Oswal Investment Services said volume growth is likely to remain subdued for FMCG companies during the quarter, “especially so, as there are no clear signs of a revival in rural demand”. It expects most companies to report single-digit volume growth in the March quarter.

Godrej Consumer Products Ltd (GCPL) said demand in India remained steady through the quarter, with the FMCG sector expected to see a gradual recovery in growth. The company expects to deliver double-digit growth during the quarter.

“The performance of our India business has exceeded expectations, especially on the volume front. We expect to deliver double-digit volume and value growth. Our domestic branded business growth was very strong, registering volume and value growth in teens. This is in line with our strategy of initiating volume-driven category development. Overall, growth was broad-based, led by double-digit volume and value growth in both home care and personal care,” it said in the update.

GCPL cut prices of soaps by 9–10% in the fiscal third quarter, and, as a result, volume growth for soaps is expected to return, Nuvama analysts said.

Overall, analysts said urban continued to outperform rural markets, with most companies reporting sluggish demand in rural areas as inflation continued to upset household budgets. Accordingly, companies with greater exposure to rural may turn in a muted performance, they added.

“While urban and premium categories were stable, easing of broader commodity inflation bodes well for overall consumption trends, especially in rural markets,” Marico Ltd said in its quarterly update to the exchanges on 3 April. “While a more visible and sustained recovery in FMCG demand is anticipated on a variety of improving macro indicators, a healthy monsoon will be critical for it to materialize. The India business saw some year-on-year improvement in volumes vis-à-vis the preceding quarters and stayed in mid-single digits,” it added.

Analysts said falling input prices would bode well for margins. For instance, crude oil prices fell 17.7% from a year ago in March, while Malaysian palm oil prices fell 35%.

“Given a better product mix and deflated raw material prices, paint firms are likely to clock better margins year-on-year as well as sequentially. Hindustan Unilever, Britannia, Berger Paints and GCPL are likely to turn in the strongest growth, whereas Emami, United Spirits and Marico may see weakest growth,” Nuvama analysts said.