FMCG players see strong Q3 on price hikes, festival demand

Our Bureau Updated - November 20, 2017 at 11:24 AM.

ICICI Securities said that GSK Consumer, Dabur and Marico will lead the FMCG pack in earnings growth during the quarter. — A. Roy Chowdhury

Considerable price hikes, festival season and reform measures announced by the Union Government over the past few months are likely to augur well for the fast moving consumer goods (FMCG) companies in Q3FY13.

The BSE FMCG Index outperformed the Sensex by 4.7 per cent and posted an absolute return of 7.2 per cent during the quarter

The sector which had been facing challenges with regards to volume growth following weak consumer sentiment in the last several quarters is likely to witness a steady growth in sales.

Research firms such as Edelwiss, Angel Broking, Kotak Institutional Securities and ICICI Securities said that the third quarter (October to December) is expected to be reasonably strong for consumer firms with top-line and bottom-line growth coming in at 15.8 per cent and 11 per cent respectively. However, operating margins are expected to contract due to increase in raw material costs.

Input costs

Average prices of agri commodities saw an upward trend during the quarter. Wheat and sugar prices were up by 34.8 per cent year on year and 16.7 per cent year on year respectively, which is expected to result in higher input costs for biscuit makers such as Britannia and ITC.

Domestic tea prices too were higher by 21.7 per cent year on year and are a negative for companies such as HUL and Tata Global Beverages (TGBL). Meanwhile, copra prices and palm oil were down by 23.5 per cent and 27.1 per cent on a year on year basis which will reflect healthy operating margins for companies such as Marico and soap manufacturers such as Hindustan Unilever (HUL) and Godrej Consumer Products (GCPL).

According to Angel Broking, HUL and ITC are the only companies in the sector to report subdued earnings. Operating margins are expected to shrink by 106 basis points year on year.

Meanwhile, ICICI Securities said that they expect the gross margins expanding by 88 basis points to 53 per cent and the EBITDA margin to expand by 63 basis points to 22.7 per cent supported by a stable advertisement-to-sales ratio. It further said that GSK Consumer, Dabur and Marico will lead the FMCG pack in earnings growth during the quarter.

Marico may report another quarter of strong margin expansion along with a 20 per cent revenue growth. Trade interactions underline revival in Dabur's performance and maintenance in Marico's growth momentum even as Paras' portfolio witnessed strong demand during the quarter.

>Priyanka.pani@thehindu.co.in

Published on January 4, 2013 15:35